Part 4: UNDERSTANDING THE FINANCIAL STATEMENTS OF BUSINESS CUSTOMERS

You are provided with the following financial ratios of Rob Unlimited:

Return on assets:   Income before interest and tax/total assets x 100/1 = 61.666666%

Gross profit ratio:   Gross profit/Principal revenue x 100/1    = 30%

Operating margin    Operating income/principal revenue x 100/1       = 12.333333%

Net income margin: Net income before taxation/ Principal revenue x 100/1     = 10.666667%

Turnover ratio of fixed assets: Principal revenue / fixed assets      = 15 times          

Turnover ratio of current assets: principal revenue/ current assets      = 7.5 times

Current ratio: current assets/current liabilities   = 3:1

Asked: Use the information from the ratios to complete the statement of financial position and statement of comprehensive income for Rob Unlimited.

Statement of financial position as at 28 February 20xx                                                        

Shareholder Interest

Ordinary share capital                  $500,000

General reserves                          $_______

Non-current liabilities

Long term loan                             $600,000

Current liabilities

Trade creditors                             $200,000

Other Short term loans                  $_______

Total                                               $______

Non-current assets

Vehicles and equipment                  $______

Current assets

cash                                             $150000

Debtors                                         $_______

stock                                             $600000

Total                                              $________

Statement of comprehensive income for the year ended 28 February 20xx

Principle revenue              $9000000

Inventory beginning of year                  $900000

Plus purchase                                        $______

Less Inventory end of year   $600000

Cost of goods sold $6300000

Gross income $_______

Operating expenses    $_______

Depreciation $90000

Net income before interest and taxation $1110000

Interest payments $_______

Net income before taxation    $_______

1, what are the criteria that must be met in order to recognize revenue from the sale of goods? (200 words)

2, what are the type of difference that exist between IFRS and U.S GAAP ?(200 words)

1. Which of the following is correct about the income statement: *

It is an equation used by financial analysts

It is an equation used by politicians

It is a report that shows the cash inflows and cash outflows of the company

It is a report that shows the revenues and expenses of the company

None of the above

2. Which of the following is correct about cash flows statement: *

It includes only the cash outflows

It shows the cash flows from operating, investing, and financing activities

It shows the profitability of the company

It is an optional statement reported by the company

None of the above

3. ABC. Co, recently reported $200,000 of sales during the year 2016. The company had $20,000 of outstanding bonds carrying 10% interest rate.Operating costs were $80,000 other than depreciation, and the firm was facing $12,000 as depreciation. Noting that the federal-plus-state income tax rate was 40%. What is the firm's net income at the end of the year 2016? *

$ 60,600

$ 63,600

$ 53,800

$ 69,800

None of the above

4. LSP Construction recently reported $100 million of sales, $50 million of operating costs other than depreciation, and $30 million of depreciation. It had $10 million interest expense, and its federal-plus-state income tax rate was 40%. What was LSP operating income, or EBIT, in millions? *

$ 20

$ 30

$ 10

$ 6

None of the above

5. Assume that Icon Co. 2014 current assets totaled for $40,000, they paid out $16,000 in the form of account payable and $4,000 as accruals and $5,000 in notes payable and in 2015 they had a NWC of $20,000. Calculate the change in net working capital. *

$ 20,000

$ 15,000

$ 0

$ 2,000

None of the above

6. PLI Corporation had net fixed assets of $2,500,000 at the end of 2006 and $1,800,000 at the end of 2005. In addition, the firm had a depreciation expense of $200,000 during 2006. Using this information, how much was PLI's net fixed asset investment for 2006? *

$ 700,000

$ 900,000

$ 500,000

$ 850,000

None of the above

7. During 2006, LSP Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, a change in NWC of $100,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, Calculate LSP free cash flow. *

