The last page of this take home test is asking for me to indicate whether the changes made will increase decrease or have no effect on the ratios of Cash Flow, Current Cash Debt Coverage, or Cash Debt Coverage. I need to show the computations as well as doing the answer. Honestly I am not an accounting major, I don't really need it explained or need to understand it, just to get it correct.

FINAL EXAM / ACCT B202 / summer 2015 / Page 1 of 15 Name____________________ Louisiana Baby Bonds, State of Louisiana, USA, 1876: Sheet of four small bearer bond certificates nicknamed "Baby Bonds" because of their size and the vignette of a little girl appearing on the right hand side. Totaling two million dollars, this issuance was authorized with the intent of refunding previous issues which had been embezzled during the corrupted era of the "Louisiana Reconstruction". In the 1880s, suspicious officials discovered that the State Treasurer, Ed Bunker, had used the original plates to reprint the bonds with identical numbers at least three times. About $300,000 of these counterfeited Baby Bonds were found in the treasurer's personal safety box, while he was traveling with yet another $420,000 worth of securities. Escaping from Louisiana, Bunker settled in Brazil where he owned and operated a railroad company... I expect you to follow Loyola's Integrity of Scholarship and Grades policy, with violations pursued through the process outlined in the Undergraduate Bulletin and quoted in the course syllabus. That means no plagiarism or holding out that others' work is your own without attribution. You may work in a group of not more than three students as discussed on pp. 3-4 of the syllabus. Each group member must hand in their rough draft of each question on the exam. The final version for me to grade must be clearly marked, and stapled on the top of everyone's draft answers. I have complied with the Academic Integrity Policy: Signed _______________________ FINAL EXAM / ACCT B202 / summer 2015 / Page 2 of 15 Question 1. (a) Below is the information for four companies: . Company Receivables turnover Average collection period Robles Inc 13.9 26.3 Simpson Co. 13.3 27.4 Dzumaga Corp 10.4 35.1 Nunez LLC 14.5 25.2 Industry Average 13.0 28.1 If Robles' net credit sales are $290,000, what are its average net receivables? Assuming all four companies are in the same industry, which company appears to have the greatest likelihood of paying its current obligations? Why? b) Refer to the financial statements of Tootsie Roll Industries and the accompanying notes to its financial statements in Appendix A. (Wiley Plus) 1. Calculate the accounts receivable turnover and average collection period for 2011. (Use \"Net Product Sales.\" Assume all sales were credit sales.) 2. Did Tootsie Roll have any potentially significant credit risks in 2011? (Hint: Review Note 1 under Revenue recognition and Note 9 to the financial statements.) 3. What conclusions can you draw from the information in parts (a) and (b)? FINAL EXAM / ACCT B202 / summer 2015 / Page 3 of 15 c) The financial statements of The Hershey Company are presented in Appendix B, following the financial statements for Tootsie Roll in Appendix A. 1. Based on the information contained in these financial statements, compute the following 2011 values for each company. 1. Accounts receivable turnover. (For Tootsie Roll, use \"Net product sales.\" Assume all sales were credit sales.) 2. Average collection period for accounts receivable. 2. What conclusions concerning the management of accounts receivable can be drawn from these data? FINAL EXAM / ACCT B202 / summer 2015 / Page 4 of 15 Question 3. Short answer problems. Show your work if you want partial credit, and remember that if you get it right without work shown, you won't get any points... On June 30, 2014, Coats Company sold old office equipment for $24,000. The office equipment originally cost $36,000 and had accumulated depreciation to the date of disposal of $15,000. (b) On September 30, 2014, Coats Company sold old delivery equipment for $27,000. The delivery equipment was purchased on January 1, 2008, for $57,000 and was estimated to have a $12,000 salvage value at the end of its 5-year life. Depreciation on the delivery equipment has been recorded through December 31, 2013. c) Applewhite Music Shop started the year with total assets of $70,000 and total liabilities of $40,000. During the year the business recorded $110,000 in revenues, $55,000 in expenses, and dividends of $20,000. The net income reported by Applewhite's Music Shop for the year was $___________ d) Robinson Corporation began the year with retained earnings of $217,000. During the year, the company issued $294,000 of common stock, recorded expenses of $840,000, and paid dividends of $56,000. If Robinson's ending retained earnings was $231,000, what was the company's revenue for the year? $__________ FINAL EXAM / ACCT B202 / summer 2015 / Page 5 of 15 e) Gallo Company does not ring up sales taxes separately on the cash register. Total receipts for June amounted to $14,310. If the sales tax rate is 6%, what amount must be remitted to the state for June's sales taxes? f) Barron