Instructions: 1.Complete problems 14-14 & 15-19 2.Download the Ch 14 templates.xls and Ch 15 templates.xls files from Doc Sharing. 3.Enter a formula into each of the cells marked with a ? 4.The excel spreadsheet is provided to assist your work. You must copy and paste it for each required step of your 'Applying Excel' problem. 5.You must work the entire problem which includes answering the theory questions.

The following additional information is available about the company: a. Selected financial ratios computed from the statements above are given below: Current ratio . . . . . . . . . . . . . . . . . . . 2.40 Acid-test ratio . . . . . . . . . . . . . . . . . . 1.12 Accounts receivable turnover . . . . . . 15.0 Inventory turnover . . . . . . . . . . . . . . . 6.0 Debt-to-equity ratio . . . . . . . . . . . . . . 0.875 Times interest earned . . . . . . . . . . . . 7.0 Earnings per share . . . . . . . . . . . . . . $4.05 Return on total assets . . . . . . . . . . . . 14% b. All sales during the year were on account. c. The interest expense on the income statement relates to the bonds payable; the amount of bonds outstanding did not change throughout the year. d. There were no changes in the number of shares of common stock outstanding during the year. e. Selected balances at the beginning of the current year (January 1) were as follows: Accounts receivable . . . . $160,000 Inventory . . . . . . . . . . . . . $280,000 Total assets . . . . . . . . . . . $1,200,000 Required: Compute the missing amounts on the company's financial statements. (Hint: You may find it helpful to think about the difference between the current ratio and the acid-test ratio.) Student Name: Class: Problem 15-11 1. MODERN BUILDING SUPPLY Ratios This Year Last Year Working capital Current ratio Acid-test ratio Accounts receivable turnover Average collection period Inventory turnover ratio Average sales period Debt-to-equity ratio Times interest earned 2a. MODERN BUILDING SUPPLY Common-Size Balance Sheets This Year Last Year Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Preferred stock, $50 par, 8% Common stock, $10 par Retained earnings Total stockholders' equity Total liabilities and equity 2b. MODERN BUILDING SUPPLY Common-Size Income Statements This Year Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income Last Year Given Data P15-11: Requested loan amount $300,000 MODERN BUILDING SUPPLY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets $90,000 650,000 1,300,000 20,000 2,060,000 1,940,000 $4,000,000 $200,000 50,000 400,000 800,000 20,000 1,470,000 1,830,000 $3,300,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $1,100,000 Bonds payable, 12% 750,000 Total liabilities 1,850,000 Stockholders' equity: Preferred stock, $50 par, 8% 200,000 Common stock, $10 par 500,000 Retained earnings 1,450,000 Total stockholders' equity 2,150,000 Total liabilities and stockholders' equity $4,000,000 $600,000 750,000 1,350,000 200,000 500,000 1,250,000 1,950,000 $3,300,000 MODERN BUILDING SUPPLY Comparative Income Statement and Reconciliation Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (40%) Net income Dividends paid: Preferred dividends Common dividends Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year Typical ratios: Current ratio Acid-test ratio Average collection period Average sale period Debt-to-equity ratio Times interest earned Return on total assets Price-earnings ratio Accounts receivable, beginning of last year Inventory, beginning of last year This Year $7,000,000 5,400,000 1,600,000 970,000 630,000 90,000 540,000 216,000 324,000 Last Year $6,000,000 4,800,000 1,200,000 710,000 490,000 90,000 400,000 160,000 240,000 16,000 108,000 124,000 200,000 1,250,000 $1,450,000 16,000 60,000 76,000 164,000 1,086,000 $1,250,000 2.5 1.2 18 days 50 days 0.75 6.0 10% 9 $350,000 $720,000 Student Name: Class: Problem 15-16 HEDRICK COMPANY Rates of Return 1a. This Year Last Year Net income Add after-tax cost of interest: Total Average total assets Return on total assets 1b. Net income Less preferred dividends Net income remaining for common Average total stockholders' equity Less average preferred stock Average common equity Return on common equity HEDRICK COMPANY Stockholders' Well Being 2a. Net income remaining for common Avg. number of common shares outstanding Earnings per share 2b. Dividends per share Market price per share Dividend