Question

Johnsn and Hill formed a company, and 2018 was their first year of operation.

a) To establish Johnson & Hill each contributed a total of $55,000 in exchange for common stock.

b) Johnson & Hillt specializes in high-end parties. The first year they conducted 96 events and revenue for the first year amounted to $480,000, of which 95% was to be paid by the date of the event and the remainder due within 30 days of the event

c) Clients owe $16,000 at the end of the year from the services provided in December.

d) At the beginning of the year, a storage building was rented, signing a two-year lease for $15,000 per year and making a $4,000 refundable security deposit. The first year’s lease payment and the security deposit were paid at the beginning of the year.

e) At the beginning of the year, the company purchased a computerized stage and lighting for $120,000 expected to be useful for twelve years. The company paid 20% down in cash and signed a four-year note at the bank for the remainder (with 10% interest-only to be paid annually until maturity). They also purchased a flatbed trailer to haul it with, for $8,000, also with an expected 15 year life. Johnson & Hill must lease a large truck to haul the trailer for each event, which costs $1,000 per day.

f) Other operating expenses, including wages, deprecation on other equipment, utilities, and rent on the storage building noted in (d) and (e) above, totaled $136,000 for the first year. No expenses were accrued or unpaid at the end of the year.

g) Johson & Hill purchased other equipment (tables & carts, ice machine, food heating trays and bags, helium tanks, music system, etc) for $10000 with an estimated life of 10 years and no salvage value. Salaries and wages for the year total $109467 including payroll taxes.

h) The company declared and paid a $50,000 cash dividend at the end of the first year.

i) Johnson & Hill is in the 35% corporate tax bracket.

1. Did the company generate more or less cash flow from operations than it earned in net income? Explain why there is a difference.

2. Compute, explain & analyze the following ratios:

a) Gross Profit

b) Operating Leverage ratio

c) Return on common equity

d) Current ratio

e) Operating Cash flow to current liabilities

f) Long-term debt to assets

g) Interest coverage

Answer 1

Solution:-

Johnsn and Hill framed an organization, and 2018 was their first year of activity.

a) To build up Johnson and Hill each contributed an aggregate of $55,000 in return for normal stock.

b) Johnson and Hillt works in top of the line parties. The main year they led 96 occasions and income for the primary year added up to $480,000, of which 95% was to be paid by the date of the occasion and the rest of inside 30 days of the occasion

c) Clients owe $16,000 toward the year's end from the administrations gave in December.

d) At the start of the year, a capacity building was leased, marking a two-year rent for $15,000 every year and making a $4,000 refundable security store. The main year's rent installment and the security store were paid toward the start of the year.

e) At the start of the year, the organization obtained a mechanized stage and lighting for $120,000 expected to be helpful for a long time. The organization paid 20% down in real money and marked a four-year note at the bank for the rest of (10% premium just to be paid every year until development). They additionally bought a flatbed trailer to pull it with, for $8,000, likewise with a normal multi year life. Johnson and Hill must rent a vast truck to pull the trailer for every occasion, which costs $1,000 every day.

f) Other working costs, including compensation, belittling on other hardware, utilities, and lease on the capacity building noted in (d) and (e) above, totaled $136,000 for the primary year. No costs were collected or unpaid toward the year's end.

g) Johson and Hill bought other gear (tables and trucks, ice machine, nourishment warming plate and sacks, helium tanks, music framework, and so on) for $10000 with an expected existence of 10 years and no rescue esteem. Compensations and wages for the year all out $109467 including finance charges.

h) The organization pronounced and paid a $50,000 money profit toward the finish of the principal year.

I) Johnson and Hill is in the 35% corporate expense section.

1. Did the organization create pretty much income from activities than it earned in overall gain? Clarify why there is a distinction.

2. Register, clarify and break down the accompanying proportions:

a) Gross Profit

b) Operating Leverage proportion

c) Return on normal value

d) Current proportion

e) Operating Cash stream to current liabilities

f) Long-term obligation to resources

g) Interest inclusion