Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has declared the following annual dividends over a six-year period: Year 1, $16,000; Year 2, $32,000; Year 3, $112,000; Year 4, $122,000; Year 5, $134,000; and Year 6, $148,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 20,000 shares of cumulative preferred 2% stock, $100 par, and 100,000 shares of common stock, $20 par. Required: 1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears at the beginning of Year 1. Summarize the data in tabular form. Note: If required, round your answers to two decimal places. If the amount is zero, enter "0". Preferred Dividends Common Dividends Year Total Dividends Total Per Share Total Per Share Year 1 $ 16,000 $ $ $ $ Year 2 32,000 Year 3 112,000 Year 4 122,000 Year 5 134,000 Year 6 148,000 $ $ 2. Determine the average annual dividend per share for each class of stock for the six-year period. If required, round your answers to two decimal places. Average annual dividend for preferred $ per share Average annual dividend for common $ per share 3. Assuming a market price per share of $120 for the preferred stock and $14 for the common stock, determine the average annual percentage return on initial shareholders' investment, based on the average annual dividend per share for preferred stock and for common stock. Use the rounded amounts from part 2 in future computations. And round your final answers to two decimal places. Preferred stock % Common stock % Feedback 1. Is the preferred stock cumulative or non-cumulative? How will the preferred stock being cumulative or non-cumulative affect the distribution of dividends? Determine what amount of current dividends the preferred stock should receive per year. Recall the definition of dividends "in arrears". How much in dividends would each share of preferred stock receive each year? How much in dividends would each share of common stock receive each year? 2. Remember you are calculating the average per share for each class of stock, not in total. 3. What would the preferred and common stockholder receive as a return on their initial investment based on the average annual dividend? Learning Objective 2. Check My Work

Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has declared the following annual dividends over a six-year period: Year 1, $16,000; Year 2, $32,000; Year 3, $112,000; Year 4, $122,000; Year 5, $134,000; and Year 6, $148,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 20,000 shares of cumulative preferred 2% stock, $100 par, and 100,000 shares of common stock, $20 par. Required: 1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears at the beginning of Year 1. Summarize the data in tabular form. Note: If required, round your answers to two decimal places. If the amount is zero, enter "0". Preferred Dividends Common Dividends Year Total Dividends Total Per Share Total Per Share Year 1 $ 16,000 $ $ $ $ Year 2 32,000 Year 3 112,000 Year 4 122,000 Year 5 134,000 Year 6 148,000 $ $ 2. Determine the average annual dividend per share for each class of stock for the six-year period. If required, round your answers to two decimal places. Average annual dividend for preferred $ per share Average annual dividend for common $ per share 3. Assuming a market price per share of $120 for the preferred stock and $14 for the common stock, determine the average annual percentage return on initial shareholders' investment, based on the average annual dividend per share for preferred stock and for common stock. Use the rounded amounts from part 2 in future computations. And round your final answers to two decimal places. Preferred stock % Common stock % Feedback 1. Is the preferred stock cumulative or non-cumulative? How will the preferred stock being cumulative or non-cumulative affect the distribution of dividends? Determine what amount of current dividends the preferred stock should receive per year. Recall the definition of dividends "in arrears". How much in dividends would each share of preferred stock receive each year? How much in dividends would each share of common stock receive each year? 2. Remember you are calculating the average per share for each class of stock, not in total. 3. What would the preferred and common stockholder receive as a return on their initial investment based on the average annual dividend? Learning Objective 2.