yield ratio 2c. Dividends per share Earnings per share Dividend payout ratio 2d. Market price per share Earnings per share Price-earnings ratio 2e. Stockholders' equity Less preferred stock Common stockholders' equity Number of common shares Book value per share 2f. Gross margin Sales Gross margin percentage 3. HEDRICK COMPANY Ratios This Year Working capital Current ratio Acid-test ratio Average collection period Average sales period Debt-to-equity ratio Times interest earned Last Year Given Data SP15-16: Requested loan amount $1,000,000 HEDRICK COMPANY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets $320,000 900,000 1,300,000 80,000 2,600,000 3,100,000 $5,700,000 $420,000 100,000 600,000 800,000 60,000 1,980,000 2,980,000 $4,960,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $1,300,000 Bonds payable, 10% 1,200,000 Total liabilities 2,500,000 Stockholders' equity: Preferred stock, 8%, $30 par value 600,000 Common stock, $40 par value 2,000,000 Retained earnings 600,000 Total stockholders' equity 3,200,000 Total liabilities and stockholders' equity $5,700,000 $920,000 1,000,000 1,920,000 600,000 2,000,000 440,000 3,040,000 $4,960,000 HEDRICK COMPANY Comparative Income Statement and Reconciliation Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Dividends paid: Preferred stock Common stock Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year This Year $5,250,000 4,200,000 1,050,000 530,000 520,000 120,000 400,000 120,000 280,000 Last Year $4,160,000 3,300,000 860,000 520,000 340,000 100,000 240,000 72,000 168,000 48,000 72,000 120,000 160,000 440,000 $600,000 48,000 36,000 84,000 84,000 356,000 $440,000 Tax rate Percentage increase in sales Common stock price, last year Common stock price, this year 30% 25% $20 $36 Typical ratios: Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 1.2 31 days 60 days 9.5% 0.65 5.7 10 Total assets beginning last year Stockholders' equity beginning last year Accounts receivable, beginning of last year Inventory, beginning of last year $4,320,000 $3,016,000 $520,000 $640,000 Student Name: Class: Problem 15-19 TANNER COMPANY Computations Interest expense Times interest earned Earnings before interest & taxes Earnings before interest & taxes Interest expense Net income before taxes Income tax expense Net income Sales on account Average accounts receivable balance Accounts receivable turnover Ending accounts receivable balance Quick assets Current liabilities Acid-test ratio Cash Current assets Current liabilities Current ratio Inventory Average inventory Inventory turnover Cost of goods sold Gross margin Gross margin Net operating income Operating expenses Interest expense Interest rate Bonds payable Current liabilities Bonds payable Total liabilities Net income, less preferred dividends Avg. number of common shares outstanding Earnings per share Total common stock Total liabilities Debt-to-equity ratio Stockholders' equity Total stockholders' equity Common stock Retained earnings Total liabilities Stockholders' equity Total assets Total assets Current assets Plant & equipment TANNER COMPANY Income Statement For the Year Ended March 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income TANNER COMPANY Balance Sheet March 31 Current assets: Cash Accounts receivable, net Inventory Total current assets Plant and equipment Total assets Current liabilities Bonds payable, 10% Total liabilities Stockholders' equity: Common stock, $2.50 par value Retained earnings Total stockholders' equity Total liabilities and equity Given Data P15-19: TANNER COMPANY Income Statement For the Year Ended December 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (40%) Net income $2,700,000 ? ? ? ? 45,000 ? ? ? TANNER COMPANY Balance Sheet December 31 Current assets: Cash Accounts receivable, net Inventory Total current assets Plant and equipment, net Total assets Liabilities Current liabilities Bonds payable, 10% Total liabilities Stockholders' equity: Common stock, $2.50 par value Retained earnings Total stockholders' equity Total liabilities and equity ? ? ? ? ? ? $250,000 ? ? ? ? ? ? Selected financial ratios computed from above statements: Current ratio 2.40 Acid-test ratio 1.12 Accounts receivable turnover 15.0 Inventory turnover 6.0 Debt-to-equity ratio 0.875 Times interest earned 7.0 Earnings per share $4.05 Return on total assets 14% Selected balances at beginning of current year: Accounts receivable Inventory Total assets $160,000 $280,000 $1,200,000 Problem 1521 (60 minutes or longer) Pepper Industries Income Statement For the Year Ended March 31 Sales................................................. Cost of goods sold............................ Gross margin..................................... Selling and administrative expenses. Net operating income........................ Interest expense................................ Net income before taxes................... Income taxes (30%).......................... Net income........................................ $ $ Pepper Industries Balance Sheet March 31 Current assets: Cash............................................... Accounts receivable, net................ Inventory......................................... Total current assets........................... Plant and equipment......................... Total assets....................................... Current liabilities................................ Bonds payable, 10%......................... Total liabilities.................................... Stockholders' equity: Common stock, $5 par value.......... Retained earnings.......................... Total stockholders' equity.................. Total liabilities and equity.................. $ $ The following additional information is available about the company: a. Selected financial ratios computed from the statements above are given below: Current ratio . . . . . . . . . . . . . . . . . . . 2.40 Acid-test ratio . . . . . . . . . . . . . . . . . . 1.12 Accounts receivable turnover . . . . . . 15.0 Inventory turnover . . . . . . . . . . . . . . . 6.0 Debt-to-equity ratio . . . . . . . . . . . . . . 0.875 Times interest earned . . . . . . . . . . . . 7.0 Earnings per share . . . . . . . . . . . . . . $4.05 Return on total assets . . . . . . . . . . . . 14% b. All sales during the year were on account. c. The interest expense on the income statement relates to the bonds payable; the amount of bonds outstanding did not change throughout the year. d. There were no changes in the number of shares of common stock outstanding during the year. e. Selected balances at the beginning of the current year (January 1) were as follows: Accounts receivable . . . . $160,000 Inventory . . . . . . . . . . . . . $280,000 Total assets . . . . . . . . . . . $1,200,000 Required: Compute the missing amounts on the company's financial statements. (Hint: You may find it helpful to think about the difference between the current ratio and the acid-test ratio.) Student Name: Class: Problem 15-11 1. MODERN BUILDING SUPPLY Ratios This Year Last Year Working capital Current ratio Acid-test ratio Accounts receivable turnover Average collection period Inventory turnover ratio Average sales period Debt-to-equity ratio Times interest earned 2a. MODERN BUILDING SUPPLY Common-Size Balance Sheets This Year Last Year Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Preferred stock, $50 par, 8% Common stock, $10 par Retained earnings Total stockholders' equity Total liabilities and equity 2b. MODERN BUILDING SUPPLY Common-Size Income Statements This Year Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income Last Year Given Data P15-11: Requested loan amount $300,000 MODERN BUILDING SUPPLY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets $90,000 650,000 1,300,000 20,000 2,060,000 1,940,000 $4,000,000 $200,000 50,000 400,000 800,000 20,000 1,470,000 1,830,000 $3,300,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $1,100,000 Bonds payable, 12% 750,000 Total liabilities 1,850,000 Stockholders' equity: Preferred stock, $50 par, 8% 200,000 Common stock, $10 par 500,000 Retained earnings 1,450,000 Total stockholders' equity 2,150,000 Total liabilities and stockholders' equity $4,000,000 $600,000 750,000 1,350,000 200,000 500,000 1,250,000 1,950,000 $3,300,000 MODERN BUILDING SUPPLY Comparative Income Statement and Reconciliation Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (40%) Net income Dividends paid: Preferred dividends Common dividends Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year Typical ratios: Current ratio Acid-test ratio Average collection period Average sale period Debt-to-equity ratio Times interest earned Return on total assets Price-earnings ratio Accounts receivable, beginning of last year Inventory, beginning of last year This