DUE WEDNESDAY 6/6/18 at 12:30 PM NAME: ACC 203 FS18 PRACTICAL EXAM CHAPTERS 12-1

Question

DUE WEDNESDAY 6/6/18 at 12:30 PM NAME: ACC 203 FS18 PRACTICAL EXAM CHAPTERS 12-13 1.(30 Points) Use the following financial statements and additional information to prepare the operations Derby Company Balance Sheets At December 31 2017 2016 Assets: $ 85,600 S 65,200 72,850 56,750 Merchandise inventory157,750 144,850 6,080 12,680 280,600 245,600 Accounts receivable, net . Prepaid expenses Equipment Accumulated (80,600) (97,600) Total assets $522.280 $427.480 Liabilities: Accounts payable Income taxes payable Notes payable (long term) 52,850 45,450 15,240 12,240 Total liabilities. Equity: .. $127,290 $136,890 Common stock Paid-in capital in excess of par... Retained earnings 200,000 150,000 Total equity Total liabilities and equity 141,990 100,590 $394.990 $290,590 $522,280 S427.480 Derby Company Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold. Depreciation expense Other operating expenses Interest expense Other gains (losses): $488,000 $212,540 43,000 106,260 6.400 (368,200) Gain on sale of equipment Income before taxes Income taxes expense.. Net income 124,500 ?4.100 S 83,400 Additional Information: a. A $20,000 note payable is retired at its carrying value in exchange for cash. b. The only changes affecting retained earnings are net income and cash dividends paid. e. New equipment is acquired for $120,000 cash. d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700. e. Prepaid expenses relate to Other Expenses on the income statement. f. All purchases and sales of merchandise inventory are on credit.

Explanation / Answer

Derby Company Cash flow from operating activities for the year ended December 31, 2017 Net income for the year 83400 Adjustments for non-cash items     Depreciation expense 43000     Gain on sale of equipment -4700 38300 Adjustments for changes in working capital    Increase in accounts receivable -16100    Increase in merchandise inventory -12900    Decrease in prepaid expenses 6600    Increase in accounts payable 7400    Increase in income tax payable 3000 -12000 Net cash flow from operating activities 109700 Current Ratio =(522,280 - 200,000) / 68,090 Days sales in inventory 365/1.40 =322,280 / 68,090 260 days =4.73 Quick Ratio =(322,280 - 157,7500 / 68,090 Total Assets Turnover =488,000 / ((522,280+427,480)/2) =164,530 / 68,090 488,000 / 474,880 =2.41 =1.03 Accounts receivable turnover =488,000/((72,850+56,750)/2) Profit margin Ratio =83,400 / 488,000 =488,000 / 64,800 = 17.1% =7.53 Return on total assets =83,400 / (522,580+427,480)/2) Inventory Turnover =212,540 / ((157,750+144,850)/2) =83,400 / 474,880 =212,540 / 151,300 =17.6% =1.40 Return on common equity =83,400 / ((394,990+290,590)/2) Days' Sales uncollected =365 / 7.53 83,400 / 342,790 48 days =24.3% Current Ratio =(522,280 - 200,000) / 68,090 Days sales in inventory 365/1.40 =322,280 / 68,090 260 days =4.73 Quick Ratio =(322,280 - 157,7500 / 68,090 Total Assets Turnover =488,000 / ((522,280+427,480)/2) =164,530 / 68,090 488,000 / 474,880 =2.41 =1.03 Accounts receivable turnover =488,000/((72,850+56,750)/2) Profit margin Ratio =83,400 / 488,000 =488,000 / 64,800 = 17.1% =7.53 Return on total assets =83,400 / (522,580+427,480)/2) Inventory Turnover =212,540 / ((157,750+144,850)/2) =83,400 / 474,880 =212,540 / 151,300 =17.6% =1.40 Return on common equity =83,400 / ((394,990+290,590)/2) Days' Sales uncollected =365 / 7.53 83,400 / 342,790 48 days =24.3% 1. From the current and quick ratios, we can say that the company has a strong liquidity and the company will be able to      meet its short term liabilities effectively. 2. Accounts receivable turnover ratio is very goods at 7.53 , buit the same cannot be said of the inventory as the turnover is     only 1.40, meaning a heavy build up inventory, which is also reflected in the number of days' sales in inventory. 3.Due to the heavy build up of inventory, the total assets turnover is also low at 1.03. 4. As far as the profit margin and the return on assets and equity are concerened, we can say that the company's preformance is very good, as the ratios are very encouraging.

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