Monday, 9 September 2013

Kroeger, Inc., has current assets of \$2,270, net fixed assets of \$10,300, current liabilities of \$1,400, and long-term debt of \$4,080. (Enter your answer as directed, but do not round intermediate calculations.) Requirement 1: What is the value of the shareholders’ equity account for this firm? Shareholder's equity \$ Requirement 2: How much is net working capital? Net working capital \$ Explanation: The balance sheet for the company will look like this: Balance sheet Current assets \$ 2,270 Current liabilities \$ 1,400 Net fixed assets 10,300 Long-term debt 4,080 Owner's equity 7,090 Total assets \$ 12,570 Total liabilities and owners' equity \$ 12,570 The owners’ equity is a plug variable. We know that total assets must equal total liabilities and owners’ equity. Total liabilities and owners’ equity is the sum of all debt and equity, so if we subtract debt from total liabilities and owners’ equity, the remainder must be the equity balance, so: Owners' equity = Total liabilities and owners' equity – Current liabilities – Long-term debt Owners' equity = \$12,570 – 1,400 – 4,080 Owner's equity = \$7,090 Net working capital is current assets minus current liabilities, so: NWC = Current assets – Current liabilities NWC = \$2,270 – 1,400 NWC = \$870

Kroeger, Inc., has current assets of \$2,270, net fixed assets of \$10,300, current liabilities of \$1,400, and long-term debt of \$4,080. (Enter your answer as directed, but do not round intermediate calculations.)

 Requirement 1: What is the value of the shareholders’ equity account for this firm?

 Shareholder's equity \$

 Requirement 2: How much is net working capital?

 Net working capital \$

Explanation:
 The balance sheet for the company will look like this:
 Balance sheet Current assets \$ 2,270 Current liabilities \$ 1,400 Net fixed assets 10,300 Long-term debt 4,080 Owner's equity 7,090 Total assets \$ 12,570 Total liabilities and owners' equity \$ 12,570

 The owners’ equity is a plug variable. We know that total assets must equal total liabilities and owners’ equity. Total liabilities and owners’ equity is the sum of all debt and equity, so if we subtract debt from total liabilities and owners’ equity, the remainder must be the equity balance, so:

 Owners' equity = Total liabilities and owners' equity – Current liabilities – Long-term debt Owners' equity = \$12,570 – 1,400 – 4,080 Owner's equity = \$7,090

 Net working capital is current assets minus current liabilities, so:

 NWC = Current assets – Current liabilities NWC = \$2,270 – 1,400 NWC = \$870

Draiman, Inc., has sales of \$599,000, costs of \$259,000, depreciation expense of \$64,000, interest expense of \$31,000, and a tax rate of 30 percent. (Enter your answer as directed, but do not round intermediate calculations.) Required: What is the net income for this firm? Net income \$ Explanation: The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income statement Sales \$ 599,000 Costs 259,000 Depreciation 64,000 EBIT \$ 276,000 Interest 31,000 Taxable income \$ 245,000 Taxes (30%) 73,500 Net income \$ 171,500

Draiman, Inc., has sales of \$599,000, costs of \$259,000, depreciation expense of \$64,000, interest expense of \$31,000, and a tax rate of 30 percent. (Enter your answer as directed, but do not round intermediate calculations.)

 Required: What is the net income for this firm?

 Net income \$

Explanation:
 The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

 Income statement Sales \$ 599,000 Costs 259,000 Depreciation 64,000 EBIT \$ 276,000 Interest 31,000 Taxable income \$ 245,000 Taxes (30%) 73,500 Net income \$ 171,500

Draiman, Inc., has sales of \$604,000, costs of \$254,000, depreciation expense of \$61,500, interest expense of \$28,500, and a tax rate of 35 percent. The firm paid out \$45,500 in cash dividends. (Enter your answer as directed, but do not round intermediate calculations.) Required: What is the addition to retained earnings? Addition to retained earnings \$ Explanation: The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income statement Sales \$ 604,000 Costs 254,000 Depreciation 61,500 EBIT \$ 288,500 Interest 28,500 Taxable income \$ 260,000 Taxes (35%) 91,000 Net income \$ 169,000 The dividends paid plus the addition to retained earnings must equal net income, so: Net income = Dividends + Addition to retained earnings Addition to retained earnings = \$169,000 – 45,500 Addition to retained earnings = \$123,500

Draiman, Inc., has sales of \$604,000, costs of \$254,000, depreciation expense of \$61,500, interest expense of \$28,500, and a tax rate of 35 percent. The firm paid out \$45,500 in cash dividends. (Enter your answer as directed, but do not round intermediate calculations.)