Year $7,000,000 5,400,000 1,600,000 970,000 630,000 90,000 540,000 216,000 324,000 Last Year $6,000,000 4,800,000 1,200,000 710,000 490,000 90,000 400,000 160,000 240,000 16,000 108,000 124,000 200,000 1,250,000 $1,450,000 16,000 60,000 76,000 164,000 1,086,000 $1,250,000 2.5 1.2 18 days 50 days 0.75 6.0 10% 9 $350,000 $720,000 Student Name: Class: Problem 15-16 HEDRICK COMPANY Rates of Return 1a. This Year Last Year Net income Add after-tax cost of interest: Total Average total assets Return on total assets 1b. Net income Less preferred dividends Net income remaining for common Average total stockholders' equity Less average preferred stock Average common equity Return on common equity HEDRICK COMPANY Stockholders' Well Being 2a. Net income remaining for common Avg. number of common shares outstanding Earnings per share 2b. Dividends per share Market price per share Dividend yield ratio 2c. Dividends per share Earnings per share Dividend payout ratio 2d. Market price per share Earnings per share Price-earnings ratio 2e. Stockholders' equity Less preferred stock Common stockholders' equity Number of common shares Book value per share 2f. Gross margin Sales Gross margin percentage 3. HEDRICK COMPANY Ratios This Year Working capital Current ratio Acid-test ratio Average collection period Average sales period Debt-to-equity ratio Times interest earned Last Year Given Data SP15-16: Requested loan amount $1,000,000 HEDRICK COMPANY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets $320,000 900,000 1,300,000 80,000 2,600,000 3,100,000 $5,700,000 $420,000 100,000 600,000 800,000 60,000 1,980,000 2,980,000 $4,960,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $1,300,000 Bonds payable, 10% 1,200,000 Total liabilities 2,500,000 Stockholders' equity: Preferred stock, 8%, $30 par value 600,000 Common stock, $40 par value 2,000,000 Retained earnings 600,000 Total stockholders' equity 3,200,000 Total liabilities and stockholders' equity $5,700,000 $920,000 1,000,000 1,920,000 600,000 2,000,000 440,000 3,040,000 $4,960,000 HEDRICK COMPANY Comparative Income Statement and Reconciliation Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Dividends paid: Preferred stock Common stock Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year This Year $5,250,000 4,200,000 1,050,000 530,000 520,000 120,000 400,000 120,000 280,000 Last Year $4,160,000 3,300,000 860,000 520,000 340,000 100,000 240,000 72,000 168,000 48,000 72,000 120,000 160,000 440,000 $600,000 48,000 36,000 84,000 84,000 356,000 $440,000 Tax rate Percentage increase in sales Common stock price, last year Common stock price, this year 30% 25% $20 $36 Typical ratios: Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 1.2 31 days 60 days 9.5% 0.65 5.7 10 Total assets beginning last year Stockholders' equity beginning last year Accounts receivable, beginning of last year Inventory, beginning of last year $4,320,000 $3,016,000 $520,000 $640,000 Student Name: Class: Problem 15-19 TANNER COMPANY Computations Interest expense Times interest earned Earnings before interest & taxes Earnings before interest & taxes Interest expense Net income before taxes Income tax expense Net income Sales on account Average accounts receivable balance Accounts receivable turnover Ending accounts receivable balance Quick assets Current liabilities Acid-test ratio Cash Current assets Current liabilities Current ratio Inventory Average inventory Inventory turnover Cost of goods sold Gross margin Gross margin Net operating income Operating expenses Interest expense Interest rate Bonds payable Current liabilities Bonds payable Total liabilities Net income, less preferred dividends Avg. number of common shares outstanding Earnings per share Total common stock Total liabilities Debt-to-equity ratio Stockholders' equity Total stockholders' equity Common stock Retained earnings Total liabilities Stockholders' equity Total assets Total assets Current assets Plant & equipment TANNER COMPANY Income Statement For the Year Ended March 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income TANNER COMPANY Balance Sheet March 31 Current assets: Cash Accounts receivable, net Inventory Total current assets Plant and equipment Total assets Current liabilities Bonds payable, 10% Total liabilities Stockholders' equity: Common stock, $2.50 par value Retained earnings Total stockholders' equity Total liabilities and equity Given Data P15-19: TANNER COMPANY Income Statement For the Year Ended December 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (40%) Net income $2,700,000 ? ? ? ? 