The Canyon Company is preparing its annual earnings per share amounts to be disclosed on its 2019 income statement. It has collected the following information at the end of 2019:

• Net income: $125,000. Corporate income tax rate: 30%
• Common stock outstanding on January 1, 2019:   12,000 shares, $10 par
• Common stock issuances during 2019:
  • April 2 - 2,500 shares;
  • October 1 - 4,000 shares.
• Stock split: On November 1, the company declared a two-for-one stock split.
• Common stock prices: The common stock sold at an average market price of $20 per share during the year.
• 8% convertible preferred stock outstanding on December 31, 2019: 3,000 shares. The preferred stock was issued in 2010. Each share of $100 par preferred stock is convertible into 5 shares of common stock. Current dividends have been paid. To date, no preferred stock has been converted.
• Compensatory share options outstanding: Key executives may currently acquire 1,000 shares of common stock at $15 per share. The option were granted in 2010. To date, none have been exercised.
• $200,000 of 8% convertible bonds: Each bond is convertible into 28 shares of common stock.

Required:

Prepare supporting calculation for Canyon Company and compute its:

1. Basic earnings per share.
2. Diluted earnings per share.

I. On September 12, 2010, Mardi Gras Mambo Inc. received a $6,000 8%, 120 day note on account from Throwin’ Things Corporation

a. Is the note a note receivable or a note payable for Mardi Gras Mambo?

b Is Mardi Gras Mambo the maker or the payee of the note?

c What is the face amount of the note?

d What is the total amount of cash that is due at maturity (i.e., what is the maturity value of the note)?

e What is the due date of the note?

f What is the principal of the note?

g As of September 30, 2010, how much interest has Mardi Gras Mambo accrued on the note?

h. Prepare the journal entries for the following transactions:

(1) September 12

(2) September 30

(3) At maturity date (assume no entries regarding the note have been made since September 30)

II. Assume that the note is non-interest bearing and that the market rate of interest for similar securities is 8% (all other terms are the same). Answer each of the following:

a What is the total amount of cash that is due at maturity (i.e., what is the maturity value of the note)?

b. What is the principal of the note?

c. Prepare the journal entries for the following transactions:

(1) September 12

(2) September 30

(3) At maturity date (assume no entries regarding the note have been made since September 30

Year Stock A Returns Stock B Returns

2008 -18.00% -14.50%

2009 33.00 21.80

2010 15.00 30.50

2011 -0.50 -7.60

2012 27.00 26.30

1. Calculate the average rate of return for each stock during the period 2008–2012.
2. Assume that someone held a portfolio consisting of 50 percent Stock A and 50 percent Stock B. What would have been the realized rate of return on the portfolio in each year from 2008 through 2012? What would have been the average return on the portfolio during this period?
3. 1. Calculate the standard deviation of returns for each stock and for the portfolio.
   2. Calculate the coefficient of variation for each stock and for the portfolio. If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
4. Assume a third stock, Stock C, is available for inclusion in the portfolio. Stock C produced the following returns during the 2008-2012 period

Year   Stock C

2008                                          32.00%

2009                                        –11.75

2010                                          10.75

2011                                          32.25

2012                                          –6.75

6. Calculate (or read from the computer screen) the average return, standard deviation, and coefficient of variation for Stock C.
7. Assume that the portfolio now consists of 33.33 percent Stock A, 33.33 percent Stock B, and 33.33 percent Stock C. How does this composition affect the portfolio return, standard deviation, and coefficient of variation versus when 50 percent was invested in A and in B

3. Consider the following situation and answer the subsequent questions to the best of your engineering ability and judgment. a. There are two Schultz Creek watersheds, East and West. The East drains into unincorporated communities east of Flagstaff, and the West drains into the City of Flagstaff itself. The key point about ‘unincorporated’ is that this means these residents did not live in a city or town, and for some infrastructure aspects like storm drainage, there were no requirements or regulations. Prior to 2010 both of these watersheds were heavily forested and due to almost a hundred years of fire suppression instead of fire management, both watersheds had accumulated thick, water-absorbing masses of pine needles and decomposed pine needles on the forest floor. This prevented the watersheds from ‘delivering’ runoff to its streams in normal years because all of the precipitation was stored in the pine needle layers, sometimes referred to as ‘duff’. Only in heavy snow and rain years, about once every 5-7 years, would the streams flow, instead of every one or two years. i. The East Schultz Creek Watershed is approximately 14 square miles in area. The West is about 6 square miles in area. Assume that the following hydrologic soil group percentages hold for both watersheds prior to 2010: 5% HSG D, 8% HSG C, 15% HSG B, and the rest is HSG A, due to the extensive duff in the watershed.

