Exercise 13-8 Selected Financial Ratios [LO13-2, LO13-3, LO13-4]
|
The financial statements for Castile Products, Inc., are given below: |
| Castile Products, Inc. Balance Sheet December 31 |
||||||
| Assets | ||||||
| Current assets: | ||||||
| Cash | $ | 22,000 | ||||
| Accounts receivable, net | 250,000 | |||||
| Merchandise inventory | 400,000 | |||||
| Prepaid expenses | 9,000 | |||||
| Total current assets | 681,000 | |||||
| Property and equipment, net | 860,000 | |||||
| Total assets | $ | 1,541,000 | ||||
| Liabilities and Stockholders' Equity | ||||||
| Liabilities: | ||||||
| Current liabilities | $ | 230,000 | ||||
| Bonds payable, 11% | 310,000 | |||||
| Total liabilities | 540,000 | |||||
| Stockholders’ equity: | ||||||
| Common stock, $5 par value | $ | 150,000 | ||||
| Retained earnings | 851,000 | |||||
| Total stockholders’ equity | 1,001,000 | |||||
| Total liabilities and equity | $ | 1,541,000 | ||||
| Castile Products, Inc. Income Statement For the Year Ended December 31 |
|||
| Sales | $ | 2,940,000 | |
| Cost of goods sold | 1,384,500 | ||
| Gross margin | 1,555,500 | ||
| Selling and administrative expenses | 600,000 | ||
| Net operating income | 955,500 | ||
| Interest expense | 34,100 | ||
| Net income before taxes | 921,400 | ||
| Income taxes (30%) | 276,420 | ||
| Net income | $ | 644,980 | |
|
Account balances at the beginning of the year were: accounts receivable, $170,000; and inventory, $310,000. All sales were on account. |
| Required: |
| Compute the following financial data and ratios: |
| 1. |
Working capital. |
| 2. | Current ratio. (Round your answer to 2 decimal places.) |
| 3. | Acid-test ratio. (Round your answer to 2 decimal places.) |
| 4. | Debt-to-equity ratio. (Round your answer to 2 decimal places.) |
| 5. | Times interest earned ratio. (Round your answer to 2 decimal places.) |
| 6. | Average collection period. (Use 365 days in a year. Round your answer to 1 decimal place.) |
| 7. | Average sale period. (Use 365 days in a year. Round your intermediate and final answer to 1 decimal place.) |
| 8. |
Operating cycle. (Round your intermediate calculations and final answers to 1 decimal place.) |
In: Accounting
Briefly discuss some of the indicators of an outdated costing system (Word limit: 200 words) b) Despite the obvious advantages of ABC, many firms are still reluctant to implement it. What are the reasons for this reluctance? (Word limit: 150 words)
In: Accounting
Accounting fraud was a hot area and sensitive for the SEC in the early 2000s following a barrage of scandals at companies such as Enron, Worldcom and Parmalat to mention a few. In your opinion what is the significance of Sarbanes-Oxley Act of 2002 in combating accounting fraud in public companies?
In: Accounting
Computing Depreciation Expense.
Equipment costing $810,000, with an expected scrap value of $100,000 and an estimated useful life of six years, was purchased on January 1 of the current year.
Required: Calculate the depreciation expense for the first two years of the asset’s useful life using (a) the straight-line method and (b) the double-declining balance method. Which method would you prefer to use for (a) income tax purposes and (b) financial reporting purposes? Why?
Please show all steps.
In: Accounting
Tec Industries manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
Variable costs per unit: Manufacturing: Direct Materials $ 35 Direct Labor $ 25 Variable manufacturing overhead $ 7 Variable Selling and administrative $ 5 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 125,000
During its first year of operations, BIA produced 40,000 units and sold 30,000 units. During its second year of operations, BIA produced 40,000 and sold 50,000 units. The selling price of the company’s product is $100 per unit.
2) Assume the company uses Absorption Costing.
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2 using Absorption Costing.
PLEASE SHOW ALL WORK!!
In: Accounting
The shareholders' equity of Janeek Enterprises includes $253,600 of no par common stock and $532,300 of 5% cumulative preferred stock. The board of directors declared cash dividends of $81,900 in 2016 after paying $23,500 cash dividends in 2015. What is the amount of dividends paid to common shareholders in 2016? ______________________
PLEASE SHOW ALL WORK AND EXPLAIN, THANK YOU
In: Accounting
Tec Industries manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
Variable costs per unit: Manufacturing: Direct Materials $ 35 Direct Labor $ 25 Variable manufacturing overhead $ 7 Variable Selling and administrative $ 5 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 125,000
During its first year of operations, BIA produced 40,000 units and sold 30,000 units. During its second year of operations, BIA produced 40,000 and sold 50,000 units. The selling price of the company’s product is $100 per unit.
1) Assume the company uses Variable Costing.
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2 using Variable Costing.
PLEASE SHOW ALL WORK!!
In: Accounting
On January 20X2, Lucky Company purchased $5,000,000 of Fire Corp. 3% bonds, classified as a FVTPL. The bonds pay semi-annual interest each 30 June and 31 December. The market interest rate was 4% o the date of purchase. The bonds mature on 30 December 20X11. At the end of 20X2, the bonds had a fair value of $4,800,000.
