ACT514 Week 8 Assignments PDF

Preview

Summary

Business Operations...

Description

WEEK 8 ASSIGNMENTS ACT514 MANAGERIAL ACCOUNTING

Student Name: Udit Multani

Exercise 14-3 Calculating Free Cash Flow Special instructions: The equation for Free Cash Flow is found on page 703 of your text. Complete this exercise on this document. There is space after the requirement. Apex Company prepared the statement of cash flows for the current year that is shown below: Apex Company Statement of Cash Flows—Indirect Method Operating activities Net income Adjustments to convert net income to cash basis: Depreciation Increase in accounts receivable Increase in inventory Decrease in prepaid expenses Increase in accounts payable Decrease in accrued liabilities Increase in income taxes payable Net cash provided by (used in) operating activities Investing activities Proceeds from the sale of equipment Loan to Thomas Company Additions to plant and equipment Net cash provided by (used in) investing activities Financing activities Increase in bonds payable Increase in common stock Cash dividends Net cash provided by (used in) financing activities Net decrease in cash and cash equivalents Beginning cash and cash equivalents Ending cash and cash equivalents Required: Compute Apex Company’s free cash flow for the current year.

$40,000 $22,000 (60,000) (25,000) 9,000 55,000 (12,000) 5,000

(6,000) 34,000

14,000 (40,000) (110,000) (136,000) 90,000 40,000 (30,000) 100,000 (2,000) 27,000 $25,000

Cash Flow from Operating Activities Capital Expenditures Dividends Free Cash Flow

34,000 -110,000 -30,000 -106,000

Exercise 14-4 Prepare a Statement of Cash Flows Special instructions: This exercise will be much easier to complete using Microsoft Excel, so use that application for this exercise. The following changes took place last year in Pavolik Company’s balance sheet accounts: Asset and Contra-Asset Accounts Cash and cash equivalents $5 Accounts receivable $110 Inventory $70 Prepaid expenses $9 Long-term investments $6 Property, plant, and equipment $185 Accumulated depreciation $60

D I D I D I I

Liabilities and Stockholders’ Equity Accounts Accounts payable $35 I Accrued liabilities $4 D Income taxes payable $8 I Bonds payable $150 I Common stock $80 D Retained earnings $54 I

D = Decrease; I = Increase Long-term investments that cost the company $6 were sold during the year for $16 and land that cost $15 was sold for $9. In addition, the company declared and paid $30 in cash dividends during the year. Besides the sale of land, no other sales or retirements of plant and equipment took place during the year. Pavolik did not retire any bonds during the year or issue any new common stock. The company’s income statement for the year follows: Sales $700 Cost of goods sold 400 Gross margin 300 Selling and administrative expenses 184 Net operating income 116 Nonoperating items: Loss on sale of land $(6) Gain on sale of investments 10 4 Income before taxes 120 Income taxes 36 Net income $84 The company’s beginning cash balance was $90 and its ending balance was $85.

Required: 1. Use the indirect method to determine the net cash provided by operating activities for the year. 2. Prepare a statement of cash flows for the year. Pavolik Company Statement of Cash Flows (Partial) Cash Flow from Operating Activities Net Income Adjustments to reconcile Net Income Net Cash Provided by Operating Activities Depreciation Expenses Gain on Sale of Investments Increase in Accounts Receivable Decrease in Inventory Increase in Prepaid Expenses Increase in Accounts Payable Decrease in Accrued Liabilities Increase in Income Taxes Payable Net Cash flow from Operating Activities

$84

$60 ($4) ($110) $70 ($9) $35 ($4) $8

$46 $130

Pavolik Company Statement of Cash Flows Operating Activities Net Cash Flow from Operating Activities Investing Activities Purchase of Equipment Sale of Long Term Investments Net Cash Flow From Investing Activities Financing Activities Issuance of Bonds Payable Purchase of Treasury Stock Cash Dividends Paid Net Cash Flow from Financing Activities Net Decrease in Cash Beginning Cash and Cash Equivalents Ending Cash and Cash Equivalents

$130 ($191) $16 ($175) $150 ($80) ($30) $40 ($5) $90 $85

Exercise 15-2 Financial Ratios for Assessing Liquidity Special instructions: Place your responses in this document. All you should need is a calculator, but if you prefer to work in Excel, that is fine. There are just 3 computations you need to make so place your responses on this document. Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $18. All of the company’s sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Long term liabilities: Bonds payable Total liabilities Stockholders’ equity: Common stock Additional paid-in capital Total paid-in capital Retained earnings Total stockholders’ equity

Last Year

$1,280 12,300 9,700 1,800 25,080

$1,560 9,100 8,200 2,100 20,960

6,000 19,200 25,200 $50,280

6,000 19,000 25,000 $45,960

$9,500 600 300 10,400

$8,300 700 300 9,300

5,000 15,400

5,000 14,300

800 4,200 5,000 29,880 34,880

800 4,200 5,000 26,660 31,660

Total liabilities and stockholders’ equity

50,280

$45,960

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income Dividends to common stockholders Net income added to retained earnings Beginning retained earnings Ending retained earnings

This Year $79,000 52,000 27,000

Last Year $74,000 48,000 26,000

8,500 12,000 20,500 6,500 600 5,900 2,360 3,540 320 3,220 26,660 $29,880

8,000 11,000 19,000 7,000 600 6,400 2,560 3,840 600 3,240 23,420 $26,660

Required: Compute the following financial data and ratios for this year: 1. Working capital Working Capital = Total Current Assets – Total Current Liabilities = $25,080 – $10,400 = $14,680 2. Current ratio Current Ratio = Total Current Assets / Total Current Liabilities = $25,080 / $10,400 = 2.41 3. Acid-test ratio

Acid Test Ratio = (Total Current Assets – Inventory – Prepaid Expenses) / Total Current Liabilities = ($25,080 - $9,700 - $1,800) / $10,400 = 1.31

Exercise 15-3 Financial Ratios for Asset Management Special instructions: Place your responses in this document. All you should need is a calculator, but if you prefer to work in Excel, that is fine. There are 6 computations you need to make so place your responses on this document. Refer to the data in Exercise 15-2 for Weller Corporation Required: Compute the following financial data for this year: 1. Accounts receivable turnover. (Assume that all sales are on account) Accounts Receivable Turnover = Credit sales / Average Accounts Receivable = $79,000 / (($12,300+$9,100)/2) = 7.38

2. Average collection period. Average Collection Period = 365 Days / Accounts Receivable Turnover = 365 / 7.38 = 49.64 Days 3. Inventory turnover. Inventory Turnover = Cost of Goods Sold / Average Inventory = $52,000 / $8,950 = 5.81 Times 4. Average sale period. Average Sale Period = 365 Days / Inventory Turnover = 365 / 5.81 = 62.82 Days 5. Operating cycle. Operating Cycle = Average Sale Period + Average Collection Period = 62.82 Days + 49.46 Days = 112.28 Days

6. Total asset turnover. Total Asset Turnover = Total Sales / ((Beginning Assets + Ending Assets)/2) = 1.64...