45,000 ? ? ? TANNER COMPANY Balance Sheet December 31 Current assets: Cash Accounts receivable, net Inventory Total current assets Plant and equipment, net Total assets Liabilities Current liabilities Bonds payable, 10% Total liabilities Stockholders' equity: Common stock, $2.50 par value Retained earnings Total stockholders' equity Total liabilities and equity ? ? ? ? ? ? $250,000 ? ? ? ? ? ? Selected financial ratios computed from above statements: Current ratio 2.40 Acid-test ratio 1.12 Accounts receivable turnover 15.0 Inventory turnover 6.0 Debt-to-equity ratio 0.875 Times interest earned 7.0 Earnings per share $4.05 Return on total assets 14% Selected balances at beginning of current year: Accounts receivable Inventory Total assets $160,000 $280,000 $1,200,000 PROBLEM 14-14 Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO1, LO2, LO3] Sharon Feldman, president of Allied Company, considers $20,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $15,000 in cash was available at the end of 2011. Because the company reported a large net income for the year, and also issued bonds and sold some long-term investments, the sharp decline in cash is puzzling to Ms. Feldman. The following additional information is available for the year 2011: a. The company sold long-term investments with an original cost of $30,000 for $50,000 during the year. b. Equipment that had cost $90,000 and on which there was $40,000 in accumulated depreciation was sold during the year for $44,000. c. The company declared and paid a cash dividend during the year. d. The stock of a dissident stockholder was repurchased for cash and retired during the year. No issues of stock were made. e. The company did not retire any bonds during the year. Required: 1. Using the indirect method, compute the net cash provided by operating activities for 2011. 2. Prepare a statement of cash flows for 2011. 3. Compute free cash flow for 2011. 4. Explain the major reasons for the decline in the company's cash balance. Student Name: Class: Problem 14-8 1. and 2. Calculation of depreciation to add back to Net Income: Accumulated Depreciation, beginning balance Accumulated Depreciation, ending balance Debits to Accumulated Depreciation Credits to Accumulated Depreciation Changes in noncash balance sheet accounts that impact net income: Increase in Account Balance Current Assets Accounts receivable Inventory Prepaid expenses Decrease in Account Balance Current Liabilities Accounts Payable Accrued liabilities Income taxes payable Changes in noncash balance sheet accounts that impact investing and financing: Noncurrent Assets Property, plant, and equipment Long-term investments Increase in Account Balance Decrease in Account Balance Liabilities and Stockholders' equity Bonds payable Common stock Property, Plant and Equipment Property, Plant and Equipment, beginning balance Property, Plant and Equipment, ending balance Debits to Property, Plant and Equipment Credits to Property, Plant and Equipment Retained Earnings Retained Earnings, beginning balance Retained Earnings, ending balance Debits to Retained Earnings Credits to Retained Earnings EATON COMPANY Statement of Cash Flows For the Year Ended December 31, 2011 Operating activities: Net income Adjustments needed to convert net income to cash basis: Net cash provided by operating activities Investing activities: Net cash used for investing activities Financing activities: Net cash used in financing activities Net decrease in cash Cash balance, January 1, 2011 Cash balance, December 31, 2011 Given Data P14-8: EATON COMPANY Comparative Balance Sheet December 31, 2011, and 2010 2011 2010 Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Property, Plant, and equipment Less accumulated depreciation Net property, plant, and equipment Long-term investments Total assets $4 310 160 8 482 500 85 415 31 $928 $11 230 195 6 442 420 70 350 38 $830 Liabilities and Stockholders' Equity Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds payable Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $300 70 71 441 195 636 160 132 292 $928 $225 80 63 368 170 538 200 92 292 $830 EATON COMPANY Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income