-$430,000

$430,000

$30,000

$400,000

None of the above

1. Which of the following is correct about the income statement: *

It is an equation used by financial analysts

It is an equation used by politicians

It is a report that shows the cash inflows and cash outflows of the company

It is a report that shows the revenues and expenses of the company

None of the above

2. Which of the following is correct about cash flows statement: *

It includes only the cash outflows

It shows the cash flows from operating, investing, and financing activities

It shows the profitability of the company

It is an optional statement reported by the company

None of the above

3. ABC. Co, recently reported $200,000 of sales during the year 2016. The company had $20,000 of outstanding bonds carrying 10% interest rate.Operating costs were $80,000 other than depreciation, and the firm was facing $12,000 as depreciation. Noting that the federal-plus-state income tax rate was 40%. What is the firm's net income at the end of the year 2016? *

$ 60,600

$ 63,600

$ 53,800

$ 69,800

None of the above

4. LSP Construction recently reported $100 million of sales, $50 million of operating costs other than depreciation, and $30 million of depreciation. It had $10 million interest expense, and its federal-plus-state income tax rate was 40%. What was LSP operating income, or EBIT, in millions? *

$ 20

$ 30

$ 10

$ 6

None of the above

5. Assume that Icon Co. 2014 current assets totaled for $40,000, they paid out $16,000 in the form of account payable and $4,000 as accruals and $5,000 in notes payable and in 2015 they had a NWC of $20,000. Calculate the change in net working capital. *

$ 20,000

$ 15,000

$ 0

$ 2,000

None of the above

6. PLI Corporation had net fixed assets of $2,500,000 at the end of 2006 and $1,800,000 at the end of 2005. In addition, the firm had a depreciation expense of $200,000 during 2006. Using this information, how much was PLI's net fixed asset investment for 2006? *

$ 700,000

$ 900,000

$ 500,000

$ 850,000

None of the above

7. During 2006, LSP Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, a change in NWC of $100,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, Calculate LSP free cash flow. *

-$430,000

$430,000

$30,000

$400,000

None of the above

Suppose x has a distribution with μ = 27 and σ = 23.

(a) If a random sample of size n = 39 is drawn, find μ_x, σ_x and P(27 ≤ x ≤ 29).

(b) If a random sample of size n = 62 is drawn, find μ_x, σ_x and P(27 ≤ x ≤ 29).

If a check correctly written and paid by the bank for $514 is incorrectly recorded in the company's books for $541, how should this error be treated on the bank reconciliation?

Multiple Choice

Subtract $27 from the bank's balance.

Subtract $27 from the book balance.

Add $27 to the bank's balance.

Subtract $27 from the bank's balance and add $45 to the book's balance.

Add $27 to the book balance.

Pea aphids, Acyrthosiphon pisum, are small, wingless, sapsucking insects that live on plants. They evade predators (such as ladybugs) by dropping off. A study examined the mechanism of aphid drops. Researchers placed aphids on a leaf positioned at four different heights (in centimeters, cm) above a surface covered with petroleum jelly. When a ladybug was introduced, the aphids dropped, and the petroleum jelly helped capture their landing posture (upright or not). Each aphid performed this experiment only once. The findings are given in the table.

The null hypothesis "no relationship" says that in the population of aphids, the proportions that land upright are the same when the dropping height is 33 , 55 , 1010 , and 2020 cm.

The two‑way table contains expected cell counts if this hypothesis is true.

Question 1: Use the tables to calculate the value of the chi‑square statistic. (Enter your answer rounded to three decimal places.)

X^2 =

Question 2: Use software to calculate the related ?P‑value. (Enter your answer rounded to four decimal places.)

P =

Question 3: Which cells contribute the most to ?2χ2 ? Select the correct answer.

a) The largest contributions are that of aphids dropped from a height of either 33 cm or 2020 cm that do not land upright. They correspond to the two extreme dropping heights. The results suggest there is a relationship between dropping height and landing posture.

b) We cannot make a definitive conclusion about dropping height and landing posture from the data given. Further studies are necessary.

c) The largest contributions are that of aphids dropped from a height of either 55 cm or 1010 cm that do not land upright. They correspond to the two middle dropping heights. The results suggest there is a relationship between dropping height and landing posture.

d) The largest contributions are that of aphids dropped from a height of either 33 cm or 2020 cm that land upright. They correspond to the two extreme dropping heights. The results suggest there is a relationship between dropping height and landing posture.