AnimalChin! Co. has decided to sell a new line of longboards: "The Veloce." These longboards will be sold for $462 per unit and have variable costs of $350 per unit. The company has spent $750,000 for a marketing study which determined that the company will sell 4,000,000 boards in year 1. Sales will stay the same until the project is discontinued in year 8. The same marketing study also mentioned that some old clients are likely to switch to the new board. Sales of the other AnimalChin! board The Classic are likely to decrease by 800,000 units each year, the price of The Classic price $400, and variable costs are $300. Space rental, marketing and advertisement costs, and administrative expenses will total $60,000,000 per year. A few months ago, the company has also spent $7,000,000.00 to test new wheels and shock pads and they recently repaired some of their machines for $5,000,000.00. Three of these machines are currently not in use, they could be used for the production of The Veloce or could be sold today for $80,000,000.00 total (their initial cost 3 years ago was $500,000,000.00 (the company is currently depreciating these assets straight-line to zero book value over 5 years). The plant and equipment investment required for this project is $1,700,000,000.00 and will be depreciated on a straight-line basis to a zero book value over the next 8 years. Despite depreciating to zero for tax reasons, the company believes that the market value of the equipment in 8 years will be $90,000,000.00. The company will sell the equipment. The production of The Veloce will require an immediate increase in inventory of $ 145,000,000.00 that will be returned at the end of the project. The tax rate is 40%.

1. Read the project's description very carefully. Which cash-flows are “relevant” for our project? Remember you are looking for incremental cash flows. List which cash-flows are relevant (or not relevant) and briefly explain why. Relevant NOT relevant Why?

2. Based on your answer to question 1. Calculate the annual operating cash-flow (OCF) for the project for year 1 to year 8.

3. Now focus on year 0. Based on your answer to question 1. What should you take into account as inflow/outflow of cash for year 0 when you start the project?

4. Finally, focus on year 8, the termination year of your project. What should you take into account as inflow/outflow of cash besides year 8 OCF?

? 5. Based on points 1-4 fill the CFFA table and compute the Cash-flow from assets (CFFA) for Year 0 to year 8. Copy and paste from excel if needed.

What are the answers to questions 13, 14, and 15 and how do I do them?

Below is are balance and income numbers for three companies. Answer the questions below. ​

• ● The balance sheet items may not balance perfectly (they may be out ~$1) due to rounding error.

• ● USE EXCEL to calculate the solutions and do the math – calculators may throw off your rounding

• ● Submit percentages as the percentage followed by two decimals. A number that appears as .04567 in excel should be

  submitted as 4.57%.

• ● Responses will be marked correct if they are within 5% of the answer I calculated in Excel

  (Questions on next page)

1. Which company has the best liquidity (highest current ratio) in Year 2?

2. Which company does the best job generating profits for shareholders in Year 2? (ROE)

3. Which company does the best job generating profits with its total investment in Year 2? (ROA)

4. Which company is the most leveraged (high long-term debt to equity) in Year 2?

5. Which company has the biggest current threat of being illiquid (lowest current ratio) in Year 2?

6. Which company saw the biggest increase in its net profit margin from Year 1 to Year 2 (or smallest decrease if NI all

   negative)?

7. What is company 2's ROA in Year 2?

8. What is company 1's ROA in Year 1?

9. What is company 3's ROA in Year 2?

10. Which company has the highest gross margin in Year 2?

11. What is company 1's quick ratio in Year 1?

12. What is company 2's current ratio in Year 2?

13. What is company 3's net margin in Year 2?

14. What is company 2's inventory turnover in Year 2?

15. What is company 3's long-term debt to assets ratio in Year 1?

On December 31, Year 5, Par Company purchased 70% of the outstanding common shares of Sub Company for $8,750,000 million in cash. On that date, the shareholders’ equity of Sub consisted of $2 million in common shares and $6 million in retained earnings. For the year ended December 31, Year 10, the income statements for Par and Sub were as follows:

At December 31, Year 10, the condensed balance sheets for the two companies were as
follows:

Other information
1. On December 31, Year 5, Sub had inventory with a fair value that was $150,000 less
than its carrying value.
2. On December 31, Year 5, Sub had equipment with a fair value that was $600,000
greater than its carrying value. The equipment had an estimated remaining useful life of
8 years.
3. Each year, goodwill is evaluated to determine if there has been a permanent
impairment. Goodwill had a recoverable value of $3,470,000 at December 31, Year 9
and $3,200,000 at December 31, Year 10.
4. On January 2, Year 8, Sub sold land to Par for $1,200,000. Sub purchased the land
on January 1, Year 3 for $800,000. In Year 10, Par sold 30% of this land to an outsider.
5. During Year 10, Sub sold merchandise to Par for $600,000, 75% of which remains in
Par’s inventory at December 31, Year 10. On December 31, Year 9, the inventory of Par
contained $100,000 of merchandise purchased from Sub. Sub earns a gross margin of
30% on its sales.
6. During Year 10, Par declared and paid dividends of $2,600,000, while Sub declared
and paid dividends of $800,000.
7. Par accounts for its investment in Sub using the cost method.
8. Both companies pay income tax at the rate of 40%.

