Retail Inventory Method
Harmes Company is a clothing store that uses the retail inventory method. The following information relates to its operations during 2016:
| Cost | Retail | |
|---|---|---|
| Inventory, January 1 | $28,800 | $41,500 |
| Purchases | 66,300 | 104,100 |
| Markups (net) | — | 1,700 |
| Markdowns (net) | — | 700 |
| Sales | — | 82,300 |
Required:
1. Compute the ending inventory by the retail inventory method for the following cost flow assumption: FIFO. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.
| HARMES COMPANY | ||
| Calculation of ending inventory by retail inventory method | ||
| FIFO 2016 | ||
| Cost | Retail | |
| $ | $ | |
| $ | $ | |
| $ | $ | |
| $ | ||
| $ | ||
2. Compute the ending inventory by the retail inventory method for the following cost flow assumption: Average cost. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.
| HARMES COMPANY | ||
| Calculation of ending inventory by retail inventory method | ||
| Average Cost 2016 | ||
| Cost | Retail | |
| $ | $ | |
| $ | $ | |
| $ | ||
| $ | ||
3. Compute the ending inventory by the retail inventory method for the following cost flow assumption: LIFO. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.
| HARMES COMPANY | ||
| Calculation of ending inventory by retail inventory method | ||
| LIFO 2016 | ||
| Cost | Retail | |
| $ | $ | |
| $ | ||
| $ | $ | |
| $ | ||
| Ending inventory at LIFO cost | ||
| Beginning layer (as stated in data) | $28,800 | |
| New layer | ||
| Total | $ | |
4. Compute the ending inventory by the retail inventory method for the following cost flow assumption: Lower of cost or market (based on average cost). Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.
| HARMES COMPANY | ||
| Calculation of ending inventory by retail inventory method | ||
| Lower of Cost or Market (based on average cost) 2016 | ||
| Cost | Retail | |
| $ | $ | |
| $ | $ | |
| $ | ||
| $ | ||
In: Accounting
(12-8) Stevens Textile Corporation’s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016 (Thousands of Dollars) Cash $ 1,080 Accounts payable $ 4,320 Receivables 6,480 Accruals 2,880 Inventories 9,000 Line of credit 0 Total current assets $16,560 Notes payable 2,100 Net fixed assets 12,600 Total current liabilities $ 9,300 Mortgage bonds 3,500 Common stock 3,500 ______ Retained earnings 12,860 Total assets $29,160 Total liabilities and equity $ 29,160 Income Statement for December 31, 2016 (Thousands of Dollars) Sales $36,000 Operating costs 32,440 Earnings before interest and taxes $ 3,560 Interest 460 Pre-tax earnings $ 3,100 Taxes (40%) 1,240 Net income $ 1,860 Dividends (45%) $ 837 Addition to retained earnings $ 1,023
a. Suppose 2017 sales are projected to increase by 15% over 2016 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2017. The interest rate on all debt is 10%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2016, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed.
b. What is the resulting total forecasted amount of the line of credit?
In: Finance
Financing Deficit Garlington Technologies Inc.'s
2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
Cash $ 180,000
Accounts payable $ 360,000
Receivables 360,000
Notes payable 156,000
Inventories 720,000
Line of credit 0
Total current assets $1,260,000
Accruals 180,000
Fixed assets 1,440,000
Total current liabilities $ 696,000
Common stock 1,800,000
Retained earnings 204,000
Total assets $2,700,000
Total liabilities and equity $2,700,000
Income Statement for December 31, 2016
Sales $3,600,000
Operating costs 3,279,720
EBIT $ 320,280
Interest 18,280
Pre-tax earnings $ 302,000
Taxes (40%) 120,800
Net income 181,200
Dividends $ 108,000
Suppose that in 2017 sales increase by 15% over 2016 sales and that 2017 dividends will increase to $140,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 9%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
Garlington Technologies Inc.
Pro Forma Income Statement December 31, 2017
Sales $
Operating costs $
EBIT $
Interest $
Pre-tax earnings $
Taxes (40%) $
Net income $
Dividends: $
Addition to RE: $
Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017
Cash $
Receivables $
Inventories $
Total current assets $
Fixed assets $
Total assets $
Accounts payable $
Notes payable $
Accruals $
Total current liabilities $
Common stock $
Retained earnings $
Total liabilities and equity $
In: Accounting
Deepa Chungi wishes to develop an average, or index, that can be used to measure the general behavior of stock prices over time. She has decided to include 6 closely followed, high-quality stocks in the average or index. She plans to use August 15, 1987, her birthday, as the base and is interested in measuring the value of the average or index on August 15, 2013, and August 15, 2016. She has found the closing prices for each of the 6 stocks, A through F, at each of the 3 dates and has calculated a divisor that can be used to adjust for any stock splits, company changes, and so on that have occurred since the base year, which has a divisor equal to 1.00.
a. Using the data given in the table,
LOADING...
