Question 6

Comparative statements of financial position for Campbell Inc. appear below:

CAMPBELL INC.

Comparative Statements of Financial Position

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Assets

                                                                                                Dec. 31, 2016 Dec. 31, 2015

Cash                                                                                        $ 29,000         $15,000

Accounts receivable                                                                   28,000         19,000

Prepaid expenses                                                                         9,000         12,000

Merchandise inventory                                                               37,000         27,000

Long-term investments                                                               35,000         53,000

Equipment                                                                                   75,000         48,000

Accumulated depreciation—equipment                                   (26,000)        (22,000)

Total assets                                                                             $187,000         $152,000

Liabilities and Shareholders' Equity

Accounts payable                                                                   $ 21,000         $ 9,000

Mortgage payable                                                                       37,000         45,000

Common shares                                                                         40,000         23,000

Retained earnings                                                                       89,000         75,000

            Total liabilities and shareholders' equity                      $187,000         $152,000

Additional information regarding fiscal 2016:

1.         Profit for the year was $27,000.

2.         Cash dividends of $13,000 were declared and paid during the year.

3.         Long-term investments with a carrying amount of $53,000 were sold for $48,000 cash.

Instructions

Using the indirect method, prepare a statement of cash flows for the year ended December 31, 2016.

Additional Funds Needed The Booth Company's sales are forecasted to double from $1,000 in 2016 to $2,000 in 2017. Here is the December 31, 2016, balance sheet:

Cash $ 100 Accounts payable $ 50

Accounts receivable 200    Notes payable 150

Inventories 200 Accruals 50

Net fixed assets 500 Long-term debt 400

Common stock 100 Retained earnings 250

Total assets $1000 Total liabilities and equity $1000

Booth's fixed assets were used to only 50% of capacity during 2016, but its current assets were at their proper levels in relation to sales. All assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 7% and its payout ratio to be 40%.

What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar. $

Kansas Enterprises purchased equipment for $60,000 on January 1, 2015. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years.

(1) Using the straight-line method, depreciation expense for 2015 would be: $   




(2) Using the double-declining balance method, depreciation expense for 2016 would be: $   



7 / 10

4. Crestview Estates purchased a tractor on January 1, 2015, for $65,000. The tractor’s useful life is estimated to be 30,000 miles and has a residual value of $5,000. If Crestview used the tractor 5,000 miles in 2015 and 3,000 miles in 2016, what is the balance for accumulated depreciation at the end of 2016 using the activity-based method?

$   



5. The Surf’s Up issues 2,000 shares of 5%, $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $28,000 in 2015. Assuming the preferred stock is cumulative.  

(1) The annual cash dividend normally paid to preferred stock is:

$   



(2) The cash dividend paid to common stockholders in 2015 is:

$   

Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock.

Consider the case of Falcon Freight Inc. (FF):

Five years of realized returns for FF are given in the following table. Remember:

Given the preceding data, the average realized return on FF’s stock is----- .

The preceding data series represents--- of FF’s historical returns. Based on this conclusion, the standard deviation of FF’s historical returns is -- --- .

If investors expect the average realized return from 2012 to 2016 on FF’s stock to continue into the future, its coefficient of variation (CV) will be ----- .

1. Cameron gave the following gifts to her niece, Jill and nephew, Jack:

• $10,000 to Jill and $10,000 to Jack in 2016

• $15,000 to Jill and $20,000 to Jack in 2017

• $25,000 to Jill and $25,000 to Jack in 2018

The annual exclusion for 2016 & 2017 is $14,000 and for 2018 is $15,000; the lifetime estate and gift tax basic exclusion amount is 2016 in $5,450,000; 2017 in $5,490,000, and 2018 in 11,180,000. Calculate the value of the gift tax using the table below.

Preparing the [I] consolidation entries for sale of depreciable assets-Equity method

Assume on Jan. 1, 2016, a parent sells to its wholly owned subsidiary, for a sale price of $162,000, equipment that originally cost $184,000. The parent originally purchased the equipment on January 1, 2012 and depreciated the equipment assuming a 10 year useful life ( straight- line with no salvage value). The subsidiary has adopted the parent's depreciation policy and depreciated the equipment over the remaining useful life of 6 years. The parent uses the equity method to account for its equity Investment.

