FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT
SAMPLE CASES (FINANCIAL STATEMENTS PREPARATION) SAMPLE CASES (FINANCIAL STATEMENTS PREPARATION) Case 1
Case 1—Income statement relationships.—Income statement relationships. Fill in the appropriate blanks
Fill in the appropriate blanks for each of the for each of the independent situations below.independent situations below. Compan
Company y A A CompanCompany y B B CompanCompany y CC S
Saallees s rreevveennuuee ((aa !!"""""""""""""" !!##$$##%%$$&&&& !!''$$&&%%&&&&&& B
Beeiinnnniinn iinnvveennttoorryy ''))%%**&&&& ((dd """""""""""""" ++&&%%&&&&&& ,
,eet t ppuurrcchhaasseess --''%%##&&&& ))''''%%**&&&& (( """"""""""""" " /
/nnddiinn iinnvveennttoorryy ''))%%))&&&& --&&00%%&&&&&& **##%%&&&&&& C
Coosst t oof f oooodds s ssoolldd ((bb """""""""""""" ((ee """""""""""""" $$--%%&&&&&& 1
1rroosss s pprrooffiitt ''%%##&&&& --&&00%%&&&&&& ((hh """"""""""""" " 2
2ppeerraattiinn ee33ppeennsseess ((cc " """"""""""""" ''&&%%&&&&&& $$00%%&&&&&& IInnccoomme e bbeeffoorre e ttaa33eess **%%&&&&&& ((ff """""""""""""" ((ii """"""""""""" "
Case 2
Case 2—4ultiple5step income statement.—4ultiple5step income statement. 6resented below is information related
6resented below is information related to Farr Company.to Farr Company.
7
7eettaaiinneed d eeaarrnniinnss% % 88eecceemmbbeer r ##--% % ))&&--)) ! ! **''&&%%&&&&&& S
Saalleess rreevveennuuee --%%$$&&&&%%&&&&&& S
Seelllliinn aannd d aaddmmiinniissttrraattiivve e ee33ppeennsseess ))$$&&%%&&&&&& 9
9uurrrriiccaanne e lloosss s ((pprree55ttaa33 oon n ppllaannt t ((ee33ttrraaoorrddiinnaarry y iitteemm ))&&%%&&&&&& C
Caassh h ddiivviiddeenndds s ddeeccllaarreed d oon n ccoommmmoon n ssttoocckk ####%%**&&&& C
Coosstt ooff ooooddss ssoolldd 00##&&%%&&&&&& 1ain resul
1ain resultin from computin from computatiotation error on depreciation error on depreciation chare in )&-n chare in )&-- (pre5ta3- (pre5ta3 ')&%&')&%&&&&& 2
2tthheerr rreevveennuuee --))&&%%&&&&&& 2
2tthheerr ee33ppeennsseess --&&&&%%&&&&&&
Instructions Instructions
6repare in ood form a multiple5step income statement for the year )&-#. Assume a 6repare in ood form a multiple5step income statement for the year )&-#. Assume a #&: ta3 rate and that 0&%&&& shares of common stock were outstandin durin the #&: ta3 rate and that 0&%&&& shares of common stock were outstandin durin the year.
year.
Case 3
Case 3—4ultiple5step income statement.—4ultiple5step income statement.
Shown below is an income statement for )&-) that was prepared by a poorly trained Shown below is an income statement for )&-) that was prepared by a poorly trained bookkeeper of 9owell Corporation.
bookkeeper of 9owell Corporation.