1. It has come to your attention that someone in the company has not been consistent in entering financial data – some years are missing the relative percentage change or the net profit as presented below in Table 1.  You are required to calculate the Relative Percentage Change in the company for the blanks below and the Net Profit for the other blanks.

Show all working out below including the formula used for each year and include the completed table here.

               Table 1: Net Profit ($) per financial year

2. Using Excel, create a column chartof the Net Profit calculated in part (a) for the years 2010-2019. For full marks, label the axis and provide an appropriate title.

(c) Using Excel, create a Sparkling of the Relative Percentage Change calculated in part (a) for the years 2011-2019. For full marks, use the Sparkling options to mark if there are any negative values and include a horizontal axis to easily visualise changes. The sparkline should be included here however you will also use it in the report body text.

Dublin Chips is a manufacturer of prototype chips based in​ Buffalo, New York.

Next​ year, in 2018​, Dublin Chips expects to deliver 615 prototype chips at an average price of $95,000. Dublin ​Chips' marketing vice president forecasts growth of 65 prototype chips per year through 2024.

That​ is, demand will be 615 in 2018​, 680 in 2019​, 745 in 2020​, and so on. The plant cannot produce more than 585 prototype chips annually. To meet future​ demand, Dublin Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,200,000 if the plant is replaced. If the plant is​ modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the updated plant. The old equipment is retained as part of the modernize alternative.

The following data on the two options are​ available:

Dublin Chips uses​ straight-line depreciation, assuming zero terminal disposal value. For​ simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of 2018​, and all transactions thereafter occur on the last day of the year. Dublin ​Chips' required rate of return is 14​%. There is no difference between the modernize and replace alternatives in terms of required working capital. Dublin Chips pays a 35​% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 35​% rate.

​Let's begin with the modernize alternative. Start by computing the present value of the​after-tax cash flows from​ operations, then calculate the present value of the​ after-tax cash savings from depreciation and the terminal disposal​ value, and​ finally, determine the total net present value​ (NPV) of the investment for the modernize alternative.

Empire Ltd. is a company that manufactures and sells a single product called WarStars. For planning and control purposes they utilize a monthly master budget, which is developed in advance of the budget year. Their fiscal year end is March 31.

The sales forecast consisted of these few lines:

• For the year ended March 31, 2020: 620,000 units at $15.00 each*

• For the year ended March 31, 2021: 640,000 units at $16.50 each

• For the year ended March 31, 2022: 660,000 units at $16.50 each

*Sales for the year ended March 31, 2020 are based on actual sales to date and budgeted sales for the duration of the year.

Your investigations of the company’s records have revealed the following information:

1. Peak months for sales correspond with gift-giving holidays. History shows that January, March, May and June are the slowest months with only 4% of sales for each month. Sales pick up over the summer with July, August and September each contributing 6% to the total. Valentine’s Day in February boosts sales to 8%, and Easter in April accounts for 10%. As Christmas shopping picks up momentum, winter sales start at 12% in October, move to 16% in November and then peak at 20% in December. This pattern of sales is not expected to change in the next two years.

2. From previous experience, management has determined that an ending inventory equal to 30% of the next month’s sales is required to fit the buyer’s demands.

3. There is only one type of raw material used in the production of WarStars. MilkyWay acrylic (MWA) is a very compact material that is purchased in powder form. Each WarStars requires 6 kilograms of MWA, at a cost of $1.00 per kilogram. The supplier of MWA tends to be somewhat erratic so Empire finds it necessary to maintain an inventory balance equal to 50% of the following month’s production needs as a precaution against stock-outs. Empire pays for 25% of a month’s purchases in the month of purchase, 30% in the following month and the remaining 45% two months after the month of purchase. There is no early payment discount. 2

4. Beginning accounts payable will consist of $306,612 arising from the following estimated direct material purchases for February and March of 2020: MWA purchases in February, 2020: $236,160 MWA purchases in March, 2020 $267,120

5. Space Age’s manufacturing process is highly automated, so their direct labour cost is low. Employees are paid on an hourly basis. Their total pay each month is, therefore, dependent on production volumes and averages $20.00 per hour. This rate already includes the employer’s portion of employee benefits. All payroll costs are paid in the period in which they are incurred. Each unit spends a total of 6 minutes in production.

6. Variable manufacturing overhead is allocated based on units produced. The unit variable overhead manufacturing rate is $2.50

7. The fixed manufacturing overhead costs for the entire year are as follows: Training and development $ 144,000 Property and business taxes 84,000 Supervisors’ salaries 194,400 Depreciation of manufacturing equipment 132,000 Insurance 69,600 Other 123,600 $ 747,600 • Fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred. • Empire uses the straight-line method of depreciation.

8. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous years’ experience has provided the following information: Lowest level of sales: 560,000 units Total S&A Expenses: $888,000 Highest level of sales:680,000 units Total S&A Expenses: $1,032,000 It is estimated that the total selling and administrative expenses for the budget year will be about 2.5% greater than the previous average. These costs are paid in the month in which they occur, with the exception of the only non-cash item: a monthly depreciation of office equipment in the amount of $5,000. Bad debt expense (see point 9) or warehouse rental (see point 10) are not included in the above expenses.

9. Sales are on a cash and credit basis, with 55% collected during the month of the sale, 30% the following month, and 13% the month thereafter. 2% of sales are considered uncollectible (bad debt expense).

10.Because sales are seasonal, Empire must rent an additional warehouse from September to December to house the additional inventory on hand at $25,000 per month, payable at the beginning of the month. 3

11.Sales in February and March 2020 are expected to be $744,000 and $372,000 respectively. Based on the above collection pattern this will result in Accounts Receivable of $256,680 at March 31, 2020, which will be collected in April and May 2020.

12.During the fiscal year ended March 31, 2021 Empire will be required to make monthly income tax installment payments of $12,500. Outstanding income taxes from the year ended March 31, 2020 must be paid in June 2020.

13.Prior to the busy season, Empire is planning to upgrade its manufacturing equipment for which they will need to pay cash. The bid that was accepted totaled $450,000 which will be paid in 9 equal instalments beginning in June 2020. Manufacturing overhead costs shown above already include the depreciation on this equipment.

14.An arrangement has been made with the local bank that if Empire maintains a minimum balance of $50,000 in their bank account, they will be given a line of credit at a preferred rate of 6% per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $1,000 and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month (i.e. any borrowing for a month must occur at the beginning of that month). There is an outstanding line of credit borrowing of $152,000 on March 31, 2020.

15.Empire has a policy of paying dividends at the end of each month. The President tells you that the board of directors plans to continue their policy of declaring dividends of $10,000 per month.

16.A listing of the estimated balances in the company’s ledger accounts as of March 31, 2020 is given below: Cash $ 50,920 Accounts payable $ 306,612 Accounts receivable 256,680 Income tax payable 50,000 Inventory-raw materials 157,440 Bank Loan 152,000 Inventory-finished goods 240,960 Capital stock 500,000 Capital assets (net) 1,294,000 Retained earnings 991,388 $ 2,000,000 $ 2,000,000 4

Required: Prepare a monthly master budget for Empire for the year ended March 31, 2021, including the following schedules:

1. Sales Budget & Schedule of Cash Receipts 2. Production Budget 3. Direct Materials Budget & Schedule of Cash Disbursements 4. Direct Labour Budget 5. Manufacturing Overhead Budget 6. Ending Finished Goods Inventory Budget 7. Selling and Administrative Expense Budget 8. Cash Budget

The Carlson Department store suffered heavy damage when a hurricane struck on August 31. The store was closed for four months (September through December), and Carlson is now involved in a dispute with its insurance company about the amount of lost sales during the time the store was closed. Two key issues must be resolved (1) The Amount of sales Carlson would have made if the hurricane had not struck and (2) whether Carlson is entitled to any compensation for excess sales due to increased business activity after the storm. More than $8 Billion in federal disaster relief and insurance money came into the country, resulting in increased sales at department stores and numerous other businesses.

Table 6.18 gives Carlson's sales data for the the 48 month preceding the storm. Table 6.19 reports total sales for the 48 months preceding the storms for all department stores in the country , as well as total sales in the country for the four months the Carlson's Department Store was closed.

Table 6.18 Sales for Carlson Department store ($Million)

Table 6.19 Department Store Sales for the County ($Million)

Carlson's Manager asked you to analyze these data and Estimates of the lost sales at the Carlson Department Store for the month of September through December. They also asked you to determine whether a case can be made, Carlson is entitled to compensation for excess sales it would have earned in addition to ordinary sales

Managerial Report
Prepare a report for the managers of the Carlson Department Store that summarizes your findings, forecast and recommendations. Include the following:
1. An estimates of sales for Carlson Department Store had there been no hurricanes
2. An estimates of country wide department stores sales had there been no hurricanes
3. An estimates of lost sales for the Carlson Department Store for September through December.

In addition use the countrywide actual department stores sales for September through December and estimates in part (2) to make a case for or against excess storm-related sales

You opened an account and deposited X Dollars on January 1, 2002 in National City Bank. Any balance in the account will earn 5% per year. You withdrew $500 on January 1, 2006 and $500 on January 1, 2008. You closed out this account on January 1, 2011 and received $700. How much did you initially deposit (X) in National City at the time you opened the account?