Project #4506 - Accounting

14.1

Selected information taken from the financial statements of Maxum Company for two successive years follows.  You are to compute the percentage change from 2008 to 2009 whenever possible.  Round all calculations to the nearest whole percentage.

 

 

2009

2008

 

a.       Accounts receivable

 

126,000

160,000

 

b.      Marketable securities

 

-0-

250,000

 

c.       Retained earnings

 

80,000

(80,000)

 

d.      Notes receivable

 

120,000

-0-

 

e.      Notes payable

 

870,000

800,000

 

f.        Cash

 

84,000

80,000

 

g.       sales

 

970,000

910,000

 

 

 

14.2

Compute trend percentages for the following items taken from the financial statements of Lopez Plumbing. Over a five year period.  Treat 2005 as the base year.  State whether the trends are favorable or unfavorable.  (Dollar amounts are stated in thousands.

 

2009

2008

2007

2006

2005

Sales

81,400

74,000

61,500

59,000

50,000

Cost of goods sold

58,500

48,000

40,500

37,000

30,000

 

14.6A

From the balance sheet:

 

 

  Cash

 

30,000

  Accts recv

 

150,000

  Inventory

 

200,000

  Plant assets (net accumulated depreciation)

 

500,000

  Current liabilities

 

150,000

  Total stock holders equity

 

300,000

  Total assets

 

1,000,000

From the income statement:

 

 

  Net sales

 

1,500,000

  Cost of goods sold

 

1,080,000

  Operating expense

 

315,000

  Interest Expense

 

84,000

  Income tax expense

 

6,000

  Net income

 

15,000

From the statement of cash flows:

 

 

  Net cash provided by operating activities      (including interest paid of $79,000)

 

40,000

  Net cash used in investing activities

 

(46,000_

  Financing activities:

 

 

     Amounts Borrowed

50,000

 

     Repayment of amounts borrowed

(14,000)

 

     Dividends paid

(20,000)

 

          Net cash provided by financing activities

 

16,000

Net increase in cash during the year

 

$10,000

 

Instructions

a.       explain how the interest expense shown in the income statement could be 84,000 when the interest payment appearing in the statement of cash is only $79,000

b.      Compute the following (round to one decimal place):

1.       Current ratio

2.       Quick ration

3.       Working capital

4.       Debt ratio

c.       Comment on these measurements and evaluate Rentsch, Inc.’s short-term debt-paying ability.

d.      Compute the following ratios (assume that the year-end amounts of total assets and total stockholders’ equity also represent the average amounts throughout the year):

1.       Return on assets

2.       Return on equity

e.      Comment on the company’s performance under these measurements.  Explain why the returns on assets and return on equity are so different.

f.        Discuss (1) the apparent safety of long term creditors claims and (2) the prospects fro Rentsch, Inc., continuing its dividend payments at the present level.

 

 

Subject Business
Due By (Pacific Time) 04/16/2013 12:00 am
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