Chapter 2: 3DQ (page 46)
Explain how depreciation generates actual cash flows for the company.
Depreciation refers to the decrease in the fair value of the company’s assets over a period of time. Depreciation is charged due to the usage of the assets by the organization and their obsolescence.
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The balance sheet for Stud Clothiers is shown below. Sales for the year were \(2,400,000, with 90 percent of sales sold on credit.
Stud Clothier | |||
Balance sheet 20X1 | |||
Assets | Liabilities and Equity | ||
Cash | \)60,000 | Account payable | \(220,000 |
Account receivable | 240,000 | Accrued taxes | 30,000 |
Inventory | 350,000 | Bonds payable (long term) | 150,000 |
Plant and equipment | 410,000 | Common stock | 80,000 |
Paid in capital | 200,000 | ||
Retained earnings | 380,000 | ||
Total assets | \)1,060,000 | Total LIbilities and Equity | $1,060,000 |
Compute the following:
e. Average collection period.
The balance sheet for Stud Clothiers is shown below. Sales for the year were \(2,400,000, with 90 percent of sales sold on credit.
Stud Clothier | |||
Balance sheet 20X1 | |||
Assets | Liabilities and Equity | ||
Cash | \)60,000 | Account payable | \(220,000 |
Account receivable | 240,000 | Accrued taxes | 30,000 |
Inventory | 350,000 | Bonds payable (long term) | 150,000 |
Plant and equipment | 410,000 | Common stock | 80,000 |
Paid in capital | 200,000 | ||
Retained earnings | 380,000 | ||
Total assets | \)1,060,000 | Total LIbilities and Equity | $1,060,000 |
Compute the following:
d. Assets turnover ratio.
Assume the following data for Cable Corporation and Multi-Media Inc.
Capable corporation | Muli-media inc | |
Net income | \(31,200 | \)140,000 |
Sales | 317,000 | 2,700,000 |
Total assets | 402,000 | 965,000 |
Total debts | 163,000 | 542,000 |
Stockholder’s equity | 239,000 | 423,000 |
Compute the return on stockholders’ equity for both firms using Ratio 3a. Which firm has the higher return?
Question:The Haines Corp. shows the following financial data for 20X1 and 20X2:
20X1 | 20X2 | |
Sales | \(3,230,000 | \)3,370,000 |
Cost of goods sold | 2,130,000 | 2,850,000 |
Gross profits | \(1,100,000 | \)520,000 |
Selling and administrative expenses | 298,000 | 227,000 |
Operating profits | \(802,000 | \)293,000 |
Interest expense | 47,200 | 51,600 |
Income before taxes | \(754,800 | \)241,400 |
Taxes (35%) | 264,180 | 84,490 |
Income after tax | \(490,620 | \)156,910 |
For each year, compute the following and indicate whether it is increasing or
decreasing profitability in 20X2 as indicated by the ratio:
b. Selling and administrative expense to sales.
The Lancaster Corporation’s income statement is given below.
a. What is the times-interest-earned ratio?
Lancaster corporation | |
Sales | \(246,000 |
Cost of goods sold | 122,000 |
Gross profit | \)124,000 |
Fixed charges (other than interest) | 27,500 |
Income before interest and taxes | \(96,500 |
Interest | 21,800 |
Income before taxes | \)74,700 |
Taxes (35%) | 26,145 |
Income after taxes | $48,555 |
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