Financial Statement Analysis Fundamentals-Student Guide
1. A series of sulfate samples is to be analyzed by precipitation as BaSO4. If it is known that the...
A series of sulfate samples is to be analyzed by precipitation as BaSO4. If it is known that the sulfate content in these samples ranges between 20% and 55%, what minimum sample mass should be taken to ensure that a precipitate mass no smaller than 0.200 g is produced? What is the maximum precipitate weight to be expected if this quantity of sample is taken
2. Kiona Co. setup a petty cash fund for payments of small amounts. The following transactions invol...
Kiona Co. setup a petty cash fund for payments of small amounts. The following transactions involving the petty cash fund occurred in May (the last month of the company's fiscal year). May 1 Prepared a company check for $300 to establish the petty cash fund. 15 Prepared a company check to replenish the fund for the following expenditures made since May 1. Paid $93.60 for janitorial services. Paid $76.41 for miscellaneous expenses. Paid postage expenses of $52.20. Paid $68.58 to The County Gazette (the local newspaper) for an advertisement. Counted $23.01 remaining in the petty cash box. 16 Prepared a company check for $200 to increase the fund to $500. 31 The petty cashier reports that $339.32 cash remains in the fund. A company check is drawn to replenish the fund for the following expenditures made since May 15. Paid postage $53.73. Reimbursed the office business mileage, $42.78. Paid $44.17 to deliver merchandise to a customer, terms FOB destination. 31 The company decides that the May 16 increase in the fund was too large. It reduces the fund by $50, leaving a total of $450. Prepare journal entries to establish the fund on May 1, to replenish it on May 15 and on May 31, and to reflect any increase or decrease in the fund balance on May 16 and May 31.
3. Chiptech, Inc., is an established computer chip firm with several profitable existing products as
- Chiptech, Inc., is an established computer chip firm with several profitable existing products as well as some promising new products in development. The company earned
$1 per share last year and just paid out a dividend of $.50 per share. Investors believe the company plans to maintain its dividend payout ratio at 50%. ROE equals 20%. Everyone in the market expects this situation to persist indefinitely.
- What is the market price of Chiptech stock? The required return for the computer
chip industry is 15%, and the company has just gone ex-dividend (i.e., the next dividend will be paid a year from now, at t 5 1).
Suppose you discover that Chiptech’s competitor has developed a new chip that will eliminate Chiptech’s current technological advantage in this market. This new prod- uct, which will be ready to come to the market in two years, will force Chiptech to reduce the prices of its chips to remain competitive. This will decrease ROE to 15%, and, because of falling demand for its product, Chiptech will decrease the plowback ratio to .40. The plowback ratio will be decreased at the end of the second year, at
t 5 2: The annual year-end dividend for the second year (paid at t 5 2) will be 60%
of that year’s earnings. What is your estimate of Chiptech’s intrinsic value per share? ( Hint: Carefully prepare a table of Chiptech’s earnings and dividends for each of the next three years. Pay close attention to the change in the payout ratio in t 5 2.)
- No one else in the market perceives the threat to Chiptech’s market. In fact, you are
confident that no one else will become aware of the change in Chiptech’s competitive status until the competitor firm publicly announces its discovery near the end of year 2.
What will be the rate of return on Chiptech stock in the coming year (i.e., between
t 5 0 and t 5 1)? In the second year (between t 5 1 and t 5 2)? The third year (between t 5 2 and t 5 3)? ( Hint: Pay attention to when the market catches on to the new situation. A table of dividends and market prices over time might help.)
4. Save Lot Retailers The following table shows financial data (year 2009) for two US retailers:...
Save Lot Retailers
The following table shows financial data (year 2009) for two US retailers: Save--A--LotRetailers and Wally’s Mart.
Save--A--Lot |
Wally’sMart |
|
Inventories ($MM) |
5,743 |
40,694 |
Sales (net $MM) |
59,217 |
397,206 |
COGS ($MM) |
53,962 |
316,606 |
Assume that both companies have an average annual holding cost rate of 20% (i.e. it costsboth retailers $2 to hold an item for one entire year that they procured for $10).
SL1.How many days, on average, does a product stay in save a lot inventory before it is sold? Assume that stores operate 365 days ayear.
SL2.How much lower, on average, is the inventory cost for save a lot compared to Wally’sMart of a household cleaner valued at $50 COGS? Give your answer in terms of dollars. Assume that the unit cost of the household cleaner is the same for both companies and that theprice and the inventory turns of an item are independent.
SL1.)
Using Little law inventory :
Flow Time=Inventory/Flow Rate
Flow Rate=COGS (COST OF GOOD THAT FLOW PER YEAR)
Flow Time= 5,743MM $/53,962 MM$ /year= 0.106 year
Flow Time (days)=0.106 year*365 days/year= 38.69 days
SL2.)
