Cocoa Company * 2016 2017 Cash 100 75 Cost of Goods Sold 1000 1100 Debt (LT)...

Cocoa Company *

2016 2017

Cash 100 75

Cost of Goods Sold 1000 1100

Debt (LT) 10000 12000

Depreciation 2000 2200

Equity (total) 5300 5125

Interest Expense 600 720

Inventories 400 400

Payables 1200 1350

Property, Plant, Equipment 16000 18000

Revenues 6500 7500

Salaries 2200 2100

Share Capital 4964 4491

* All values given are in 1000s of dollars.

1. Construct a statement of comprehensive income for Cocoa Co. up through Earnings-Before- Taxes (EBT) for both 2016 and 2017. Use three columns: The left column should list the relevant accounts, the middle column should show the appropriate values for each account in 2016, and the right column should show the appropriate values for 2017.

2. Compute full (combined federal and provincial) corporate taxes for Cocoa Co. for both 2016 and 2017. Cocoa is a small corporation based in New Brunswick. As such it pays only 15.5% (i.e., 11% federal and 4.5% provincial tax) on the first $425,000 it earns, and then pays 27.0% (i.e., 15% federal and 12% provincial tax) on the remainder.

3. What was net income for both years?

4. If Cocoa’s payout ratio is always 40%, what was the addition to retained earnings for both years?

5. Construct a statement of financial position for Cocoa Co. for both 2016 and 2017. (In constructing the SFP, please use three columns: The left column should list the relevant accounts that appear on the SFP, the middle column should show the appropriate values for each account in 2016, and the right column should show the appropriate values for each account in 2017.)

6. Calculate Cocoa’s current ratio for 2017. Explain what it means, and state whether you think it’s good news or bad news for Cocoa’s managers.

7. If the value of Cocoa’s assets are to remain unchanged for the foreseeable future, and its profits are expected to increase, what do you expect will happen to its ROA.

Solutions

Expert Solution

income statement	2016	2017
revenue	6500000	7500000
less cost of goods sold	1000000	1100000
gross profit	5500000	6400000
salaries expense	2200000	2100000
depreciation expense	2000000	2200000
interest expense	600000	720000
EBT	700000	1380000
less taxes	167125	323725
net income	532875	1056275
taxes-2016	(42500015.5%)+(37500027%)	167125
taxes-2017	(42500015.5%)+(95500027%)	323725

addition to net income = net income*(1-payoutratio)	532875*(1-40%)	319725
addition to net income = net income*(1-payoutratio)	1056275*(1-40%)	633765

statement of financial position
Assets	2016	2017
current assets
cash	100000	75000
inventories	400000	400000
total current assets	500000	475000
plant and equipment	16000000	18000000
total of assets	16500000	18475000
liabilities and shareholders equity
current liabilities
payable	1200000	1350000
total current liabilities	1200000	1350000
debt	10000000	12000000
total of liabilities	11200000	13350000
shareholders equity
equity	5300000	5125000
total of liabilites and shareholders equity	16500000	18475000

current ratio = current assets/current liabilities	0.42	0.35
it measures the short term solvency of the company and it is reducing over the year so it is a bad news for the company as company's short term solvency is decreasing

ITS ROA will increase as value of assets are constant and profits are increasing ROA = net profit/total of assets

ekkarill92 answered 7 months ago

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