Equipment cost Equipment selling price Accumulated depreciation of equipment Long-term investment purchase Long-term investment sale Paid cash dividend Stock repurchase $750 450 300 223 77 $5 2 $30 $18 $10 $7 $12 ? $40 3 80 24 $56 Student Name: Class: Problem 14-14 1. and 2. Calculation of depreciation to add back to Net Income: Accumulated Depreciation, beginning balance Accumulated Depreciation, ending balance Debits to Accumulated Depreciation Credits to Accumulated Depreciation Changes in noncash balance sheet accounts that impact net income: Increase in Account Balance Current Assets Accounts receivable Inventory Prepaid expenses Decrease in Account Balance Current Liabilities Accounts Payable Accrued liabilities Income taxes payable Changes in noncash balance sheet accounts that impact investing and financing: Noncurrent Assets Property, plant, and equipment Long-term investments Increase in Account Balance Decrease in Account Balance Liabilities and Stockholders' equity Bonds payable Common stock Property, Plant and Equipment Property, Plant and Equipment, beginning balance Property, Plant and Equipment, ending balance Debits to Property, Plant and Equipment Credits to Property, Plant and Equipment Retained Earnings Retained Earnings, beginning balance Retained Earnings, ending balance Debits to Retained Earnings Credits to Retained Earnings ALLIED COMPANY Statement of Cash Flows For the Year Ended December 31, 2011 Operating activities: Net income Adjustments needed to convert net income to a cash basis: Net cash provided by operating activities Investing activities: Net cash used for investing activities Financing activities: Net cash provided by financing activities Net decrease in cash Cash balance, Beginning of year Cash balance, End of year 3. Free cash flow computation Net cash provided by operating activities Capital expenditures Dividends Free cash flow Given Data P14-14: Minimum cash balance $20,000 ALLIED COMPANY Comparative Balance Sheet December 31, 2011, and 2010 2011 2010 Assets Current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets $15,000 200,000 250,000 7,000 472,000 90,000 860,000 210,000 650,000 $1,212,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $175,000 Accrued liabilities $8,000 Income taxes payable 42,000 Total current liabilities 225,000 Bonds payable 200,000 Total liabilities 425,000 Stockholders' equity: Common stock 595,000 Retained earnings 192,000 Total stockholders' equity 787,000 Total liabilities and stockholders' equity $1,212,000 $33,000 210,000 196,000 15,000 454,000 120,000 750,000 190,000 560,000 $1,134,000 $230,000 $15,000 39,000 284,000 100,000 384,000 600,000 150,000 750,000 $1,134,000 ALLIED COMPANY Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sales of equipment Income before taxes Income taxes Net income $800,000 500,000 300,000 214,000 86,000 $20,000 6,000 Additional information: Long-term investment cost Long-term investment sale Equipment cost Equipment accumulated depreciation Equipment selling price Dividends declared and paid Stock was repurchased for cash $30,000 $50,000 $90,000 $40,000 $44,000 ? ? 14,000 100,000 30,000 $70,000 Student Name: Class: Problem 14A-5 EATON COMPANY Adjusted Income Statement For the Year Ended December 31, 2011 Sales Adjustments to a cash basis: Cost of goods sold Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: Net cash provided by operating activities EATON COMPANY Statement of Cash Flows For the Year Ended December 31, 2011 Operating activities: Cash received from customers Less cash disbursements for: Total cash disbursements Net cash provided by operating activities Investing activities: Net cash used in investing activities Financing activities: Net cash used in financing activities Net decrease in cash Cash balance, beginning Cash balance, ending Given Data P14A-5: EATON COMPANY Comparative Balance Sheet December 31, 2011, and 2010 2011 2010 Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Property, Plant, and equipment Less accumulated depreciation Net property, plant, and equipment Long-term investments Total assets $4 310 160 8 482 500 85 415 31 $928 $11 230 195 6 442 420 70 350 38 $830 Liabilities and Stockholders' Equity Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds payable Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $300 70 71 441 195 636 160 132 292 $928 $225 80 63 368 170 538 200 92 292 $830 EATON COMPANY Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income Equipment cost Equipment selling price Accumulated depreciation of equipment Long-term investment purchase Long-term investment sale Paid cash dividend Stock repurchase $750 450 300 223 77 $5 2 $30 $18 $10 $7 $12 ? $40 3 80 24 $56 The following additional information is available about the company: a. Selected financial ratios computed from the statements above are given below: Current ratio . . . . . . . . . . . . . . . . . . . 