 Required: What is the addition to retained earnings?

 Addition to retained earnings \$

Explanation:
 The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

 Income statement Sales \$ 604,000 Costs 254,000 Depreciation 61,500 EBIT \$ 288,500 Interest 28,500 Taxable income \$ 260,000 Taxes (35%) 91,000 Net income \$ 169,000

 The dividends paid plus the addition to retained earnings must equal net income, so:

 Net income = Dividends + Addition to retained earnings Addition to retained earnings = \$169,000 – 45,500 Addition to retained earnings = \$123,500

Draiman, Inc., has sales of \$604,000, costs of \$254,000, depreciation expense of \$61,500, interest expense of \$28,500, and a tax rate of 35 percent. The firm paid out \$45,500 in cash dividends. (Enter your answer as directed, but do not round intermediate calculations.) Required: What is the addition to retained earnings? Addition to retained earnings \$ Explanation: The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income statement Sales \$ 604,000 Costs 254,000 Depreciation 61,500 EBIT \$ 288,500 Interest 28,500 Taxable income \$ 260,000 Taxes (35%) 91,000 Net income \$ 169,000 The dividends paid plus the addition to retained earnings must equal net income, so: Net income = Dividends + Addition to retained earnings Addition to retained earnings = \$169,000 – 45,500 Addition to retained earnings = \$123,500

Draiman, Inc., has sales of \$604,000, costs of \$254,000, depreciation expense of \$61,500, interest expense of \$28,500, and a tax rate of 35 percent. The firm paid out \$45,500 in cash dividends. (Enter your answer as directed, but do not round intermediate calculations.)

 Required: What is the addition to retained earnings?

 Addition to retained earnings \$

Explanation:
 The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

 Income statement Sales \$ 604,000 Costs 254,000 Depreciation 61,500 EBIT \$ 288,500 Interest 28,500 Taxable income \$ 260,000 Taxes (35%) 91,000 Net income \$ 169,000

 The dividends paid plus the addition to retained earnings must equal net income, so:

 Net income = Dividends + Addition to retained earnings Addition to retained earnings = \$169,000 – 45,500 Addition to retained earnings = \$123,500

Draiman, Inc., has sales of \$598,000, costs of \$260,000, depreciation expense of \$64,500, interest expense of \$31,500, and a tax rate of 40 percent. The firm paid out \$42,500 in cash dividends and has 53,000 shares of common stock outstanding. (Enter your answer as directed, but do not round intermediate calculations.) Requirement 1: What is the earnings per share figure? (Round your answer to 2 decimal places (e.g., 32.16).) Earnings per share \$ Requirement 2: What is the dividends per share figure? (Round your answer to 2 decimal places (e.g., 32.16).) Dividends per share \$ Explanation: The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Income statement Sales \$ 598,000 Costs 260,000 Depreciation 64,500 EBIT \$ 273,500 Interest 31,500 Taxable income \$ 242,000 Taxes (40%) 96,800 Net income \$ 145,200 Earnings per share is the net income divided by the shares outstanding, so: EPS = Net income / Shares outstanding EPS = \$145,200 / 53,000 EPS = \$2.74 per share And dividends per share are the total dividends paid divided by the shares outstanding, so: DPS = Dividends / Shares outstanding DPS = \$42,500 / 53,000 DPS = \$0.80 per share

Draiman, Inc., has sales of \$598,000, costs of \$260,000, depreciation expense of \$64,500, interest expense of \$31,500, and a tax rate of 40 percent. The firm paid out \$42,500 in cash dividends and has 53,000 shares of common stock outstanding. (Enter your answer as directed, but do not round intermediate calculations.)

 Requirement 1: What is the earnings per share figure? (Round your answer to 2 decimal places (e.g., 32.16).)

 Earnings per share \$

 Requirement 2: What is the dividends per share figure? (Round your answer to 2 decimal places (e.g., 32.16).)