, calculate the market average, using the same methodology used to calculate the Dow averages, at each of the 3
dateslong dash—August
15, 1987, 2013, and 2016.
b. Using the data given in the table and assuming a base index value of 10 on August 15, 1987, calculate the market index, using the same methodology used to calculate the S&P indexes, at each of the 3 dates.
c. Use your findings in parts a and b to describe the general market
conditionlong dash—bull
or
bearlong dash—that
existed between August 15, 2013, and August 15, 2016.
d. Calculate the percentage changes in the average and index values between August 15, 2013, and August 15, 2016. Why do they differ?
|
tock |
August 15, 2016 |
August 15, 2013 |
August 15, 1987 |
|||
|
A |
$46.77 |
$39.27 |
$49.01 |
|||
|
B |
$36.43 |
$36.4836.48 |
$9.26 |
|||
|
C |
$20.88 |
$23.72 |
$6.29 |
|||
|
D |
$58.01 |
$60.53 |
$25.08 |
|||
|
E |
$81.35 |
$70.09 |
$45.33 |
|||
|
F |
$31.06 |
$29.11 |
32.28 |
|||
|
Divisor |
0.68 |
0.740 |
1.00 |
|||
In: Finance
BG Wholesalers is developing its annual financial statements at December 31, 2016. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:
| 2016 | 2015 | ||||||
| Balance sheet at December 31 | |||||||
| Cash | $ | 39,400 | $ | 31,600 | |||
| Accounts receivable | 36,300 | 31,600 | |||||
| Merchandise inventory | 45,000 | 40,500 | |||||
| Property and equipment | 125,600 | 102,700 | |||||
| Less: Accumulated depreciation | (34,000) | (27,100) | |||||
| $ | 212,300 | $ | 179,300 | ||||
| Accounts payable | $ | 40,300 | $ | 31,600 | |||
| Accrued wage expense | 3,500 | 4,000 | |||||
| Note payable, long-term | 47,500 | 52,900 | |||||
| Contributed capital | 94,400 | 74,700 | |||||
| Retained earnings | 26,600 | 16,100 | |||||
| $ | 212,300 | $ | 179,300 | ||||
| Income statement for 2016 | |||||||
| Sales | $ | 137,000 | |||||
| Cost of goods sold | 87,000 | ||||||
| Other expenses | 39,500 | ||||||
| Net income | $ | 10,500 | |||||
| Additional Data: | |
| a. | Bought equipment for cash, $22,900. |
| b. | Paid $5,400 on the long-term note payable. |
| c. | Issued new shares of stock for $19,700 cash. |
| d. | No dividends were declared or paid. |
| e. | Other expenses included depreciation, $6,900; wages, $20,500; taxes, $6,200; other, $7,200. |
| f. |
Accounts payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash. |
| Required: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. |
Prepare the statement of cash flows for the year ended December 31, 2016, using the indirect method. (List cash outflows as negative amounts.)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In: Accounting
Problem 12-09
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $150,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 14%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
|||
| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
|||
| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance
Problem 12-09
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $150,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 14%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
|||
| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
|||
| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance
|
Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31): |
| 2016 | 2015 | |||
| Sales | $ | 4,550,000 | $ | 3,650,000 |
| Cost of goods sold | 2,890,000 | 2,030,000 | ||
| Administrative expenses | 830,000 | 705,000 | ||
| Selling expenses | 390,000 | 342,000 | ||
| Interest revenue | 153,000 | 143,000 | ||
| Interest expense | 206,000 | 206,000 | ||
| Loss on sale of assets of discontinued component | 62,000 | — | ||
|
On July 1, 2016, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2016, for $62,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows: |
| 1/1/16-9/30/16 | 2015 | ||||||
| Sales | $ | 430,000 | $ | 530,000 | |||
| Cost of goods sold | (305,000 | ) | (338,000 | ) | |||
| Administrative expenses | (53,000 | ) | (43,000 | ) | |||
| Selling expenses | (23,000 | ) | (33,000 | ) | |||
| Operating income before taxes | $ | 49,000 | $ | 116,000 | |||
|
In addition to the account balances above, several events occurred during 2016 that have not yet been reflected in the above accounts: |
|
| 1. |
A fire caused $53,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event. |
| 2. |
Inventory that had cost $43,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $6,000. |
| 3. | Income taxes have not yet been recorded. |
| Required: |
|
Prepare a multiple-step income statement for the Reed Company for 2016, showing 2015 information in comparative format, including income taxes computed at 30% and EPS disclosures assuming 400,000 shares of common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.) |
In: Accounting
Retail Inventory Method
Harmes Company is a clothing store that uses the retail inventory method. The following information relates to its operations during 2016:
| Cost | Retail | |
|---|---|---|
| Inventory, January 1 | $29,000 | $40,200 |
| Purchases | 67,500 | 100,100 |
| Markups (net) | — | 2,200 |
| Markdowns (net) | — | 700 |
| Sales | — | 88,400 |
Required:
1. Compute the ending inventory by the retail inventory method for the following cost flow assumption: FIFO. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.