A.) Compute the annual pre-consolidation depreciation expense for subsidiary (post-intercompany sale) and the parent (pre-intercompany sale)

B.) Compute the pre-consolidation Gain on Sale recognized by the parent during 2016.

C.) Prepare the required [I] consolidation entry in 2016 (assume a full year of depreciation)

D.) Prepare the required [I] consolidation entry in 2019 (assuming the subsidiary is still holding the equipment)

E.) How long must we continue to make the [I} consolidation entries

_{Preparing the [I] consolidation entries for sale of depreciable assets—Equity method}

_{Assume that on January 1, 2016, a parent sells to its wholly owned subsidiary, for a sale price of $162,000, equipment that originally cost $184,000. The parent originally purchased the equipment on January 1, 2012, and depreciated the equipment assuming a 10-year useful life (straight-line with no salvage value). The subsidiary has adopted the parent’s depreciation policy and depreciates the equipment over the remaining useful life of 6 years. The parent uses the equity method to account for its Equity Investment.}

_{a. Compute the annual pre-consolidation depreciation expense for the subsidiary (post-intercompany sale) and the parent (pre-intercompany sale).
b. Compute the pre-consolidation Gain on Sale recognized by the parent during 2016.}

_{c. Prepare the required [I] consolidation entry in 2016 (assume a full year of depreciation).}

_{d. Prepare the required [l] consolidation entry in 2019 (assuming the subsidiary is still holding the equipment).}

_{e. How long must we continue to make [I] consolidated entries?}

Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.97 million barrels per year in 2016, but production is declining at 9% per year for the foreseeable future. Costs of production, transportation, and administration add up to $26.70 per barrel. The average oil price was $66.70 per barrel in 2016. PP has 8.7 million shares outstanding. The cost of capital is 11%. All of PP’s net income is distributed as dividends. For simplicity, assume that the company will stay in business forever and that costs per barrel are constant at $26.70. Also, ignore taxes. a. Assume that oil prices are expected to fall to $61.70 per barrel in 2017, $56.70 per barrel in 2018, and $51.70 per barrel in 2019. After 2019, assume a long-term trend of oil-price increases at 7% per year. What is the ending 2016 value of one PP share? Share Value= b-1. What is PP’s EPS/P ratio? b-2. Is it equal to the 11% cost of capital? Yes or no

Additional Funds Needed The Booth Company's sales are forecasted to double from $1,000 in 2016 to $2,000 in 2017. Here is the December 31, 2016, balance sheet: Cash $ 100 Accounts payable $ 50 Accounts receivable 200 Notes payable 150 Inventories 200 Accruals 50 Net fixed assets 500 Long-term debt 400 Common stock 100 Retained earnings 250 Total assets $1000 Total liabilities and equity $1000 Booth's fixed assets were used to only 50% of capacity during 2016, but its current assets were at their proper levels in relation to sales. All assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 8% and its payout ratio to be 70%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.

Assume sales for Peach Street Industries are expected to increase by 9.00% from 2015 to 2016. Peach Street is operating at full capacity currently and expected assets-to-sales and spontaneous liabilities-to-sales to remain the same. Additionally, the firm is looking to maintain their 2015 net profit margin and dividend payout ratios for 2016. The firm’s tax rate is 37.00% and selected income statement and balance sheet information for 2015 is provided below: Entry Value Entry Value Current Assets $800.00 Sales $2,500.00 Net Fixed Assets (NFA) $700.00 Operating Costs $2,030.00 Total Assets $1,500.00 Depreciation $90.00 Accounts Payable and Accruals $30.00 Interest Expense $69.00 Notes Payable $180.00 Dividends Paid $93.30 Long term debt $510.00 Total Equity $780.00

The firm is projecting sales growth of 10% from 2015 to 2016. If the firm did not have access to or did not want to use external capital sources to grow sales, what is the maximum rate of sales growth (self-sustaining growth rate) could the firm could achieve under these conditions?