 Dividends per share \$

Explanation:

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for \$4.7 million. The machinery can be sold to the Romulans today for \$6.9 million. Klingon’s current balance sheet shows net fixed assets of \$3.5 million, current liabilities of \$780,000, and net working capital of \$137,000. If all the current assets were liquidated today, the company would receive \$895,000 cash. (Enter your answer as directed, but do not round intermediate calculations.) Requirement 1: What is the book value of Klingon’s total assets today? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Total asset book value \$ Requirement 2: What is the market value of Klingon's total assets? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Total asset market value \$ Explanation: To find the book value of assets, we first need to find the book value of current assets. We are given the NWC. NWC is the difference between current assets and current liabilities, so we can use this relationship to find the book value of current assets. Doing so, we find: NWC = Current assets – Current liabilities Current assets = \$137,000 + 780,000 = \$917,000 Now we can construct the book value of assets. Doing so, we get: Book value of assets Current assets \$ 917,000 Fixed assets 3,500,000 Total assets \$ 4,417,000 All of the information necessary to calculate the market value of assets is given, so: Market value of assets Current assets \$ 895,000 Fixed assets 6,900,000 Total assets \$ 7,795,000

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for \$4.7 million. The machinery can be sold to the Romulans today for \$6.9 million. Klingon’s current balance sheet shows net fixed assets of \$3.5 million, current liabilities of \$780,000, and net working capital of \$137,000. If all the current assets were liquidated today, the company would receive \$895,000 cash. (Enter your answer as directed, but do not round intermediate calculations.)

 Requirement 1: What is the book value of Klingon’s total assets today? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

 Total asset book value \$

 Requirement 2: What is the market value of Klingon's total assets? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

 Total asset market value \$

Explanation:
 To find the book value of assets, we first need to find the book value of current assets. We are given the NWC. NWC is the difference between current assets and current liabilities, so we can use this relationship to find the book value of current assets. Doing so, we find:

 NWC = Current assets – Current liabilities Current assets = \$137,000 + 780,000 = \$917,000

 Now we can construct the book value of assets. Doing so, we get:

 Book value of assets Current assets \$ 917,000 Fixed assets 3,500,000 Total assets \$ 4,417,000

 All of the information necessary to calculate the market value of assets is given, so:

 Market value of assets Current assets \$ 895,000 Fixed assets 6,900,000 Total assets \$ 7,795,000

The SGS Co. had \$131,000 in taxable income. Use the rates from Table 2.3. (Enter your answer as directed, but do not round intermediate calculations.) Required: Calculate the company’s income taxes. Income taxes \$ Explanation: Using Table 2.3, we can see the marginal tax schedule. The first \$50,000 of income is taxed at 15 percent, the next \$25,000 is taxed at 25 percent, the next \$25,000 is taxed at 34 percent, and the next \$31,000 is taxed at 39 percent. So, the total taxes for the company will be: Taxes = 0.15(\$50,000) + 0.25(\$25,000) + 0.34(\$25,000) + 0.39(\$131,000 – 100,000) Taxes = \$34,340

The SGS Co. had \$131,000 in taxable income. Use the rates from Table 2.3. (Enter your answer as directed, but do not round intermediate calculations.)

 Required: Calculate the company’s income taxes.

 Income taxes \$

Here is the Table 2.3 Explanation:
 Using Table 2.3, we can see the marginal tax schedule. The first \$50,000 of income is taxed at 15 percent, the next \$25,000 is taxed at 25 percent, the next \$25,000 is taxed at 34 percent, and the next \$31,000 is taxed at 39 percent. So, the total taxes for the company will be:

 Taxes = 0.15(\$50,000) + 0.25(\$25,000) + 0.34(\$25,000) + 0.39(\$131,000 – 100,000) Taxes = \$34,340

Chevelle, Inc., is obligated to pay its creditors \$8,400 during the year. (Enter your answer as directed, but do not round intermediate calculations.)

Chevelle, Inc., is obligated to pay its creditors \$8,400 during the year. (Enter your answer as directed, but do not round intermediate calculations.)

 Required:
 (a) What is the value of the shareholders’ equity if assets equal \$9,300?

 Shareholders’ equity \$

 (b) What is the value of the shareholders’ equity if assets equal \$6,900?

 Shareholders’ equity \$

Explanation:
 Owners' equity is the maximum of total assets minus total liabilities, or zero. Although the book value of owners’ equity can be negative, the market value of owners’ equity cannot be negative, so:

 Owners’ equity = Max [(TA – TL), 0]

(a)
 If total assets are \$9,300, the owners’ equity is:

 Owners’ equity = Max[(\$9,300 – 8,400), 0] Owners’ equity = \$900

(b)
 If total assets are \$6,900, the owners’ equity is:

 Owners’ equity = Max[(\$6,900 – 8,400), 0] Owners’ equity = \$0

During the year, Belyk Paving Co. had sales of \$2,398,000. Cost of goods sold, administrative and selling

During the year, Belyk Paving Co. had sales of \$2,398,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were \$1,427,000, \$435,200, and \$490,200, respectively. In addition, the company had an interest expense of \$215,200 and a tax rate of 30 percent. (Ignore any tax loss carryback or carryforward provisions.) (Enter your answer as directed, but do not round intermediate calculations.)