Corporation bought equipment on January 1, 2014 .The equipment cost $90,000 and had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years. The book value of the equipment at the beginning of the third year would be g) Assume that Simpson Inc. uses a periodic inventory system and has these account balances: Purchases $600,000; Purchase Returns and Allowances $25,000; Purchases Discounts $11,000; and Freight-in $19,000; beginning inventory of $45,000; ending inventory of $55,000; and net sales of $750,000. Determine the amounts to be reported for cost of goods sold $_________ and gross profit. $__________ h. Nunez Chemical Supply recorded the following events involving a recent purchase of merchandise: Received goods for $20,000, terms 2/10, n/30. Returned $400 of the shipment for credit. Paid $100 freight on the shipment. Paid the invoice within the discount period. Nunez's merchandise inventory would increase by $_______________. FINAL EXAM / ACCT B202 / summer 2015 / Page 6 of 15 Question 4. Rome Company just began business and made the following four inventory purchases in June: June 1 150 units $ 825 June 10 200 units 1,120 June 15 200 units 1,140 June 28 150 units 885 $3,970 A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. 5a. Using the LIFO inventory method, the value of the ending inventory on June 30 is $____________ 5b. Using the FIFO inventory method, the amount allocated to Cost of Goods Sold is $____________ Which method would produce the highest profit in June? Why? Which method would produce the most realistic value for the current ratio and why? FINAL EXAM / ACCT B202 / summer 2015 / Page 7 of 15 Question 5. The Gallo Company has just completed a physical inventory count at year end, December 31, 2014. Only the items on the shelves, in storage, and in the receiving area were counted and costed on the FIFO basis. The inventory amounted to $85,000. During the audit, your boss discovered the following additional information, and you need to calculate a corrected amount for the ending inventory. TELL ME WHY YOU DECIDED TO ADD, SUBTRACT, OR DO NOTHING WITH EACH ITEM Inventory based on the physical count (a) There were goods in transit on December 31, 2014, from a supplier with terms FOB destination, costing $10,000. Because the goods had not arrived, they were excluded from the physical inventory count. $85,000 (b) On December 27, 2014, Barron Inc, a regular customer, purchased goods for cash amounting to $1,000 and had them shipped to a bonded warehouse for temporary storage on December 28, 2014. The goods were shipped via common carrier with terms FOB shipping point. The customer picked the goods up from the warehouse on January 4, 2015. Gallo Company had paid $650 for the goods and, because they were in storage, Gallo included them in the physical inventory count. (c) Gallo Company, on the date of the inventory, received notice from a supplier that goods ordered earlier, at a cost of $4,000, had been picked up by UPS on December 28, 2014; the terms were FOB shipping point. Because the shipment had not arrived on December 31, 2014, it was excluded from the physical inventory. (d) On December 31, 2014, there were goods in transit to customers, with terms FOB shipping point, amounting to $800 (expected delivery on January 8, 2015). Because the goods had been shipped, they were excluded from the physical inventory count. (e) On December 31, 2014, Gallo Company shipped $2,500 worth of goods to a customer, FOB destination. The goods arrived on January 5, 2015. Because the goods were not on hand, they were not included in the physical inventory count. (f) Gallo Company, as the consignee, had goods on consignment that cost $3,000. Because these goods were on hand as of December 31, 2014, they were included in the physical inventory count. Corrected ending inventory $ FINAL EXAM / ACCT B202 / summer 2015 / Page 8 of 15 Question 6. Refer to the financial statements and the Notes to Consolidated Financial Statements of Tootsie Roll Industries in Appendix A. . 1. What were the total cost and book value of property, plant, and equipment at December 31, 2011? 2. What method or methods of depreciation are used by Tootsie Roll for financial reporting purposes? 3. What was the amount of depreciation expense for each of the 3 years 2009-2011? (Hint: Use the statement of cash flows.) 4. Using the statement of cash flows, what are the amounts of property, plant, and equipment purchased (capital expenditures) in 2011 and 2010? 5. Explain how Tootsie Roll accounted for its intangible assets in 2011. FINAL EXAM / ACCT B202 / summer 2015 / Page 9 of 15 Question 7. The financial statements of The Hershey Company are presented in Appendix B, following the financial statements for Tootsie Roll Industries in Appendix A. 1. Based on the information in these financial statements and the accompanying notes and schedules, compute the following values for each company in 2011. 1. Return on assets. 2. Profit margin (use \"Total Revenue\"). 3. Asset turnover. 