Question 4: Is the ?P‑value significant at the 0.050.05 level? Choose the correct explanation.

a) The ?P‑value is not significant at the 0.050.05 level. Rejecting ?0H0 means that we have evidence that the proportion of upright landing is the same for all four dropping heights.

b) The ?P‑value is significant at the 0.050.05 level. Rejecting ?0H0 means that we have evidence that the proportion of upright landing is not the same for all four dropping heights.

c) The ?P‑value is not significant at the 0.050.05 level. This indicates that ?0H0 is correct and we have evidence that the proportion of upright landing is the same for all four dropping heights.

d) The ?P‑value is significant at the 0.050.05 level. This indicates that ?0H0 is correct and we have evidence that the proportion of upright landing is the same for all four dropping heights.

Revenue Management saves the business: the case of the National Car Rental

The story:​ National Rental Car faced disastrous possibilities. In 1993, General Motors had considered liquidating or selling the unprofitable business. National and their 7500 employees had just one chance. They had to make the business profitable and prove that the car rental business was worth saving.
National quickly brought in the help of specialists to assess the situation, understand the business and quantify revenue potential. Using the information gained from the evaluation, National began a revenue management system that would centralize their capacity management, pricing and reservations control.
The challenge​: Before National began using the Revenue Management System, it did not have the proper communication tools in place to be able to react to the industry’s changing environment and faced different issues
National did not pursue leisure weekend customers and remained solely focused on the business and corporate renters who paid fixed rates and only traveled during the week leaving most rental car companies with large fleets of idol cars on the weekends thus missing out on potential opportunities. National was not able to adjust for increased or decreased car demand as It planned its car fleet in one-year cycles as opposed to shorter cycles more often, which led to failure in meeting changing customer demand and tremendous number of missed opportunities. National’s pricing strategy also was not dynamic and was often linked to competitors pricing who were more flexible at making short-term pricing changes.
By using revenue management system, National was able to create a plan that would improve revenue per car, revenue per day, and utilization levels, thus could realize and sustain revenue improvements.
Questions:
1. Based on the above what are the problems National company had before applying Revenue management system? (30pts)

2. What conditions of the car rental industry encourage National company to implement revenue management practices? (35pts)
3. Using the information gained from the evaluation, how do you think the implementation of the revenue management system solved the problems of National and saved the company. (35 pts)

An analyst has gathered the following information about a company

Income Statement for the Year 2004
Sales                                                      $1,500
Expenses
COGS                        $1,300
Depreciation                     30
lnt Expenses                     40
Total expenses                                           1,370
Income from cont op                                     130
Gain on sale                                                   30
Income before tax                                         160
Income tax                                                     64
Net Income                                                   $96

Additional Information:                                              

Dividends paid                                                                                                 $30
Common stock sold                                                                                            20
Equipment purchased                                                                                         50
Bonds issued                                                                                                      80
Fixed asset sold for (original cost of $100 with accumulated depreciation of $70)     60
Accounts receivable decreased by                                                                        30
Inventory decreased by                                                                                       20
Accounts payable increased by                                                                             20
Wages payable decreased by                                                                               10

What is the cash flow from operations?

1. $170

2. $156

3. $135

In an article that appeared in Business Review Weekly on 4 March 2004 (entitled ‘Share options trap’), it is stated that under AASB 2 ‘companies must value and record as an expense any options granted to employees in exchange for their services. Previously, Australian companies recorded share-based payments in the notes to financial statements, arguing that share-based payments did not cost the company anything’. REQUIRED Do you think that there is any logic to the argument that ‘share-based payments did not cost the company anything’?