Compute and Interpret Coverage, Liquidity and Solvency Ratios

Selected balance sheet and income statement information from CVS Health Corp. for 2014 through 2016 follows ($ millions).

a. Compute times interest earned ratio for each year and discuss any trends for each. Round answers to one decimal place.

Based on your computations above, select the most appropriate answer.

Times interest earned has steadily increased since 2014.

Times interest earned has steadily decreased since 2014.

Times interest earned has remained the same since 2014.

Times interest earned increased in 2015 but then decreased in 2016.

1.00 points out of 1.00

b. Compute the current ratio for each year and discuss any trend in liquidity. Round answers to one decimal place.

Do you believe the company is sufficiently liquid? Explain.

CVS’s current ratio has increased over the past three years and is greater than 1, indicating CVS is liquid.

CVS’s current ratio has decreased over the past three years and it is currently less than 1 indicating CVS is not liquid.

CVS’s current ratio has increased over the past three years, however, it remains less than 1 indicating CVS is not liquid.

CVS’s current ratio has decreased over the past three years, however, it is greater than 1 indicating CVS is liquid.

1.00 points out of 1.00

c. Compute the total liabilities-to-equity ratio for each year and discuss any trends for each.

Round answers to one decimal place.

Lamplighter Company, the lessor, agrees to lease equipment to Tilson Company, the lessee, beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

Required:

selling price implied by the lease is $148443.65.

I need help with the boxes that don't have green check marks in them.

The following are BAC Bhd.’s year end statement of financial position and statement of profit and loss for 2016 and 2017:
2017 ($) 2016 ($)
Non Current Assets:   
Gross Non Current assets 317,503 232,179
Less accumulated depreciation 54,045 34,187
Net Non Current assets 263,458 197,992
Current Assets:
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Cash and equivalents 208,323 102,024
Accounts receivable 690,294 824,979
Inventories 942,374 715,414
Total Current Aassets 1,840,991 1,642,417
Total Assets 2,104,449 1,840,409
Non Current Liabilities   
Long term debt 410,769 372,931
Total Non Current Liabilities 410,769 372,931
Current Liabilites   
Short term borrowings 288,798 296,149
Accounts payable 636,318 414,611
Accruals 106,748 103,362
Total Current Liabilities 1,031,864 814,122
Total Liabilities 1,442,633 1,187,053
Shareholders’ Equity   
Common stock (100,000 shares) 550,000 550,000

Retained earnings 111,816 103,356
Total Shareholders’ Equity 661,816 653,356
Total Liabilities and Shareholders’ Equity 2,104,449 1,840,409






  
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2017 ($) 2016 ($)
Sales 2,325,967 2,220,607 (-) Cost of goods sold 1,869,326 1,655,827 Other expenses 287,663 273,870 Total operating costs excluding depreciation and amortization 2,156,989 1,929,697 Depreciation and amortization 25,363 26,341 Total operating costs 2,182,352 1,956,038 EBIT 143,615 264,569 (-) Interest expense 31,422 13,802 EBT 112,193 250,767 (-) Taxes (30%) 33,658 75,230 Net income 78,535 175,537

Related items:
2017 2016 Total dividends paid $70,075 $150,000 Stock price per share $15.60 $21.80

Required:
(a) Calculate the after tax operating income (i.e. after-tax EBIT) for 2016 and 2017.

(b) Calculate the net working capital (NWC) that is supported by non-free sources for 2016 and 2017, and the changes in NWC between these two years.

(c) What is free cash flow (FCF)? Calculate the FCF for 2017. Is a negative FCF always a bad sign?

(d) Calculate the following for the company for 2017: (i) Earnings per share (1 mark) (ii) Dividends per share (1 mark) (iii) Book value per share (1 mark) (Total: 15 marks)

: Financial Statement Analysis

The following are BAC Bhd.’s year end statement of financial position and statement of profit and loss for 2016 and 2017:
2017 ($) 2016 ($)
Non Current Assets:   
Gross Non Current assets 317,503 232,179
Less accumulated depreciation 54,045 34,187
Net Non Current assets 263,458 197,992
Current Assets:
ICLBAT/JANUARY2019
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Cash and equivalents 208,323 102,024
Accounts receivable 690,294 824,979
Inventories 942,374 715,414
Total Current Aassets 1,840,991 1,642,417
Total Assets 2,104,449 1,840,409
Non Current Liabilities   
Long term debt 410,769 372,931
Total Non Current Liabilities 410,769 372,931
Current Liabilites   
Short term borrowings 288,798 296,149
Accounts payable 636,318 414,611
Accruals 106,748 103,362
Total Current Liabilities 1,031,864 814,122
Total Liabilities 1,442,633 1,187,053
Shareholders’ Equity   
Common stock (100,000 shares) 550,000 550,000