2. What conclusions concerning the management of plant assets can be drawn from these data? FINAL EXAM / ACCT B202 / summer 2015 / Page 10 of 15 Question 8. Hechinger Co. and Home Depot are two home improvement retailers. Compared to Hechinger, founded in the early 1900s, Home Depot is a relative newcomer. But in recent years, while Home Depot was reporting large increases in net income, Hechinger was reporting increasingly large net losses. Finally, largely due to competition from Home Depot, Hechinger was forced to file for bankruptcy. Here are financial data for both companies (in millions). Cash Receivables Total current assets Beginning total assets Ending total assets Beginning current liabilities Ending current liabilities Beginning total liabilities Ending total liabilities Interest expense Income tax expense Cash provided (used) by operations Net income Net sales Hechinger Home Depot $ 21 $ 62 0 469 1,153 4,933 1,668 11,229 1,577 13,465 935 2,456 938 2,857 1,392 4,015 1,339 4,716 67 37 3 1,040 (257) 1,917 (93) 3,444 1,614 30,219 Using the data provided, perform the following analysis. 1. Calculate working capital and the current ratio for each company. Discuss their relative liquidity. 2. Calculate the debt to assets ratio and times interest earned for each company. Discuss their relative solvency. FINAL EXAM / ACCT B202 / summer 2015 / Page 11 of 15 3. Calculate the return on assets and profit margin for each company. Comment on their relative profitability. 4. The notes to Home Depot's financial statements indicate that it leases many of its facilities using operating leases. If these assets had instead been purchased with debt, assets and liabilities would have increased by approximately $2,347 million. Calculate the company's debt to assets ratio employing this adjustment. Discuss the implications. FINAL EXAM / ACCT B202 / summer 2015 / Page 12 of 15 Question 7. During a recent period, the fast-food chain Wendy's International purchased many treasury shares. This caused the number of shares outstanding to fall from 124 million to 105 million. The following information was drawn from the company's financial statements (in millions). Net income Total assets Average total assets Total common stockholders' equity Average common stockholders' equity Total liabilities Average total liabilities Interest expense Income taxes Cash provided by operations Cash dividends paid on common stock Preferred stock dividends Average number of common shares outstanding Information for the Year Information for the Year after before Purchase of Treasury Purchase of Treasury Stock Stock $193.6 $123.4 2,076.0 1,837.9 2,016.9 1,889.8 1,029.8 1,068.1 1,078.0 1,126.2 1,046.3 939.0 30.2 113.7 305.2 769.9 763.7 19.8 84.3 233.8 26.8 31.0 0 109.7 0 119.9 1. Compute earnings per share, return on common stockholders' equity, and return on assets for both years. Discuss the change in the company's profitability over this period. 2. Compute the dividend payout ratio. Also compute the average cash dividend paid per share of common stock (dividends paid divided by the average number of common shares outstanding). Discuss any change in these ratios during this period and the implications for the company's dividend policy. FINAL EXAM / ACCT B202 / summer 2015 / Page 13 of 15 3. Compute the debt to assets ratio and times interest earned. Discuss the change in the company's solvency. 4. Based on your findings in (a) and (c), discuss to what extent any change in the return on common stockholders' equity was the result of increased reliance on debt. 5. Does it appear that the purchase of treasury stock and the shift toward more reliance on debt were wise strategic moves? FINAL EXAM / ACCT B202 / summer 2015 / Page 14 of 15 Question 8. The following transactions took place during a recent fiscal year for the Chu Company. Complete the table indicating whether each item: (1) affects operating (O) activities, investing (I) activities, financing (F) activities, or is a noncash (NC) transaction reported in a separate schedule, and (2) represents a cash inflow or cash outflow or has no cash flow effect. Assume use of the indirect approach. Transaction (a) Purchased shares of common treasury stock. (b) Paid a cash dividend to common stockholders. (c) Recorded cash sales. (d) Recorded sales on account. (e) Recorded prepayment of insurance expense. (f) Purchased supplies on account. (g) Recorded amortization expense on a patent. (h) Recorded and received interest revenue. (i) Recorded cash proceeds from a sale of plant assets. (j) Acquired land by issuing a note payable. Statement of Cash Flow Activity Affected Cash Inflow, Outflow, or No Effect? FINAL EXAM / ACCT B202 / summer 2015 / Page 15 of 15 Question 9. The following transactions took place during the year. For each transaction listed, indicate whether it will increase (I), decrease (D), or have no effect (NE) on the ratios. If you want any credit at all, you will show me your computations: Transactions (a) Recorded cash sales $4,800. (b) Sold land for $20,000 cash. (c) Declared $6,000 cash dividends. (d) Paid $5,800 cash dividends declared last year. (e) Paid amount owed to suppliers, $9,400. (f) Retired $20,000 convertible bonds payable by issuing common stock. Free Cash Flow ($80,000) Current Cash Debt Coverage (0.7 times) Cash Debt Coverage (0.4 times)