Question

Refer to the following financial statements for Crosby Corporation:   
  

CROSBY CORPORATION Income Statement For the Year Ended December 31, 20X2
Sales		$	3,470,000
Cost of goods sold			2,230,000
Gross profit		$	1,240,000
Selling and administrative expense			678,000
Depreciation expense			298,000
Operating income		$	264,000
Interest expense			85,400
Earnings before taxes		$	178,600
Taxes			148,000
Earnings after taxes		$	30,600
Preferred stock dividends			10,000
Earnings available to common stockholders		$	20,600
Shares outstanding			150,000
Earnings per share		$	0.14

  

Statement of Retained Earnings For the Year Ended December 31, 20X2
Retained earnings, balance, January 1, 20X2	$	385,800
Add: Earnings available to common stockholders, 20X2		20,600
Deduct: Cash dividends declared and paid in 20X2		175,000
Retained earnings, balance, December 31, 20X2	$	231,400

  

Comparative Balance Sheets For 20X1 and 20X2
	Year-End 20X1				Year-End 20X2
Assets
Current assets:
Cash		$	179,000			$	94,600
Accounts receivable (net)			505,000				543,000
Inventory			702,000				707,000
Prepaid expenses			67,600				35,000
Total current assets		$	1,453,600			$	1,379,600
Investments (long-term securities)			94,000				85,600
Gross plant and equipment	$ 2,090,000				$ 2,630,000
Less: Accumulated depreciation	1,620,000				1,918,000
Net plant and equipment			470,000				712,000
Total assets		$	2,017,600			$	2,177,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	320,000			$	604,000
Notes payable			512,000				512,000
Accrued expenses			77,800				55,800
Total current liabilities		$	909,800			$	1,171,800
Long-term liabilities:
Bonds payable, 20X2			132,000				184,000
Total liabilities		$	1,041,800			$	1,355,800
Stockholders’ equity:
Preferred stock, $100 par value		$	90,000			$	90,000
Common stock, $1 par value			150,000				150,000
Capital paid in excess of par			350,000				350,000
Retained earnings			385,800				231,400
Total stockholders’ equity		$	975,800			$	821,400
Total liabilities and stockholders’ equity		$	2,017,600			$	2,177,200

  
a. Prepare a statement of cash flows for the Crosby Corporation: (Amounts to be deducted should be indicated with parentheses or a minus sign.)
  

b. Compute the book value per common share for both 20X1 and 20X2 for the Crosby Corporation. (Round your answers to 2 decimals places.)
  

c. If the market value of a share of common stock is 2.4 times book value for 20X2, what is the firm’s P/E ratio for 20X2? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
  

Answer 1

		CASH FLOW STATEMENT
		CASH FLOW FROM OPERATING ACTIVITIES
	a	Earning after taxes	$30,600
	b	Depreciation for the year	$298,000
		(Increase)/Decrease in current assets
	c	Increase in Accounts Receivable	-$38,000	(543000-505000)
	d	Increase in Inventory	-$5,000	(707000-702000)
	e	Decrease in Prepaid Expenses	$32,600	(67600-35000)
		Increase/(Decrease) in current liabilities
	f	Increase in Accounts Payable	$284,000	(604000-320000)
	g	Decrease in accrued expenses	-$22,000	(77800-55800)
	h=a+b+c+d+e+f+g	NET CASH PROVIDED BY OPERATING ACTIVITIES	$580,200
		CASH FLOW FROM INVESTING ACTIVITIES
	i	Increase   in gross Plant and Equipments	-$540,000	(2630000-2090000)
	j	Changes in Long Term investment in Equity	$8,400	(94000-85600)
	k=i+j	NET CASH FLOW PROVIDED BY INVESTING ACTIVITIES	-$531,600
		CASH FLOW FROM FINANCING ACTIVITIES
		Increase in Long Term Debt	$52,000	(184000-132000)
		Less: Total dividends paid	-$185,000
	l	NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES	-$133,000
	m=h+k+l	Total Cash added to reserve	-$84,400
		Cash in the beginning	$179,000
		Cash at the end	$94,600
		Retained Earnings in the beginning	$385,800
		Add:Net Income	$30,600
		Less:Dividend Paid	$185,000
		Retaind Earnings at the End	$231,400
	b	Book Value Per Share:
			20X1	20X2
		Total Stock holders Equity	$975,800	$821,400
		Less: Preference Shares	$90,000	$90,000
	X	Book Value of Common shares	$885,800	$731,400
	Y	Number of common shares	150000	150000
	X=X/Y	Book Value Per Share:	$5.91	$4.88
	c	Net Income	$30,600
		Preferred Dividend	$10,000
		Earnings of common shares	$20,600
		Earning per share=20600/150000=	$0.14
	X	Market Value per share =2.4*4.88	$11.70
	Y	Earning per share	$0.14
	PE=X/Y	P/E Ratio	85.21165