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Answer & Explanation:ACCT 221 Week 1 Homework.xls
acct_221_week_1_homework.xls
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B-16.03
Stanley Corporation has no material problem with uncollectible accounts or obsolete
inventory. All sales and purchases are on account. The company provided the following
information for the year ending 20X7:
Total sales
Beginning accounts receivable
Total purchases of inventory
Beginning inventory
$
2,600,000
700,000
1,800,000
50,000
Collections on accounts receivable
2,400,000
Payments on accounts payable
1,850,000
Cost of goods sold
1,775,000
(a)
Calculate the “accounts receivable turnover ratio.”
(b)
Calculate the “inventory turnover ratio.”
(c)
If Stanley’s competitors have a receivables turnover ratio of “6” and an inventory
turnover ratio of “4,” would you initially conclude that Stanley is better or worse than
its competitors in managing receivables and inventory?
Liz Marett is the chief financial officer for Fulton Construction. She delivered the following
comments in a recent conference call with analysts that follow the company:
“20X5 was another excellent year. Net income was a record setting $10,000,000. We
maintained our overall net profit on sales at the historic 10% level. This occurred
despite an increase in raw material costs that lowered our gross margin to 60%. We
are proud that we continue to maintain a healthy balance sheet that is free of any
liablities. All of our financing continues to be provided by our common and preferred
shareholders. Our beginning of year equity of $75,000,000 was sufficient to fund our
capital needs, and no additional shares were issued this year. Our “5% preferred
shareholders” have again received their full $2,000,000 in dividends for the year. The
remaining earnings have been reinvested in the company.”
(a) Use profitability ratios to determine Fulton’s sales, cost of goods sold, gross profit, and
net income:
Sales
Cost of goods sold
Gross profit
Selling, general & administrative
Net income
(b) Calculate Futlon’s return on assets and return on equity. Which is higher, and why?
Return on Assets Ratio
=
(Net Income + Interest Expense)
÷
Average Assets
=
Return on Equity Ratio
=
(Net Income – Preferred Dividends)
÷
Average Common Equity
=
B-16.05
Jean Neftin was chatting with friends about stock investment ideas. One of his friends suggested
that he consider Cabela Corporation. The friend noted that Cabela was coming out with a new
product line that could be really hot. Cabela’s stock sells for $21 per share, and has a P/E of 15. The
dividend yield is 3%. The company has had 10,000,000 shares outstanding for all of the past year,
and the stock price is two times book value per share.
(a)
Calculate Cabela’s earnings per share, net income, dividend per share, and total stockholders’
equity.
Earnings Per Share:
Net Income:
Dividends Per Share:
Total Stockholder’s Equity:
(b)
In addition to the preceding facts, assume that Cabela’s also has $10,000,000 of 6% preferred
stock outstanding all year. Dividends are current. The preferred stock was issued at par, but
has a 110 call price. Recalculate net income and book value per common share based on this
revised set of facts.
Net Income:
Book Value Per Common Share:
I-16.01
Weaver Corporation’s stock is selling for $16 per share. Weaver provided the following financial
statements. Use these statements to prepare comprehensive ratio analysis tables similar to those
illustrated in the chapter.
WEAVER CORPORATION
Comparative Balance Sheet
December 31, 20X3 and 20X2
Assets
20X3
Current assets
Cash
Accounts receivable
Inventories
Total current assets
Property, plant, & equipment
Land
Building
Equipment
Less: Accumulated depreciation
Total property, plant, & equipment
Total assets
Liabilities
Current liabilities
Accounts payable
Interest payable
Total current liabilities
Long-term liabilities
Long-term note payable
Total liabilities
Stockholders’ equity
Common stock ($0.50 par)
Paid-in capital in excess of par
Retained earnings
Total stockholders’ equity
Total liabilities and equity
$
500,000
350,000
90,000
940,000
$
$
200,000
650,000
950,000
$
200,000
650,000
900,000
$
1,800,000
(365,000)
1,435,000
2,375,000
$
1,750,000
(325,000)
1,425,000
2,195,000
$
160,000
40,000
$
200,000
30,000
$
200,000
$
230,000
$
800,000
1,000,000
$
700,000
930,000
$
$
$
$
$
$
$
370,000
290,000
110,000
770,000
$
$
100,000
655,000
620,000
1,375,000
$
100,000
655,000
510,000
1,265,000
$
2,375,000
$
2,195,000
WEAVER CORPORATION
Statement of Retained Earnings
For the Year Ending December 31, 20X3
Beginning retained earnings, January 1
Plus: Net income
20X2
$
510,000
160,000
I-16.01
$
Less: Dividends
Ending retained earnings, December 31
$
670,000
50,000
620,000
WEAVER CORPORATION
Income Statement
For the year ending December 31, 20X3
Revenues
Cost of goods sold
Gross profit
Operating expenses
Salaries
Interest
Depreciation
Other operating expenses
Income before income taxes
Less: Income taxes
Net income
$
$
1,685,000
980,000
$
705,000
245,000
65,000
40,000
155,000
505,000
$
$
200,000
40,000
160,000
I-16.01
Current Ratio
Current Assets ÷ Current Liabilities
Quick Ratio
Debt to Total Assets Ratio
Debt to Total Equity Ratio
Times Interest Earned Ratio
Accounts Receivable Turnover Ratio
Inventory Turnover Ratio
Net Profit on Sales
Gross Profit Margin
Return on Assets
Return on Equity
EPS
P/E
Dividend Rate/Yield
Dividend Payout Ratio
Book Value Per Share
4.70
$940,000 ÷ $200,000
…
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