9owell Corporation 9owell Corporation I,C24/ S;A;/4/,; I,C24/ S;A;/4/,; 8ecember #-% )&-) 8ecember #-% )&-) S
Saalleess rreevveennuuee !! ++--''%%&&&&&& IInnvveessttmmeennt t rreevveennuuee --++%%''&&&& C
Coosst t oof f mmeerrcchhaannddiisse e ssoolldd (($$&&00%%''&&&& S
Seelllliinn ee33ppeennsseess ((--$$''%%&&&&&& Administrative e3penses
Administrative e3penses ()-'%&&&()-'%&&& IInntteerreesst t ee33ppeennsse e ((--##%%&&&&&& IInnccoomme e bbeeffoorre e ssppeecciiaal l iitteemmss --''##%%&&&&&& Special items
Special items <
<oosss s oon n ddiissppoossaal l oof f a a ccoommppoonneennt t oof f tthhe e bbuussiinneessss ((##&&%%&&&&&& 4
4aa==oor r ccaassuuaalltty y lloosss s ((ee33ttrraaoorrddiinnaarry y iitteemm ((**&&%%&&&&&& ,
,eet t ffeeddeerraal l iinnccoomme e ttaa3 3 lliiaabbiilliitty y (())%%++&&&& ,
Instructions
6repare a multiple5step income statement for )&-) for 9owell Corporation that is presented in accordance with enerally accepted accountin principles (includin format and terminoloy. 9owell Corporation has '&%&&& shares of common stock outstandin and has a #&: federal income ta3 rate on all ta3 related items. 7ound all earnins per share fiures to the nearest cent.
Case 4—Balance sheet presentation.
;he followin balance sheet was prepared by the bookkeeper for >raus Company as of 8ecember #-% )&-).
>raus Company Balance Sheet
as of 8ecember #-% )&-)
Cash ! 0'%&&& Accounts payable ! +&%&&& Accounts receivable (net ')%)&& <on5term liabilities -&&%&&& Inventory '%&&& Stockholders? e@uity )-0%'&& Investments *%#&&
/@uipment (net -&*%&&& 6atents #)%&&&
!$&0%'&& !$&0%'&&
;he followin additional information is provided
-. Cash includes the cash surrender value of a life insurance policy !+%$&&% and a bank overdraft of !)%'&& has been deducted.
). ;he net accounts receivable balance includes (a accounts receivable—debit balances !*&%&&& (b accounts receivable—credit balances !$%&&& (c allowance for doubtful accounts !#%0&&.
#. Inventory does not include oods costin !#%&&& shipped out on consinment. 7eceivables of !#%&&& were recorded on these oods.
$. Investments include investments in common stock% tradin !-+%&&& and available5 for5sale !$0%#&&% and franchises !+%&&&.
'. /@uipment costin !'%&&& with accumulated depreciation !$%&&& is no loner used and is held for sale. Accumulated depreciation on the other e@uipment is !$&%&&&.
Instructions
6repare a balance sheet in ood form (stockholders? e@uity details can be omitted.
Case —Balance sheet presentation.
1iven the followin account information for <eon Corporation% prepare a balance sheet in report form for the company as of 8ecember #-% )&-). All accounts have normal balances.
/@uipment '&%&&& Interest /3pense )%$&& Interest 6ayable *&&
7etained /arnins
8ividends '&%$&&
<and -#%#)&
Bonds 6ayable 0%&&& ,otes 6ayable (due in * months -+%$&& Common Stock *&%&&& Accumulated 8epreciation 5 /@uip. -&%&&& 6repaid Advertisin '%&&&
7evenue #$-%$&&
Buildins 0&%$&&
Supplies -%0*&
;a3es 6ayable #%&&& Dtilities /3pense -%#)& Advertisin /3pense -%'*& Salaries and Eaes /3pense '#%&$& Salaries and Eaes 6ayable +&& Accumulated 8epr. 5 Bld. -'%&&&
Cash #'%&&&
8epreciation /3pense 0%&&&
SAMPLE CASES FOR FINANCIAL ANAL!SIS"
Case 1" Assume the followin sales data for a company )&-$ !-%&'&%&&&
)&-# +'&%&&& )&-) 0&&%&&& )&-- ''&%&&&
If )&-- is the base year% what is the percentae increase in sales from )&-- to )&-#
a. -&&: b. +&.+: c. ).: d. ').$:
Case 2. ;he current assets of 4aro Company are !#&&%&&&. ;he current liabilities are !-&&%&&&. ;he current ratio e3pressed as a proportion is
a. #&&:. b. #.& c. .##
-d. !#&&%&&& G !-&&%&&&.