Retained earnings 111,816 103,356
Total Shareholders’ Equity 661,816 653,356
Total Liabilities and Shareholders’ Equity 2,104,449 1,840,409

2017 ($) 2016 ($)
Sales 2,325,967 2,220,607 (-) Cost of goods sold 1,869,326 1,655,827 Other expenses 287,663 273,870 Total operating costs excluding depreciation and amortization 2,156,989 1,929,697 Depreciation and amortization 25,363 26,341 Total operating costs 2,182,352 1,956,038 EBIT 143,615 264,569 (-) Interest expense 31,422 13,802 EBT 112,193 250,767 (-) Taxes (30%) 33,658 75,230 Net income 78,535 175,537

Related items:
2017 2016 Total dividends paid $70,075 $150,000 Stock price per share $15.60 $21.80

Required:
(a) Calculate the after tax operating income (i.e. after-tax EBIT) for 2016 and 2017.

(b) Calculate the net working capital (NWC) that is supported by non-free sources for 2016 and 2017, and the changes in NWC between these two years.

(c) What is free cash flow (FCF)? Calculate the FCF for 2017. Is a negative FCF always a bad sign?

(d) Calculate the following for the company for 2017: (i) Earnings per share (1 mark) (ii) Dividends per share (1 mark) (iii) Book value per share (1 mark) (Total: 15 marks)

1. Pearl Company began operations on January 2, 2016. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 9 paid vacation days and 7 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.

Pearl Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.

a) prepare journal entries to record transactions related to compensated absences during 2016 and 2017

b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2016 and 2017.

2. Cullumber Company sells televisions at an average price of $879 and also offers to each customer a separate 3-year warranty contract for $93 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 294 televisions and 204 warranty contracts for cash. It estimates the 3-year warranty costs as $21 for parts and $31 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.

a) Record any necessary journal entries in 2017.

b) What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified?

c) In 2018, Cullumber Company incurred actual costs relative to 2017 television warranty sales of $1,920 for parts and $3,960 for labor.

Record any necessary journal entries in 2018 relative to 2017 television warranties. Use "Inventory" account to record the warranty expense.

d) What amounts relative to the 2017 television warranties would appear on the December 31, 2018, balance sheet and how would they be classified?

The inventory on hand at the end of 2016 for Reddall Company is valued at a cost of $94,000. The following items were not included in this inventory:

1. Purchased goods in transit, under terms FOB shipping point, invoice price $4,000, freight costs $200.
2. Goods out on consignment to Marlman Company, sales price $5,600, shipping costs of $300.
3. Goods sold to Grina Co. under terms FOB destination, invoiced for $1,900 which included $178 freight charges to deliver the goods. Goods are in transit.
4. Goods held on consignment by Reddall at a sales price of $2,700 which included sales commission of 20% of sales price.
5. Purchased goods in transit, shipped FOB destination, invoice price $2,100 which included freight charges of $190.

Required:

Determine the cost of the ending inventory that Reddall should report on its December 31, 2016, balance sheet, assuming that its selling price is 140% of the cost of the inventory.

$_________

*A PPE is acquired for 10.000 $ at the beginning of 2016. It had a useful life of 5 years. On January 1, 2018 the asset was revalued to 12.000 $. What would be the comprehensive income in year 2018?

a) 6.000

b) 4.000

c) 2.000

d) 3.000

*Suppose that a company has 2 buildings, one for investment (A) and one for administrative (B) purposes. Both properties have an initial cost of 1.000.000 $. The company does not use the cost model and both properties have 10 years of useful lives. A is revalued one year later and the revalued amount is 900.000 $. B is also revalued one year later and the revalued amount is 1.200.000 $. After the revaluation the company immediately sells A at 950.000 $ and sells B at 800.000 $. What is the profit/loss amount in the income statement for all of the transactions above?

a) 50.000 loss

b) 250.000 loss

c) 100.000 profit

d) 150.000 profit

*What does PIRATE stand for intangible assets?

a) Criteria for capitalizing research costs

b) Criteria for capitalizing development costs

c) Criteria for capitalizing directly attributable costs

d) Criteria for capitalizing amortization costs

A paired difference experiment yielded pairs of observations. What is the rejection region for testing H_0:μ_d=2 vs H_a:μ_d>2 for the following case n_d=10,α=0.05.

(A) t >1.833 (B) t <-1.833 (C) t >1.328 (D) t >2.776

Explain why we must verify whether or not the assumptions of an inferential statistical test are met before we calculate the statistic. Specifically, what does a failure to meet the assumptions mean in terms of the α level of our experiment? What should we do if the assumptions are not met?