| HARMES COMPANY | ||
| Calculation of ending inventory by retail inventory method | ||
| FIFO 2016 | ||
| Cost | Retail | |
| $ | $ | |
| $ | $ | |
| $ | $ | |
| $ | ||
| $ | ||
2. Compute the ending inventory by the retail inventory method for the following cost flow assumption: Average cost. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.
| HARMES COMPANY | ||
| Calculation of ending inventory by retail inventory method | ||
| Average Cost 2016 | ||
| Cost | Retail | |
| $ | $ | |
| $ | $ | |
| $ | ||
| $ | ||
3. Compute the ending inventory by the retail inventory method for the following cost flow assumption: LIFO. Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.
| HARMES COMPANY | ||
| Calculation of ending inventory by retail inventory method | ||
| LIFO 2016 | ||
| Cost | Retail | |
| $ | $ | |
| $ | ||
| $ | $ | |
| $ | ||
| Ending inventory at LIFO cost | ||
| Beginning layer (as stated in data) | $29,000 | |
| New layer | ||
| Total | $ | |
4. Compute the ending inventory by the retail inventory method for the following cost flow assumption: Lower of cost or market (based on average cost). Round the cost-to-retail ratio to three decimal places. If necessary, round dollar amounts to the nearest whole dollar.
| HARMES COMPANY | ||
| Calculation of ending inventory by retail inventory method | ||
| Lower of Cost or Market (based on average cost) 2016 | ||
| Cost | Retail | |
| $ | $ | |
| $ | $ | |
| $ | ||
| $ | ||
In: Accounting
(12-8) Stevens Textile Corporation’s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016 (Thousands of Dollars)
Cash $ 1,080 Accounts payable $ 4,320
Receivables 6,480 Accruals 2,880
Inventories 9,000 Line of credit 0
Total current assets $16,560 Notes payable 2,100
Net fixed assets 12,600 Total current liabilities $ 9,300
Mortgage bonds 3,500
Common stock 3,500
______ Retained earnings 12,860
Total assets $29,160 Total liabilities and equity $ 29,160
Income Statement for December 31, 2016 (Thousands of Dollars)
Sales $36,000
Operating costs 32,440
Earnings before interest and taxes $ 3,560
Interest 460
Pre-tax earnings $ 3,100
Taxes (40%) 1,240
Net income $ 1,860
Dividends (45%) $ 837
Addition to retained earnings $ 1,023
a. Suppose 2017 sales are projected to increase by 15% over 2016 sales. Use the
forecasted financial statement method to forecast a balance sheet and income
statement for December 31, 2017. The interest rate on all debt is 10%, and cash
earns no interest income. Assume that all additional debt in the form of a line of
credit is added at the end of the year, which means that you should base the
forecasted interest expense on the balance of debt at the beginning of the year. Use
the forecasted income statement to determine the addition to retained earnings.
Assume that the company was operating at full capacity in 2016, that it cannot sell
off any of its fixed assets, and that any required financing will be borrowed as
notes payable. Also, assume that assets, spontaneous liabilities, and operating costs
are expected to increase by the same percentage as sales. Determine the additional
funds needed.
b. What is the resulting total forecasted amount of the line of credit?
In: Finance