Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s income statement and balance sheets follow.

Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $18,125 (details in b).

Sold equipment costing $85,875, with accumulated depreciation of $43,125, for $24,625 cash.

Purchased equipment costing $109,375 by paying $56,000 cash and signing a long-term note payable for the balance.

Borrowed $5,300 cash by signing a short-term note payable.

Paid $56,625 cash to reduce the long-term notes payable.

Issued 3,800 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $52,700.

Required:
1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Suppose today two-year US treasury bill is 2.15% and the two-year UK treasury bill is 1.0%. Further suppose today spot exchange rate is USD 1.25 per Euro and you know you will receive one million euro exactly two years from now and you will have to exchange those Euros in USD at that time. Can you engineer a guaranteed exchange rate at which you will be able to exchange the Euros for USD two years from now? Explain the arrangements.

Fey Fashions expects the following dividend pattern over the next seven​ years:

The company will then have a constant dividend of ​$2.00 forever. What is the​ stock's price today if an investor wants to earn

a. 17​%? $_______ (Round to the nearest​ cent.)

b. 22​%? $_______ (Round to the nearest​ cent.)

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s income statement and balance sheets follow.

Problem 12-5AB Direct: Statement of cash flows LO P1, P3, P5

Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $19,125 (details in b).

Sold equipment costing $88,875, with accumulated depreciation of $44,125, for $25,625 cash.

Purchased equipment costing $110,375 by paying $58,000 cash and signing a long-term note payable for the balance.

Borrowed $5,400 cash by signing a short-term note payable.

Paid $57,125 cash to reduce the long-term notes payable.

Issued 3,900 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $52,900.

Required:
Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)
  

On August 1, Year 1 Hernandez Company loaned $48,000 cash to Acosta Company. The one-year note carried a 5% rate of interest. Which of the following shows how the accrual of interest revenue in Year 2 will effect Hernandez’s financial statements?

5.         Suppose you start saving $15,000 per year (starting next year) for the 40 years you are working. How much can you withdraw each year for the 38 years you are retired? Assume that you earn an 8% return for the years you are saving and a 4% return for the years you are retired.

Balance Sheet
Brand Brew Inc.
Years 1 & 2 ($000's)
Year 1 . Year 2 .
Cash & Marketable
Securities 309,705 59,167
Accounts Receivable 108,732 705,426
Inventories 138,577 215,159
Other Current Assets 49,515 74,144
Total Current Assets 606,529 1,053,896
PP&E, Net 869,710 1,380,239
Intangibles 86,289 1,256,145
Other Assets 177,164 607,131
Total Assets 1,739,692 4,297,411
Accounts Payable 222,493 334,647
Other current liabilities 210,052 669,195
Short-term Debt 85,000 144,049
Total Current Liabilities 517,545 1,147,891
Long-term debt 20,000 1,383,392
Other long-term liabilities 250,835 784,277
Total liabilities 788,380 3,315,560
Capital Stock 8,922 28,334
Retained earnings 954,981 1,086,965
Adjustments -12,591 -133,448
Total shareholders' equity 951,312 981,851
Total Liabilities & Equity 1,739,692 4,297,411

Income Statement for Brand Brew Inc. Year 1 Year 2 Revenues 2,429,462 3,776,322 COGS 1,537,623 2,414,530 Depreciation 121,091 230,299 SG&A 619,143 833,208 EBIT 151,605 298,285 Interest Expense –14,403 49,732 Other income 32,005 8,047 Pre-Tax Income 198,013 256,600 Income Tax 75,049 94,947 Net Income 122,964 161,653

7. Refer to Brand Brew, Inc. financial statements,
Which of the following statements is correct?
(x) Both total asset turnover and ROA for the
firm decreased from Year 1 to Year 2.
(y) The amount of debt held by Brand Brew, Inc.
increased by more than 300 percent from
Year 1 to Year 2.
(z) The ROE for Brand Brew, Inc. rose from
12.9% in Year 1 to more than 17.4% in
Year 2.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

8. Refer to Brand Brew, Inc. financial statements.
What is the most important determinant of the
change in ROE?
A. ROA
B. Profit Margin
C. The change in leverage
D. Total Asset Turnover
E. Both A and B are important determinants

Entries for Installment Note Transactions

On January 1, Year 1, Bryson Company obtained a $26,000, four-year, 12% installment note from Campbell Bank. The note requires annual payments of $8,560, beginning on December 31, Year 1.

a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 4.

Note: Round the computation of the interest expense to the nearest whole dollar. Enter all amounts as positive numbers. In Year 4, round the amount in the Decrease in Notes Payable column either up or down to ensure that the Carrying Amount zeroes out.

b. Journalize the entries for the issuance of the note and the four annual note payments.

Note: For a compound transaction, if an amount box does not require an entry, leave it blank. For the Year 4 entry (due to rounding), adjust Notes Payable up or down to ensure that debits equal credits.

c. How will the annual note payment be reported in the Year 1 income statement?
  of $ would be reported on the income statement.

9. When analyzing financial statements, besides reviewing data year over year for comparisons, the analyst should also compare the data to_________________________________________

10. Give an example of “separation of duties “ in the accounting department of a small business _________________________________________________________________________________________________________________

11. Explain the meaning of “rationalization” with respect to internal control and the Fraud Triangle ________________________________________________________________________________________________________________

12. How can a business owner with very few employees implement internal controls? a. Due to small number of employees it is not feasible. b. Rotate job duties among employees. c. Hire a CPA to monitor transactions weekly.

13. The Debt to Equity ratio calculation measures a. The ability of the company to pay its’ current obligations b. The amount of Assets that are financed by debt c. The amount of capital invested by the owners relative to the debt of the company

14. The Earnings Quality ratio calculation measures how much of the net income is converted to cash. TRUE FALSE