Inventory cost for save a lot =( 50 $ 0.2 38.69)/365=1.06 $
Flow Time wally (days)= (40,694 MM $/316,606 MM $)*365= 46.91 Days
Inventory cost for Wally= (50$0.246.91days)/365 days=1.29 $
The inventory cost for a 50 $ household cleaner is 0.23 $ lower for save a lot
5. Show the effects of the previous transactions on the accounting equation using the following form...
Nancy Tercek started a delivery service, Tercek Deliveries, on June 1, 2015. The following transactions occurred during the month of June June 1 Stockholders invested $19,150 cash in the business in exchange for common stock. 2 Purchased a used vann for deliveries for $14,576. Nancy paid $3,255 cash and signed a note payable for the remaining balance. 3 Paid $338 for office rent for the month 5 Performed $4,825 of services on account. 9 Declared and paid $352 in cash dividends 12 Purchased supplies for $265 on account. 15 Received a cash payment of $1,274 for services provided on June 5 17 Purchased gasoline for $127 on account. 20 Received a cash payment of $1,386 for services provided 23 Made a cash payment of $700 on the note payable 26 Paid $133 for utilities 29 Paid for the gasoline purchased on account on June 17. 30 Paid $2,161 for employee salaries
6. Derf Company applies overhead on the basis of direct labor hours. Two direct labo...continues
Derf Company applies overhead on the basis of direct labor hours. Two direct labor hours are required for each product unit. Planned production for the period was set at 9,000 units. Manufacturing overhead for the period is budgeted at $135,000, of which 20 percent is fixed. The 17,200 hours worked
7. 6) Which of the following cost is relevant to the decision whether to process joint products beyond.
6) Which of the following cost is relevant to the decision whether to process joint products beyond the split-off point?
A) joint costs
B) allocated joint costs
C) separable costs
D) additional revenue from further processing beyond split-off point
7) Joint products should be processed beyond the split-off point if ________.
A) sale of the products are guaranteed
B) additional revenue from further processing exceeds additional expenses from further processing
C) additional revenue from further processing exceeds the joint costs
D) the marginal revenue of the joint products before the split-off point exceeds the marginal cost of the joint products
8) Uptown Corporation has a joint process that produces three products: P, G and A. Each product may be sold at split-off or processed further and then sold. Joint-processing costs for a year amount to $20,000. Other data follows:
Sales ValueSeparable ProcessingSales Value
Product at Split-Off Costs after Split-Off at Completion
P$32,000$5,000$39,000
G16,5007,50029,000
A6,4008,00010,000
Processing Product P beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $2,000
C) increase by $3,000
D) increase by $7,000
9) Mayfair Corporation has a joint process that produces three products: P, G and A. Each product may be sold at split-off or processed further and then sold. Joint-processing costs for a year amount to $15,000. Other data follows:
Sales ValueSeparable ProcessingSales Value
Product at Split-Off Costs after Split-Off at Completion
P$62,000$5,000$88,000
G12,5006,50019,500
A9,4005,00012,000
Processing Product G beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $500
C) increase by $1,000
D) increase by $7,000
10) Southridge Corporation has a joint process that produces two products: A and B. Each product may be sold at the split-off point or processed further and then sold. Joint-processing costs for a year are $20,000.
Product A can be sold at the split-off point for $32,000. Alternatively, Product A can be processed further and sold for $40,000. Additional processing costs are $5,000.
When deciding whether to sell Product A at the split-off point or to process further, the ________ is NOT relevant.
A) joint processing cost of $20,000
B) sales value at split-off of $32,000
C) sales value at completion of $40,000
D) additional processing cost of $5,000
11) Brookfield Corporation has a joint process that produces three products: X, Y and Z. Each product may be sold at split-off or processed further and then sold. Joint-processing costs for a year amount to $100,000. Other data follows:
Sales ValueSeparable ProcessingSales Value
Product at Split-Off Costs after Split-Off at Completion
X$128,000$16,000$150,000
Y75,00026,00099,000
Z32,60020,00050,000
Processing Product X beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $6,000
C) increase by $16,000
D) increase by $22,000
12) Boston Corporation has a joint process that produces three products: X, Y and Z. Each product may be sold at split-off or processed further and then sold. Joint-processing costs for a year amount to $100,000. Other data follows:
Sales ValueSeparable ProcessingSales Value
Product at Split-Off Costs after Split-Off at Completion
X$128,000$16,000$160,000
Y50,00025,00077,000
Z25,60020,00040,000
Processing Product Y beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $1,000
C) increase by $2,000
D) increase by $27,000
13) Cleveland Corporation has a joint process that produces three products: X, Y and Z. Each product may be sold at split-off or processed further and then sold. Joint-processing costs for a year amount to $100,000. Other data follows:
Sales ValueSeparable ProcessingSales Value
Product at Split-Off Costs after Split-Off at Completion
X$128,000$16,000$140,000
Y50,00027,00076,000
Z25,60010,00040,000
To maximize profits, the corporation should process ________ further.