Required
a. Calculate the consolidated net income for Year 10
b. Calculate the consolidated retained earnings at January 1, Year 10.
c. Prepare the consolidated financial statements for the year ended
December 31, Year 10.
d. Prepare the working paper eliminating journal entries for the intercompany sale of
inventory for Year 10
Hints: Goodwill = $4,050,000; AD left Dec. 31, Year 10 = $3,425,000; Total
Consolidated assets $64,226,000

What are the answers to questions 5, 6, 7, and 8 and how do I do them?

Below is are balance and income numbers for three companies. Answer the questions below. ​

• ● The balance sheet items may not balance perfectly (they may be out ~$1) due to rounding error.

• ● USE EXCEL to calculate the solutions and do the math – calculators may throw off your rounding

• ● Submit percentages as the percentage followed by two decimals. A number that appears as .04567 in excel should be

  submitted as 4.57%.

• ● Responses will be marked correct if they are within 5% of the answer I calculated in Excel

  (Questions on next page)

1. Which company has the best liquidity (highest current ratio) in Year 2?

2. Which company does the best job generating profits for shareholders in Year 2? (ROE)

3. Which company does the best job generating profits with its total investment in Year 2? (ROA)

4. Which company is the most leveraged (high long-term debt to equity) in Year 2?

5. Which company has the biggest current threat of being illiquid (lowest current ratio) in Year 2?

6. Which company saw the biggest increase in its net profit margin from Year 1 to Year 2 (or smallest decrease if NI all

   negative)?

7. What is company 2's ROA in Year 2?

8. What is company 1's ROA in Year 1?

9. What is company 3's ROA in Year 2?

10. Which company has the highest gross margin in Year 2?

11. What is company 1's quick ratio in Year 1?

12. What is company 2's current ratio in Year 2?

13. What is company 3's net margin in Year 2?

14. What is company 2's inventory turnover in Year 2?

15. What is company 3's long-term debt to assets ratio in Year 1?

1. In which case will an investor receive the most interest:

a. 10%, compounded annually. b. 10%, compounded monthly. c. 10%, compounded continuously. d. 10%, compounded daily. e. There is not enough information provided to correctly answer this question

2. An annuity is:

a. a stream of equal payments at unequal time intervals.

b. a stream of equal payments at equal time intervals.

c. a stream of equal payments that continue forever.

d. all of the above.

e. none of the above.

3. A perpetuity is:

a. a stream of equal payments at unequal time intervals.

b. a stream of equal payments at equal time intervals.

c. a stream of equal payments that continue forever.

d. all of the above.

e. none of the above.

4. The basic rule of the time value of money (assuming positive interest rates) is:

a. investments will always be worth more tomorrow than they are today.

b. it’s always wiser to save a dollar for tomorrow than to spend it today.

c. a dollar in hand today is worth more than a dollar promised at some time in the future.

d. All of the statements above express an aspect of the basic rule of time value of money.

e. None of the statements above represent the basic rule of the time value of money.

5. The present value of a future amount (assuming positive interest rates and a time difference between the present and the future):

a. will always be less than the future amount.

b. can be calculated precisely if the discount rate and number of periods is known.

c. is greater than the future value.

d. both a. and b. above are true.

e. None of the statements above are correct

6. In 2 years you are to receive $10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would __________.

a. fall

b. rise

c. remain unchanged

d. The correct answer cannot be determined without more information

7. Assume that the interest rate is greater than zero. Which of the following cash-inflow streams totaling $1,500 would you prefer? The cash flows are listed in order for Year 1, Year 2, and Year 3 respectively.

a. $700 in Year 1; $500 in Year 2; $300 in Year 3

b. $300 in Year 1; $500 in Year 2; $700 in Year 3

c. $500 in Year 1; $500 in Year 2; $500 in Year 3

d. Any of the above, since they each sum to $1,500

8. Assume that the interest rate is equal to zero (i.e., 0%). Which of the following cash-inflow streams totaling $1,500 would you prefer? The cash flows are listed in order for Year 1, Year 2, and Year 3 respectively.

a. $700 in Year 1; $500 in Year 2; $300 in Year 3

b. $300 in Year 1; $500 in Year 2; $700 in Year 3

c. $500 in Year 1; $500 in Year 2; $500 in Year 3

d. Any of the above, since they each sum to $1,500.