Case 3. ;he followin information pertains to Sampson Company. Assume that all balance sheet amounts represent both averae and endin balance fiures. Assume that all sales were on credit.
Assets
Cash and short5term investments ! $'%&&& Accounts receivable (net )'%&&&
Inventory )&%&&&
6roperty% plant and e@uipment )-&%&&& ;otalAssets !#&&%&&&
<iabilities and StockholdersH /@uity
Current liabilities ! '&%&&& <on5term liabilities +&%&&& StockholdersH e@uity—common -*&%&&& ;otal <iabilities and StockholdersH /@uity !#&&%&&&
Income Statement
Sales ! -)&%&&&
Cost of oods sold **%&&&
1ross profit '$%&&&
2peratin e3penses #&%&&&
,et income ! )$%&&&
,umber of shares of common stock *%&&& 4arket price of common stock !)&
8ividends per share .'&
Ehat is the current ratio for Sampson a. -.0&
b. -.#& c. -.$& d. .*$
Case 4. ;he followin information pertains to Sampson Company. Assume that all balance sheet amounts represent both averae and endin balance fiures. Assume that all sales were on credit.
Assets
Cash and short5term investments ! $'%&&& Accounts receivable (net )'%&&&
Inventory )&%&&&
6roperty% plant and e@uipment )-&%&&& ;otalAssets !#&&%&&&
<iabilities and StockholdersH /@uity
Current liabilities ! '&%&&& <on5term liabilities +&%&&& StockholdersH e@uity—common -*&%&&& ;otal <iabilities and StockholdersH /@uity !#&&%&&&
Income Statement
Sales ! -)&%&&&
Cost of oods sold **%&&&
1ross profit '$%&&&
2peratin e3penses #&%&&&
,et income ! )$%&&&
,umber of shares of common stock *%&&& 4arket price of common stock !)&
8ividends per share .'&
Ehat is the return on assets for Sampson a. 0.&:
b. .&: c. -0.&: d. -*.&:
Case " Selected financial statement data for 4oran Company are presented below. -)#--)
Cash ! -&%&&&
Short5term investments -'%&&& Accounts receivable *&%&&& Inventories '%&&& ;otal current liabilities -&&%&&&
Instructions
Compute the followin ratios at 8ecember #-% )&-) (a Current.
(b Acid5test.
Case #$ At January -% )&-)% Bella Company has beinnin inventory of )%&&& 8K8 players. Bella estimates it will sell -&%&&& units durin the first @uarter of )&-) with a -): increase in sales each @uarter. BellaHs policy is to maintain an endin inventory e@ual to )': of the ne3t @uarterHs sales. /ach 8K8 player costs !-&& and is sold for !-'&. 9ow much is budeted sales revenue for the third @uarter of )&-)
a. !$'&%&&& b. !-%+'&%&&& c. !-%00-%*&& d. !-)%'$$
Case %. ,ovak Co. estimates its sales at )$&%&&& units in the first @uarter and that sales will increase by )$%&&& units each @uarter over the year. ;hey have% and desire% a )': endin inventory of finished oods. /ach unit sells for !)'. $&: of the sales are for cash. &: of the credit customers pay within the @uarter. ;he remainder is received in the @uarter followin sale.
Cash collections for the third @uarter are budeted at a. !$%&*0%&&&.
b. !'%+&$%&&&. c. !%&+)%&&&. d. !0%)&0%&&&.
Case &. 4addu3 4anufacturin estimates its sales at )&&%&&& units in the first @uarter and that sales will increase by )&%&&& units each @uarter over the year. ;hey have% and desire% a )': endin inventory of finished oods. /ach unit sells for !#'. $&: of the sales are for cash. &: of the credit customers pay within the @uarter. ;he remainder is received in the @uarter followin sale.
Cash collections for the third @uarter are budeted at a. !$%$*%&&&.
b. !*%000%&&&. c. !0%)$%&&&. d. !+%'*%&&&.
Case '. A company has budeted direct materials purchases of !$&&%&&& in 4arch and !*$&%&&& in April. 6ast e3perience indicates that the company pays for &: of its purchases in the month of purchase and the remainin #&: in the ne3t month. 8urin April% the followin items were budeted
Eaes /3pense !)&&%&&& 6urchase of office e@uipment +*%&&& Sellin and Administrative /3penses *$%&&& 8epreciation /3pense $0%&&& ;he budeted cash disbursements for April are
a. !0*$%&&&. b. !'*0%&&&. c. !+)0%&&&. d. !+*%&&&.
Case 1. 7achel Industries e3pects to purchase !-0&%&&& of materials in July and !)-&%&&& of materials in Auust. ;hree5@uarters of all purchases are paid for in the month of purchase% and the other one5fourth are paid for in the month followin the month of purchase. 9ow much will Auust?s cash disbursements for materials purchases be
a. !-#'%&&& b. !-'%'&& c. !)&)%'&& d. !)-&%&&&
Case 11. 6orath 4anufacturin Co. reported the followin information for )&-) 2ctober ,ovember 8ecember
Budeted sales !-%)$&%&&& !-%-*&%&&& !-%$$&%&&&
All sales are on credit.
Customer amounts on account are collected '&: in the month of sale and
9ow much cash will 6orath receive in ,ovember a. !'0&%&&&
b. !-%#&&%&&& c. !-%)&&%&&& d. !-%-*&%&&&
Case 12. ;he followin information was taken from Lan CompanyHs cash budet for the month of July
Beinnin cash balance !$0&%&&& Cash receipts #&$%&&& Cash disbursements '$$%&&&
If the company has a policy of maintainin a minimum end of the month cash balance of !$&&%&&&% the amount the company would have to borrow is
a. !-*&%&&&. b. !0&%&&&. c. !)$&%&&&. d. !+*%&&&.
Case 13. ;he followin credit sales are budeted by 4c,auhton Industries January !)&$%&&&
February #&&%&&& 4arch $)&%&&& April #*&%&&&
;he company?s past e3perience indicates that &: of the accounts receivable are collected in the month of sale% )&: in the month followin the sale% and 0: in the second month followin the sale. ;he anticipated cash inflow for the month of April is
a. !#&%#)&. b. !##*%&&&. c. !#*&%&&&. d. !#')%0&&.
Case 14. A company?s past e3perience indicates that *&: of its credit sales are collected in the month of sale% #&: in the ne3t month% and ': in the second month after the sale the remainder is never collected. Budeted credit sales were
January !#*&%&&& February )-*%&&& 4arch '$&%&&&
;he cash inflow in the month of 4arch is e3pected to be a. !$&*%0&&.
b. !#&%0&&. c. !#)$%&&&. d. !#00%0&&.
Case 1. Blake ;aylor Co. reported the followin information for )&-) 2ctober ,ovember 8ecember Budeted sales !$*&%&&& !$$&%&&& !'$&%&&& Budeted purchases !)$&%&&& !)'*%&&& !)00%&&&
All sales are on credit.
Customer amounts on account are collected '&: in the month of sale and
'&: in the followin month.
Blake ;aylor purchases and pays for merchandise *&: in the month of
ac@uisition and $&: in the followin month.
Accounts payable is used only for inventory ac@uisitions.
9ow much cash will Blake ;aylor receive durin ,ovember a. !))&%&&&
b. !$+&%&&& c. !$'&%&&& d. !$$&%&&&
SAMPLE CASE FOR INESTMENTS Case 1—Investment in e@uity securities.
Aee Corp. ac@uired a #&: interest in ;rent Co. on January -% )&-#% for !'&&%&&&. At that time% ;rent had -%&&&%&&& shares of its !- par common stock issued and outstandin. 8urin )&-#% ;rent paid cash dividends of !-*&%&&& and thereafter declared and issued a ': common stock dividend when the fair value was !) per share. ;rent?s net income for )&-# was !#*&%&&&. Ehat is the balance in AeeHs e@uity investment account at the end of )&-#
So*ution 1%+123
Cost !'&&%&&& Share of net income (.#& M !#*&%&&& -&0%&&& Share of dividends (.#& M !-*&%&&& ($0%&&& Balance in e@uity investment account !'*&%&&&