A) Product Z only
B) Product Y only
C) Product X only
D) Products X, Y and Z
14) Chicago Corporation has a joint process that produces three products: X, Y and Z. Each product may be sold at split-off or processed further and then sold. Joint-processing costs for a year amount to $100,000. Other data follows:
Sales ValueSeparable ProcessingSales Value
Product at Split-Off Costs after Split-Off at Completion
X$128,000$16,000$152,000
Y50,00026,00076,000
Z25,60020,00040,000
Processing Product X beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $8,000
C) increase by $24,000
D) decrease by $24,000
15) DesPlaines Corporation has a joint process that produces three products: P, G and A. Each product may be sold at split-off or processed further and then sold. Joint-processing costs for a year amount to $25,000. The production level for each product is 10,000 units. Other data follows:
Sales ValueSeparable ProcessingSales Value
Product at Split-Off Costs after Split-Off at Completion
P$12$8$20
G10417
A15619
If Product P is processed beyond the split-off point, profits will ________.
A) increase by $90,000
B) increase by $120,000
C) increase by $210,000
D
8. Bill has just returned from a duck hunting trip. He
Bill has just returned from a duck hunting trip. He has brought home eight ducks. Bill’s friend, John, disapproves of duck hunting, and to discourage Bill from further hunting, John has presented him with the following cost estimate per duck:
Required:
1. Assuming that the duck hunting trip Bill has just completed is typical, what costs are relevant to a decision as to whether Bill should go duck hunting again this season?
2. Suppose that Bill gets lucky on his next hunting trip and shoots 10 ducks in the amount of time it took him to shoot 8 ducks on his last trip. How much would it have cost him to shoot the last two ducks? Explain.
3.Which costs are relevant in a decision of whether Bill should give up hunting?Explain.
9. A rich aunt has promised you $5000 one year from
A rich aunt has promised you $5000 one year from today. In addition, each year after that, she has promised you a payment (on the anniversary of the last payment) that is 3% larger than the last payment. She will continue to show this generosity for 20 years, giving a total of 20 payments. If the interest rate is 5%, what is her promise worth today?
10. From the following particulars, calculate the labour cost per man-day of 8 hours
From the following particulars, calculate the labour cost per man-day of 8 hours:
(a) Basic salary: Rs 5 per day |
(b) DA: 20 paise per every point over 100 (cost of living index for workers); current cost of living index is 800 points. |
(c) Leave salary: 5% of (a) and (b) |
(d) Employer's contribution to PF: 8% of (a) and (b) |
(e) Employer's contribution to state insurance: 5% of (a), (b) and (c) |
(f) Number of working days in a month: 25 days of 8 hours each |
11. Which of the following ratios measures short-term solvency? a. Current ratio b. Creditors' equity to
Which of the following ratios measures short-term solvency?
a. |
Current ratio |
b. |
Creditors' equity to total assets |
c. |
Return on investment |
d. |
Total asset turnover |
12. 1. On January 1, Tolson Company purchased a building by paying $85,000. The building has an...
1. On January 1, Tolson Company purchased a building by paying $85,000. The building has an estimated life of 40 years and an estimated residual value of $5,000. Prepare journal entries to record the purchase and the related year-end adjusting entry.
2. On July 1, Friler Company purchased a three-year insurance policy by paying $5,400. Prepare journal entries to record the purchase and the related year-end adjusting entry.
13. Cheryl Montoya picked up the phone and called her boss,
Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: ?oWes, I’m not sure how to go about answering the questions that came up at the meeting with the president yesterday:’
?oWhat’s the problem???
?oThe president wanted to know the break-even point for each of the company’s products, but I am having trouble figuring them out:’
?oI’m sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00.??
Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below:
Total fixed expenses are $400,000 per year.
All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers.
The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories.
Required:
1. What is the company’s over-all break-even point in total sales dollars?
2. Of the total fixed costs of $400,000, $20,000 could be avoided if the Velcro product were dropped, $80,000 if the Metal product were dropped, and $60,000 if the Nylon product were dropped. The remaining fixed costs of $240,000 consist of common fixed costs such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely.
a. What is the break-even point in units for each product?
b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Explain thisresult.
14. A transport service company is running four buses between two towns 50 miles apart. Seating capacity...
A transport service company is running four buses between two towns 50 miles apart. Seating capacity of each bus is 40 passengers. The following particulars were obtained from their books:
Rs |
|
Wages of drivers, conductors and cleaners |
2,400 |
Salaries of office and supervisory staff |
1,000 |
Diesel oil and other oil |
4,000 |
Repairs and maintenance |
800 |
Taxation, insurance, etc. |
1,600 |
Depreciation |
2,600 |
Interest and other charges |
2,000 |
14,400 |
Actual passengers carried were 75% of the seating capacity. All the four buses ran on all the days of the month. Find out the cost per passenger mile.