 Required: (a) What is Belyk’s net income? (Negative amount should be indicated by a minus sign.)

 Net income \$

 (b) What is Belyk’s operating cash flow?

 Operating cash flow \$

Explanation: (a)
 The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:
 Income Statement Sales \$ 2,398,000 Cost of goods sold 1,427,000 Other expenses 435,200 Depreciation 490,200 EBIT \$ 45,600 Interest 215,200 Taxable income –\$ 169,600 Taxes (30%) 0 Net income –\$ 169,600
 The taxes are zero since we are ignoring any carryback or carryforward provisions.

(b)
 The operating cash flow for the year was:
 OCF = EBIT + Depreciation – Taxes OCF = \$45,600 + 490,200 – 0 OCF = \$535,800
Net income was negative because of the tax deductibility of depreciation and interest expense. However, the actual cash flow from operations was positive because depreciation is a non-cash expense and interest is a financing, not an operating, expense.

Graffiti Advertising, Inc., reported the following financial statements for the last two years.

Graffiti Advertising, Inc., reported the following financial statements for the last two years. (Enter your answer as directed, but do not round intermediate calculations.)

 2014 Income Statement Sales \$ 567,200 Costs of goods sold 274,005 Selling & administrative 124,729 Depreciation 54,572 EBIT \$ 113,894 Interest 19,384 EBT \$ 94,510 Taxes 37,804 Net income \$ 56,706 Dividends \$ 10,000 Addition to retained earnings \$ 46,706

 GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2013 Cash \$ 13,360 Accounts payable \$ 9,500 Accounts receivable 18,990 Notes payable 14,504 Inventory 13,798 Current liabilities \$ 24,004 Current assets \$ 46,148 Long-term debt \$ 136,480 Net fixed assets \$ 344,546 Owner's equity \$ 230,210 Total assets \$ 390,694 Total liabilities and owners’ equity \$ 390,694

 GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2014 Cash \$ 14,346 Accounts payable \$ 10,516 Accounts receivable 21,095 Notes payable 16,470 Inventory 22,758 Current liabilities \$ 26,986 Current assets \$ 58,199 Long-term debt \$ 152,400 Net fixed assets \$ 406,307 Owner's equity \$ 285,120 Total assets \$ 464,506 Total liabilities and owners’ equity \$ 464,506

 Requirement 1: Calculate the operating cash flow.

 Operating cash flow \$

 Requirement 2: Calculate the change in net working capital.

 Change in net working capital \$

 Requirement 3: Calculate the net capital spending.

 Net capital spending \$

 Requirement 4: Calculate the cash flow from assets. (Do not include the dollar sign (\$). Negative amount should be indicated by a minus sign.)

 Cash flow from assets \$

 Requirement 5: Calculate the cash flow to creditors.

 Cash flow to creditors \$

 Requirement 6: Calculate the cash flow to stockholders. (Negative amount should be indicated by a minus sign.)

 Cash flow to stockholders \$

Explanation: 1:
 OCF = EBIT + Depreciation – Taxes OCF = \$113,894 + 54,572 – 37,804 OCF = \$130,662

2:
 Next, we will calculate the change in net working capital which is:

 Change in NWC = NWCend – NWCbeg Change in NWC = (CAend – CLend) – (CAbeg – CLbeg) Change in NWC = (\$58,199 – 26,986) – (\$46,148 – 24,004) Change in NWC = \$9,069

3:
 Now, we can calculate the capital spending. The capital spending is:
 Net capital spending = NFAend – NFAbeg + Depreciation Net capital spending = \$406,307 – 344,546 + 54,572 Net capital spending = \$116,333

4:
 Now, we have the cash flow from assets, which is:

 Cash flow from assets = OCF – Change in NWC – Net capital spending Cash flow from assets = \$130,662 – 9,069 – 116,333 Cash flow from assets = \$5,260

 The company spent \$5,260 on its assets. The cash flow from operations was \$130,662, and the company spent \$9,069 on net working capital and \$116,333 on fixed assets.