2.40 Acid-test ratio . . . . . . . . . . . . . . . . . . 1.12 Accounts receivable turnover . . . . . . 15.0 Inventory turnover . . . . . . . . . . . . . . . 6.0 Debt-to-equity ratio . . . . . . . . . . . . . . 0.875 Times interest earned . . . . . . . . . . . . 7.0 Earnings per share . . . . . . . . . . . . . . $4.05 Return on total assets . . . . . . . . . . . . 14% b. All sales during the year were on account. c. The interest expense on the income statement relates to the bonds payable; the amount of bonds outstanding did not change throughout the year. d. There were no changes in the number of shares of common stock outstanding during the year. e. Selected balances at the beginning of the current year (January 1) were as follows: Accounts receivable . . . . $160,000 Inventory . . . . . . . . . . . . . $280,000 Total assets . . . . . . . . . . . $1,200,000 Required: Compute the missing amounts on the company's financial statements. (Hint: You may find it helpful to think about the difference between the current ratio and the acid-test ratio.) Student Name: Class: Problem 15-11 1. MODERN BUILDING SUPPLY Ratios This Year Last Year Working capital Current ratio Acid-test ratio Accounts receivable turnover Average collection period Inventory turnover ratio Average sales period Debt-to-equity ratio Times interest earned 2a. MODERN BUILDING SUPPLY Common-Size Balance Sheets This Year Last Year Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Preferred stock, $50 par, 8% Common stock, $10 par Retained earnings Total stockholders' equity Total liabilities and equity 2b. MODERN BUILDING SUPPLY Common-Size Income Statements This Year Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income Last Year Given Data P15-11: Requested loan amount $300,000 MODERN BUILDING SUPPLY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets $90,000 650,000 1,300,000 20,000 2,060,000 1,940,000 $4,000,000 $200,000 50,000 400,000 800,000 20,000 1,470,000 1,830,000 $3,300,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $1,100,000 Bonds payable, 12% 750,000 Total liabilities 1,850,000 Stockholders' equity: Preferred stock, $50 par, 8% 200,000 Common stock, $10 par 500,000 Retained earnings 1,450,000 Total stockholders' equity 2,150,000 Total liabilities and stockholders' equity $4,000,000 $600,000 750,000 1,350,000 200,000 500,000 1,250,000 1,950,000 $3,300,000 MODERN BUILDING SUPPLY Comparative Income Statement and Reconciliation Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (40%) Net income Dividends paid: Preferred dividends Common dividends Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year Typical ratios: Current ratio Acid-test ratio Average collection period Average sale period Debt-to-equity ratio Times interest earned Return on total assets Price-earnings ratio Accounts receivable, beginning of last year Inventory, beginning of last year This Year $7,000,000 5,400,000 1,600,000 970,000 630,000 90,000 540,000 216,000 324,000 Last Year $6,000,000 4,800,000 1,200,000 710,000 490,000 90,000 400,000 160,000 240,000 16,000 108,000 124,000 200,000 1,250,000 $1,450,000 16,000 60,000 76,000 164,000 1,086,000 $1,250,000 2.5 1.2 18 days 50 days 0.75 6.0 10% 9 $350,000 $720,000 Student Name: Class: Problem 15-16 HEDRICK COMPANY Rates of Return 1a. This Year Last Year Net income Add after-tax cost of interest: Total Average total assets Return on total assets 1b. Net income Less preferred dividends Net income remaining for common Average total stockholders' equity Less average preferred stock Average common equity Return on common equity HEDRICK COMPANY Stockholders' Well Being 2a. Net income remaining for common Avg. number of common shares outstanding Earnings per share 2b. Dividends per share Market price per share Dividend yield ratio 2c. Dividends per share Earnings per share Dividend payout ratio 