Problem 5-25 Prepare and Interpret Income Statements; Changes in Both Sales and Production; Lean Production [LO5-1, LO5-2, LO5-3]

Starfax, Inc., manufactures a small part that is widely used in various electronic products such as home computers. Operating results for the first three years of activity were as follows (absorption costing basis):

In the latter part of Year 2, a competitor went out of business and in the process dumped a large number of units on the market. As a result, Starfax’s Sales dropped by 20% during Year 2 even though production increased during the year. Management had expected sales to remain constant at 50,000 units; the increased production was designed to provide the company with a buffer of protection against unexpected spurts in demand. By the start of Year 3, management could see that inventory was excessive and that spurts in demand were unlikely. To reduce the excessive inventories, Starfax cut back production during Year 3, as shown below:

Additional information about the company follows:

1. The company’s plant is highly automated. Variable manufacturing expenses (direct materials, direct labor, and variable manufacturing overhead) total only $4.00 per unit, and fixed manufacturing overhead expenses total $540,000 per year.  
2. Fixed manufacturing overhead costs are applied to units of product on the basis of each year’s production. That is, a new fixed manufacturing overhead rate is computed each year.
3. Variable selling and administrative expenses were $3 per unit sold in each year. Fixed selling and administrative expenses totaled $70,000 per year.
4. The company uses a FIFO inventory flow assumption.

Starfax’s management can’t understand why profits more than doubled during Year 2 when sales dropped by 20%, and why a loss was incurred during Year 3 when sales recovered to previous levels.

Required:

1. Prepare a contribution format variable costing income statement for each year.

2a. Compute the unit product cost in each year under absorption costing. (Round your answers to 2 decimal places.)

2b. Reconcile the variable costing and absorption costing net operating income (loss) figures for each year.

5b. If Lean Production had been used during Year 2 and Year 3 and the predetermined overhead rate is based on 50,000 units per year, what would the company's net operating income (loss) have been in each year under absorption costing? (Losses should be indicated by a minus sign.)

The following is Aerie Corp.'s comparative balance sheet accounts worksheet at December 31, Year 8 and Year 7, with a column showing the increase (decrease) from Year 7 to Year 8.

Additional information:

On December 31, Year 7, Aerie acquired 25% of Acme's common stock for $275,000. There is no goodwill attributable to the investment, which is appropriately accounted for by the equity method. Acme reported income of $120,000 for the year ended December 31, Year 8. No dividend was paid on Acme's common stock during the year.

During Year 8, Aerie loaned $300,000 to Sky Co., an unrelated company. Sky made the first semi-annual principal payment of $30,000 on October 1, Year 8.

On January 2, Year 8, Aerie sold equipment costing $60,000, with a carrying amount of $35,000, for $40,000 cash.

On December 31, Year 8, Aerie entered into a capital lease for an office building. The present value of the annual rental payments is $400,000, which equals the fair value of the building. Aerie made the first rental payment of $60,000 when due on January 2, Year 9.

Net income for Year 8 was $360,000.

Aerie declared and paid cash dividends for both Year 7 and Year 8. For Year 7, Aerie declared a $90,000 dividend and paid it on February 28, Year 8. For Year 8, Aerie declared an $80,000 dividend to be paid on February 8, Year 9.

Using the indirect method, complete Aerie's statement of cash flows for the year ended December 31, Year 8, using the information above. Enter the appropriate amounts in the designated cells below. Indicate negative numbers by using a leading minus (-) sign.

Aerie Corp.
Statement of Cash Flows
For the year ended December 31, Year 8