Finance Homework

see attachment please

1

330 Week 1 – Assignment Problems

P1.
Income statement preparation.
On December 31,

2009

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, Cathy Chen, a self-employed CPA, completed her first full year in business. During the year, she billed $

360

,000 for her accounting services. She had two employees: a bookkeeper and a clerical assistant. In addition to her monthly salary of $8,000, Ms. Chen paid annual salaries of $48,000 and $36,000 to both of these employees, respectively. Employee taxes and benefit costs for Ms. Chen and her employees totaled $34,600 for the year. Expenses for office supplies, including postage, totaled $10,400 for the year. In addition, Ms. Chen spent $17,000 during the year on tax-deductible travel and entertainment associated with client visits and new business development. Lease payments for the office space rented (a tax deductable expense) were $2,700 per month.

Depreciation expense

on the office furniture and fixtures was $15,600 for the year. During the year, Ms. Chen paid interest of $1

5,000

on the $120,000 borrowed to start the business. She paid an average tax rate of 30% during 2009.

a. Prepare an income statement for Cathy Chen, CPA for the year ended December 31, 2009.

b. Evaluate (in a sentence of two) her 2009 financial performance.

P2.
Balance sheet preparation
Use the appropriate items from the following list to prepare in good form Owen Davis Company’s balance sheet at December 31, 2009.

Item

Value ($000) at December 31, 2009

420

	Item		Value ($000) at December 31, 2009
	Accounts payable	$ 220		Inventories	$ 3 75
	Accounts receivable	45 0	Land	100
	Accruals	55		Long-term debt		420
Accumulated depreciation	265	Machinery
Buildings	2 25		Marketable securities	75
	Cash	215		Notes payable	475
Common stock (at par)	90		Paid-in capital in excess of par	360
Cost of goods sold	2,500
Depreciation expense	45	Preferred stock	100
Equipment	140		Retained earnings	210
Furniture and fixtures	170		Sales revenue	3,600
General expense	320	Vehicles	25

P3.
Statement of retained earnings

Hayes Enterprises began 2009 with retained earnings balance or $928,000. During 2009, the firm earned $377,000 after taxes. From this amount, preferred stockholders were paid $47,000 in dividends. At year-end 2009, the firm’s retained earnings totals $1,048,000. The firm had 140,000 shares of common stock outstanding during 2009.

a. Prepare a statement of retained earnings for the year ended December 31, 2009, for Hayes Enterprises. (Note: Be sure to calculate and include the amount of cash dividends paid in 2009).

b. Calculate the firm’s 2009 earnings per share (EPS).

c. How large a per-share cash dividend did the firm pay on common stock during 2009?

P4.
Changes in stockholders’ equity
Listed below are the equity sections of balance sheets for years

2008

and 2009 as reported by Mountain Air Ski Resorts, Inc. The overall value of stockholder’s equity has risen from $2,000,000 to $7,

500,000

. Use the statements to discover how and why this occurred.

Mountain Air Ski Resorts, Inc.

Balance Sheets (partial)

Paid-in capital in excess of par

Retained earnings

Stockholders’ equity	2008	2009
Common stock ($1.00 par)
Authorized – 5,000,000
Outstanding – 1,500,000 shares in 2009	$ 1,500,000
– 500,000 shares in 2008	$ 500,000
500,000	4,500,000
1,000,000	1,500,000
Total stockholders’ equity	$ 2,000,000	$ 7,500,000

The company paid total dividends of $200,000 during fiscal 2009.

a. What was Mountain Air’s net income during fiscal 2009?

b. How many new shares did the corporation issue and sell during the year?

c. At what average price per share did the new stock sold during 2009 sell?

d. At what price per share did Mountain Air’s original 500,000 shares sell?

P5.
Cross-sectional ratio analysis
Use the financial statements that follow for Fox Manufacturing Company for the year ended December 31, 2009, along with the industry average ratios to:

a. Prepare and interpret a complete ratio analysis of the firm’s 2009 operations.

b. Summarize your findings and make recommendations regarding: (1) liquidity; (2) activity; (3) debt; (4) profitability.
Only two or three short sentences each, please!

Fox Manufacturing Company

Income Statement

For the year ended December 31, 2009

Sales revenue

$ 600,000
Less: Cost of goods sold	4 60,000
Gross profits	$ 140,000
Less: Operating expenses
General admin. expenses	$ 30,000
Depreciation expense	30,000
Total operating expense	60,000
Operating profits	$ 80,000
Less: Interest expense	10,000
Net profits before taxes	$ 70,000
Less: Taxes	27,100
Net profits after taxes (earnings available for stockholders)	$ 42,900
	Earnings per share (EPS)	$ 2.15

Fox Manufacturing Company

Balance Sheet

December 31, 2009

Cash

Marketable securities

Accounts receivable

Inventories

Accounts payable

Notes payable

Accruals

Long-term debt

Assets
$ 15,000
7,200
34,100
82,000
Total current assets	$ 138,300
Net fixed assets	$ 270,000
Total assets	$ 408,300
Liabilities and Stockholders’ Equity
$ 57,000
13,000
5,000
Total current liabilities	$ 75,000
$ 150,000
Stockholders’ equity Common stock equity (20,000 shrs outstanding)	$ 110,200
Retained earnings	73,100
Total stockholders’ equity	$ 183,300
Total liabilities and stockholder’s equity	$ 408,300

(Note: Industry averages and “worksheet” on following page).

(Hint: You must calculate the following Actual 2009 ratios for Fox Mfg. (fill-in the blanks) and include in part a when you set up your table, and consider in part b).

Earnings per share (EPS)

Ratio	Industry Average, 2009	Actual 2009 for Fox Mfg. Company
Current ratio	2.35
Quick ratio	0.87
Inventory turnover*	4.55
Average collection period*	35.8 days
Total asset turnover	1.09
Debt ratio	0.300
Times interest earned ratio	12.3
Gross profit margin	0.202
Operating profit margin	0.135
Net profit margin	0.091
Return on total assets (ROA)	0.099
Return on common equity (ROE)	0.167
$ 3.10

* Based on a 365-day year and on end-of-year figures.

Have fun!