2d. Market price per share Earnings per share Price-earnings ratio 2e. Stockholders' equity Less preferred stock Common stockholders' equity Number of common shares Book value per share 2f. Gross margin Sales Gross margin percentage 3. HEDRICK COMPANY Ratios This Year Working capital Current ratio Acid-test ratio Average collection period Average sales period Debt-to-equity ratio Times interest earned Last Year Given Data SP15-16: Requested loan amount $1,000,000 HEDRICK COMPANY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets $320,000 900,000 1,300,000 80,000 2,600,000 3,100,000 $5,700,000 $420,000 100,000 600,000 800,000 60,000 1,980,000 2,980,000 $4,960,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $1,300,000 Bonds payable, 10% 1,200,000 Total liabilities 2,500,000 Stockholders' equity: Preferred stock, 8%, $30 par value 600,000 Common stock, $40 par value 2,000,000 Retained earnings 600,000 Total stockholders' equity 3,200,000 Total liabilities and stockholders' equity $5,700,000 $920,000 1,000,000 1,920,000 600,000 2,000,000 440,000 3,040,000 $4,960,000 HEDRICK COMPANY Comparative Income Statement and Reconciliation Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Dividends paid: Preferred stock Common stock Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year This Year $5,250,000 4,200,000 1,050,000 530,000 520,000 120,000 400,000 120,000 280,000 Last Year $4,160,000 3,300,000 860,000 520,000 340,000 100,000 240,000 72,000 168,000 48,000 72,000 120,000 160,000 440,000 $600,000 48,000 36,000 84,000 84,000 356,000 $440,000 Tax rate Percentage increase in sales Common stock price, last year Common stock price, this year 30% 25% $20 $36 Typical ratios: Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 1.2 31 days 60 days 9.5% 0.65 5.7 10 Total assets beginning last year Stockholders' equity beginning last year Accounts receivable, beginning of last year Inventory, beginning of last year $4,320,000 $3,016,000 $520,000 $640,000 Student Name: Class: Problem 15-19 TANNER COMPANY Computations Interest expense Times interest earned Earnings before interest & taxes Earnings before interest & taxes Interest expense Net income before taxes Income tax expense Net income Sales on account Average accounts receivable balance Accounts receivable turnover Ending accounts receivable balance Quick assets Current liabilities Acid-test ratio Cash Current assets Current liabilities Current ratio Inventory Average inventory Inventory turnover Cost of goods sold Gross margin Gross margin Net operating income Operating expenses Interest expense Interest rate Bonds payable Current liabilities Bonds payable Total liabilities Net income, less preferred dividends Avg. number of common shares outstanding Earnings per share Total common stock Total liabilities Debt-to-equity ratio Stockholders' equity Total stockholders' equity Common stock Retained earnings Total liabilities Stockholders' equity Total assets Total assets Current assets Plant & equipment TANNER COMPANY Income Statement For the Year Ended March 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income TANNER COMPANY Balance Sheet March 31 Current assets: Cash Accounts receivable, net Inventory Total current assets Plant and equipment Total assets Current liabilities Bonds payable, 10% Total liabilities Stockholders' equity: Common stock, $2.50 par value Retained earnings Total stockholders' equity Total liabilities and equity Given Data P15-19: TANNER COMPANY Income Statement For the Year Ended December 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (40%) Net income $2,700,000 ? ? ? ? 45,000 ? ? ? TANNER COMPANY Balance Sheet December 31 Current assets: Cash Accounts receivable, net Inventory Total current assets Plant and equipment, net Total assets Liabilities Current liabilities Bonds payable, 10% Total liabilities Stockholders' equity: Common stock, $2.50 par value Retained earnings Total stockholders' equity Total liabilities and equity ? ? ? ? ? ? $250,000 ? ? ? ? ? ? Selected financial ratios computed from above statements: Current ratio 2.40 Acid-test ratio 1.12 Accounts receivable turnover 15.0 Inventory turnover 6.0 Debt-to-equity ratio 0.875 Times interest earned 7.0 Earnings per share $4.05 Return on total assets 14% Selected balances at beginning of current year: Accounts receivable Inventory Total assets $160,000 $280,000 $1,200,000