5:
 The cash flow to creditors is:

 Cash flow to creditors = Interest paid – New long-term debt Cash flow to creditors = Interest paid – (Long-term debtend – Long-term debtbeg) Cash flow to creditors = \$19,384 – (\$152,400 – 136,480) Cash flow to creditors = \$3,464

 The cash flow to stockholders is a little trickier in this problem. First, we need to calculate the new equity sold. The equity balance increased during the year. The only way to increase the equity balance is to add to retained earnings or sell equity. To calculate the new equity sold, we can use the following equation:

 New equity = Ending equity – Beginning equity – Addition to retained earnings New equity = \$285,120 – 230,210 – 46,706 New equity = \$8,204

 What happened was the equity account increased by \$54,910. Of this increase, \$46,706 came from addition to retained earnings, so the remainder must have been the sale of new equity. Now we can calculate the cash flow to stockholders as:

6:
 Cash flow to stockholders = Dividends paid – Net new equity Cash flow to stockholders = \$10,000 – 8,204 Cash flow to stockholders = \$1,796

 The company paid \$3,464 to creditors and raised \$1,796 from stockholders.

 Finally, the cash flow identity is:
 Cash flow from assets = Cash flow to creditors + Cash flow to stockholders \$5,260 = \$3,464 + \$1,796
The cash flow identity balances, which is what we expect.

Titan Football Manufacturing had the following operating results for 2014: sales = \$19,840; cost of goods sold = \$13,920; depreciation expense = \$2,310; interest expense = \$315; dividends paid = \$610. At the beginning of the year, net fixed assets were \$16,800, current assets were \$3,000, and current liabilities were \$2,010. At the end of the year, net fixed assets were \$19,940, current assets were \$3,400, and current liabilities were \$2,100. The tax rate for 2014 was 30 percent. (Enter your answers as directed, but do not round intermediate calculations.)

Titan Football Manufacturing had the following operating results for 2014: sales = \$19,840; cost of goods sold = \$13,920; depreciation expense = \$2,310; interest expense = \$315; dividends paid = \$610. At the beginning of the year, net fixed assets were \$16,800, current assets were \$3,000, and current liabilities were \$2,010. At the end of the year, net fixed assets were \$19,940, current assets were \$3,400, and current liabilities were \$2,100. The tax rate for 2014 was 30 percent. (Enter your answers as directed, but do not round intermediate calculations.)

 Requirement 1: What is net income for 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

 Net income \$

 Requirement 2: What is the operating cash flow during 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

 Operating cash flow \$

 Requirement 3: What is the cash flow from assets during 2014? (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount (e.g., 32).)

 Cash flow from assets \$

 Requirement 4: Assume no new debt was issued during the year.

 (a) What is the cash flow to creditors during 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

 Cash flow to creditors \$

 (b) What is the cash flow to stockholders during 2014? (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount (e.g., 32).)

 Cash flow to stockholders \$

Explanation: 1:
 To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:
 Income Statement Sales \$ 19,840 Costs of goods sold 13,920 Depreciation 2,310 EBIT \$ 3,610 Interest 315 Taxable income \$ 3,295 Taxes (30%) 989 Net income \$ 2,307

2:
 The operating cash flow for the year was:

 OCF = EBIT + Depreciation – Taxes OCF = \$3,610 + 2,310 – 989 = \$4,932

 To calculate the cash flow from assets, we also need the change in net working capital and net capital spending. The change in net working capital was:

 Change in NWC = NWCend – NWCbeg Change in NWC = (CAend – CLend) – (CAbeg – CLbeg) Change in NWC = (\$3,400 – 2,100) – (\$3,000 – 2,010) Change in NWC = \$310

 And the net capital spending was:

 Net capital spending = NFAend – NFAbeg + Depreciation Net capital spending = \$19,940 – 16,800 + 2,310 Net capital spending = \$5,450

3:
 So, the cash flow from assets was:

 Cash flow from assets = OCF – Change in NWC – Net capital spending Cash flow from assets = \$4,932 – 310 – 5,450 Cash flow from assets = –\$829

 The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in fixed assets and net working capital; it had to raise a net \$829 in funds from its stockholders and creditors to make these investments.

4a:
 The cash flow to creditors was:

 Cash flow to creditors = Interest – Net new LTD Cash flow to creditors = \$315 – 0 Cash flow to creditors = \$315

4b:
 Rearranging the cash flow from assets equation, we can calculate the cash flow to stockholders as:

 Cash flow from assets = Cash flow to stockholders + Cash flow to creditors –\$829 = Cash flow to stockholders + \$315 Cash flow to stockholders = –\$1,144