1. Calculate the price paid by Lucky.
2. Give entries for the first year assuming that the investment is classified as FVTPL.
In: Accounting
Contribution Margin Concepts
The following information is taken from the 2017 records of
Hendrix's Guitar Center.
| Fixed | Variable | Total | ||
|---|---|---|---|---|
| Sales | $2,250,000 | |||
| Costs | ||||
| Goods sold | 1,012,500 | |||
| Labor | $480,000 | 180,000 | ||
| Supplies | 6,000 | 15,000 | ||
| Utilities | 36,000 | 39,000 | ||
| Rent | 72,000 | 0 | ||
| Advertising | 18,000 | 73,500 | ||
| Miscellaneous | 18,000 | 30,000 | ||
| Total costs | $630,000 | $1,350,000 | (1,980,000) | |
| Net income | $ 270,000 | |||
Required
(a.) Determine the annual break-even dollar sales volume.
Contribution margin ratio: Answer
Annual break-even dollar sales volumes: $Answer
(b.) Determine the current margin of safety in
dollars.
$Answer
(c.) Prepare a cost-volume-profit graph for the guitar shop. Label both axes in dollars with maximum values of $1,000,000. Draw a vertical line on the graph for the current ($750,000) sales level, and label total variable costs, total fixed costs, and total profits at $75,000 sales.
(d.) What is the annual break-even dollar sales volume if
management makes a decision that increases fixed costs by
$100,000?
$Answer
In: Accounting
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under consideration are shown below.
| Option 1 | Option 2 | |||
| Direct material cost per unit | $ | 57.6 | $ | 38.4 |
| Direct labour cost per unit | $ | 46 | $ | 39 |
| Variable overhead per unit | $ | 11.6 | $ | 31.4 |
| Fixed manufacturing costs | $ | 2,060,000 | $ | 3,852,000 |
The selling price of the company’s product is $192 per unit with variable selling costs of 10% of sales. Fixed selling and administrative costs are $3,360,000 per year.
There would be no change to the selling price, variable selling costs, or fixed selling and administrative costs as the result of the manufacturing equipment upgrade.
Required:
1. At what annual number of unit sales would Patterson Products Inc. be indifferent between the two upgrade options?
2. If demand falls short of the indifference point calculated in part (1), which option would be preferred?
Option 1
Option 2
3. Calculate the break-even point in unit sales under each upgrade option. (Round your final answers to the nearest whole number.)
In: Accounting
List the types of tax-free reorganizations?
In: Accounting
Data for Jim's Landscaping are shown below: Per Unit % of Sales Selling Price $600 100% Variable Expenses $390 65 % Contribution Margin $210 35 %
Fixed Expenses are $500,000 per month and the company is selling 5,000 units per month.
7) The marketing manager believes that a $54,000 increase in the monthly advertising budget would increase monthly sales by 250 units (a 5% increase in sales). Should the advertising budget be increased? Yes or no? SHOW YOUR WORK
8) Jim's Landscaping Operation Manager believes that if they increase the quality of the components that the higher-quality product would increase sales by 10%. The higher quality components will cost an additional $20 per unit. Should the higher quality components be used? SHOW YOUR WORK
In: Accounting
On 2 January 2016, Southern Pizza bought a used Nissan delivery van for R19 200. The van was expected to remain in service for four years (30 000 Kilometers). At the end of its useful life, Southern officials estimated that the van 's residual value would be R2 400. The van travelled 8000 Km the first year, 8 500 Km the second year, 5 500 Km the third year, and 8 000 Km in the fourth year. Prepare a schedule of depreciation expense per year for the van under the three (3) depreciation methods. ( For -units -of-production and double-declining-balance, round to the nearest two (2) decimals after each step of calculation.)
Required:
1. Which method best tracks the wear and tear of the van?
2. Which method would Southern prefer to use for income tax purposes? Explain in detail why Southern prefer this method.
In: Accounting
Frozen Ltd purchased machinery on 1 July 2011 for $680,000. The machinery is expected to have a useful life of 20 years and a residual value of $80,000. The firm accounts for the machinery using the revaluation model. The fair value of the machinery on 30 June 2012 is $699,400. The machinery was sold for $500,000 cash on 31 December 2013. No revisions are made to the useful life and residual value at the time of the revaluations.
In: Accounting
Erumpifier Multiproduct Breakeven Case ABC Company has committed to contracts and other fixed exp...
erumpifier Multiproduct Breakeven Case
ABC Company has committed to contracts and other fixed expenses in the amount of $100,000 per
month. Its four major product lines include the following hair care products:
Structurizers
Volumizers
Derumpifiers
Coagulators (to stop the bleeding)
Anticipated annual volumes for each of the above respectively is: 10,000, 20,000, 30,000, 40,000 units.
Variable costs for each of the above respectively is: $10, $15, $20, $25
Selling price for each of the above respectively is: $20, $60, $50, $75
Required:
1.
Complete the Multiproduct breakeven analysis and:
E.
Is contribution margin profit?
F.
Is the company breaking even? And if so, how much does it make?
G.
What can a company do when it is below breakeven?
In: Accounting