Q1.Depreciation Buff Company purchased equipment for $500,000 cash on July 1, 20
ID: 2435849 • Letter: Q
Question
Q1.DepreciationBuff Company purchased equipment for $500,000 cash on July 1, 2006. The estimated life is 5 years or 1,000,000 units; salvage value is estimated at $50,000. Actual activity was 180,000 units in 2006, and 200,000 units in 2007.
Instructions
Compute the annual depreciation expense for 2006 and 2007, and book value at December 31, 2007, under the straight-line method.
2006 depreciation = $_______________.
2007 depreciation = $_______________.
12/31/07 book value = $_______________.
Q2.RATIO ANALYSIS
The condensed financial statements of Westward Corporation for 2006 are presented below.
Westward Corporation Westward Corporation
Balance Sheet Income Statement
December 31, 2006 For the Year Ended December 31, 2006
Assets Revenues $2,000,000
Current assets Expenses
Cash and temporary Cost of goods sold 1,080,000
investments $ 30,000 Selling and administrative
Accounts receivable 70,000 expenses 495,000
Inventories 120,000 Interest expense 30,000
Total current assets 220,000 Total expenses 1,605,000
Property, plant, and Income before income taxes 395,000
equipment (net) 780,000 Income tax expense 140,000
Total assets $1,000,000 Net income $ 255,000
Liabilities and Stockholders' Equity
Current liabilities $ 80,000
Long-term liabilities 300,000
Common stockholders' equity 620,000
Total liabilities and
stockholders' equity $1,000,000
Additional data as of December 31, 2005: Inventory = $100,000; Total assets = $900,000; Common stockholders' equity = $540,000.
Instructions
Compute the following listed ratios for 2006 showing supporting calculations.
(a) Current ratio = .
(b) Debt to total assets = .
(c) Times interest earned = .
(d) Inventory turnover = .
(e) Profit margin ratio = .
(f) Return on common stockholders' equity = .
(g) Return on assets = .
Q3.CASH BUDGET
The following information is available for Mayberry Company for the month of February: expected cash receipts $38,000; expected cash disbursements $42,000; cash balance February 1, $11,000. Management wishes to maintain a minimum cash balance of $10,000. Prepare a basic cash budget for the month of February.
Explanation / Answer
1 Net Cash provided by Financing activities (20,000 + 12,000 -21,000) = 11,000 2 Collections from Customers does not appear on CFS prepared by indirect method. 3 Cash collected from customers ( 118,000 + 19,000 -56,000) = 81,000 4 The three main categories of Cash Flows are Operating, Financing , Investing. 5 d.All of above 6 a. Net Income. 7 d.Long term liabilities and stock holders' equity 8 Sale ;560,000 = ( 114,000 - 28,000 + 376,000 - 406,000) 9 a) It should report 71000 ( 56,000 + 15,000) 2006 Depreciation : ( 500,000 - 50,000 ) / 5 * 1/2 =45,000 2007 Depreciation : ( 500,000 - 50,000 ) / 5 =90,000 21/21/07 Book Value : 500,000 - 45,000 - 90,000 = 365,000 Q2 Ratio Analysis : (a) Current Ratio = Current Assets / Current Liabilities = 220,000 / 80,000 = 2.75 (b) Debt to Assets Ratio = Total Liabilities / Total Assets = 380,000 / 1,000,000 = 0.38 (c ) Times Interest Earned = EBIT / Total Interest Payable = (140,000 + 30,000 ) / 30,000 = 5.67 (d) Inventory Turnover : Cost of Goods Sold / Average Inventory :1,080,000 / 110,000=9.81 (e ) Profit Margin Ratio : Net Income / Revenue = 255,000 / 2,000,000 = 0.1275 ( f ) Return on Common Stock Holders' Equity : Net Income / Stock Holders' Equity : 255,000 / 1,000,000 =0.255 (g ) Return on Assets : Net Income + Interest Expense / Total Assets : 255,000 + 30,000 / 1,000,000 =0.28 Q3 Cash Balance on Feb 1 - 11,000 Add : Expected Cash Receipts - 38,000 Less : Expected Cash Disbursements - ( 42,000) Balance at the end 7000 Amount that needs to be borrowed 3000 Balance at the end 10,000
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