saint ACC549 final exam 2017

Final exam Question 1 (1 point) Question 1 Unsaved The following information is computed from Fast Food Chain’s annual report for 2012. 2012 2011 Current assets $ 2 731 020 $ 2 364 916 Property and equipment net 10 960 286 8 516 833 Intangible assets at cost less applicable amortization 294 775 255 919 $13 986 081 $11 137 668 Current liabilities $ 3 168 123 $ 2 210 735 Deferred federal income taxes 160 000 26 000 Mortgage note payable 456 000 – Stockholders’ equity 10 201 958 8 900 933 $13 986 081 $11 137 668 Net sales $33 410 599 $25 804 285 Cost of goods sold (30 168 715) (23 159 745) Selling and administrative expense (2 000 000) (1 500 000) Interest expense (216 936) (39 456) Income tax expense (400 000) (300 000) Net income $ 624 948 $ 805 084 Note: Onethird of the operating lease rental charge was $100 000 in 2012 and $50 000 in 2011. Capitalized interest totaled $30 000 in 2012 and $20 000 in 2011. a. Based on the above data for both years compute: 1. Times interest earned 2. Fixed charge coverage 3. Debt ratio 4. Debt/equity ratio 5. Debt to tangible net worth b. Comment on the firm’s long-term borrowing ability based on the analysis. Question 1 options: Save Question 2 (1 point) Question 2 Unsaved Company P had the following capital structure at year-end after closing. 6% Bonds $10 000 000 3% Preferred Stock 20 000 000 Common Stock ($10 par) 10 000 000 Paid-In Capital in Excess of Par 15 000 000 Retained Earnings 35 000 000 a. The return on common equity was 9%. Determine the net income assuming common stock dividends were declared and paid. b. Using your answer in (a) compute return on investment. Assume that the bond interest is the only interest expense and the tax rate is 50%. Use year-end balance sheet figures. c. Compute basic earnings per share. Assume the same number of common shares throughout the whole year. d. Compute book value per share. e. If the market value is $78 compute the price/earnings ratio using your answer to (c). f. Would you expect the market price to be higher than the book value per share? Question 2 options: Save Question 3 (1 point) Question 3 Unsaved The following statements are presented for Melvin Company. Melvin Company Balance Sheet December 31 2012 and 2011 Assets 2012 2011 Cash $ 625 $ 499 Marketable securities 260 370 Trade accounts receivable less allowances of 36 in 2012 and 18 in 2011 1 080 820 Inventories FIFO 930 870 Prepaid expenses 230 220 Total current assets $3 125 $2 779 Investments $ 820 $ 600 Property plant and equipment: Land $ 130 $ 127 Buildings and improvements 760 670 Machinery and equipment 2 100 1 400 $2 990 $2 197 Less allowances for depreciation 1 100 890 $1 890 $1 307 Goodwill 500 550 Total assets $6 335 $5 236 Liabilities and Shareholders’ Equity Accounts payable $1 200 $ 900 Accrued payroll 100 80 Accrued taxes 300 200 Total current liabilities $1 600 $1 180 Long-term debt 900 750 Deferred income taxes 300 280 Shareholders’ equity: Common stock 1 000 1 000 Retained earnings 2 535 2 026 Total liabilities and shareholders’ equity > Question 3 options: Save Question 4 (1 point) Question 4 Unsaved ABC Company has been a wholesale distributor of automobile parts for domestic automakers for 20 years. ABC has suffered through the recent slump in the domestic auto industry and its performance has not rebounded to the levels of the industry as a whole. ABC’s single-step income statement for the year ended November 30 2011 follows: ABC Company Income Statement For the Year Ended November 30 2011 (thousands omitted) Net sales $8 400 Expenses: Cost of goods sold 6 300 Selling expense 780 Administrative expense 900 Interest expense 140 Total 8 120 Income before income taxes 280 Income taxes 112 Net income $ 168 ABC’s return on sales before interest and taxes was 5% in fiscal year 2011 compared with the industry average of 9%. ABC’s turnover of average assets of four times per year and return on average assets before interest and taxes of 20% are both well below the industry average. Joe Kuhn president of ABC wishes to improve these ratios and raise them nearer to the industry averages. He established the following goals for ABC Company for fiscal year 2012: Return on sales before interest and taxes 8% Turnover of average assets 5 times per year Return on average assets before interest and taxes 30% For fiscal 2012 Kuhn and the rest of ABC’s management team are considering the following actions which they expect will improve profitability and result in a 5% increase in unit sales: 1. Increase selling price 10%. 2. Increase advertising by $420 000 and hold all other selling and administrative expenses at fiscal 2011 levels. 3. Improve customer service by increasing average current assets (inventory and accounts receivable) by a total of $300 000 and hold all other assets at fiscal 2011 levels. 4. Finance the additional assets at an annual interest rate of 10% and hold all other interest expense at fiscal 2011 levels. 5. Improve the quality of products carried; this will increase the units of goods sold by 4%. 6. ABC’s 2012 effective income tax rate is expected to be 40% – the same as in fiscal 2011. a. Prepare a single-step pro forma income statement for ABC Company for the year ended November 30 2012 assuming that ABC’s planned actions would be carried out and that the 5% increase in unit sales would be realized. b. Calculate the following ratios for ABC Company for the 2011-2012 fiscal year and state whether Kuhn’s goal would be achieved: 1. Return on sales before interest and taxes. 2. Turnover of average assets. 3. Return on average assets before interest and taxes. 4. Would it be possible for ABC Company to achieve the first two of Kuhn’s goals without achieving his third goal of 30% return on average assets before interest and taxes? Explain your answer. Question 4 options: