Ass xam 101113 +

Questions 15-18

[The following information applies to the questions displayed below.]

Simon Company’s year-end balance sheets follow.

	At December 31			2015			2014			2013
	Assets
	Cash		$	35,614		$	41,629		$	42,088
	Accounts receivable, net			89,000			62,700			58,800
	Merchandise inventory			114,500			83,000			52,000
	Prepaid expenses			11,469			10,928			4,676
	Plant assets, net			341,206			311,906			259,236
	Total assets		$	591,789		$	510,163		$	416,800
	Liabilities and Equity
	Accounts payable		$	150,303		$	87,942		$	56,118
	Long-term notes payable secured by   mortgages on plant assets			113,481			119,684			93,955
	Common stock, $10 par value			162,500			162,500			162,500
	Retained earnings			165,505			140,037			104,227
	Total liabilities and equity		$	591,789		$	510,163		$	416,800

The company’s income statements for the years ended December 31, 2015 and 2014, follow. Assume that all sales are on credit:

For Year Ended December 31	2015						2014
Sales				$	769,326					$	607,094
Cost of goods sold	$	469,289					$	394,611
Other operating expenses		238,491						153,595
Interest expense		13,079						13,963
Income taxes		10,001						9,106
Total costs and expenses					730,860						571,275
Net income				$	38,466					$	35,819
Earnings per share				$	2.37					$	2.20

15-18

(1)	Compute days' sales uncollected.

	Days' Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected Accounts receivable / Net sales x 365 = Days' Sales Uncollected 2015: $89,000 / $769,326 x 365 = 42.2 days 2014: $62,700 / $607,094 x 365 = 37.7 days

(2)	Compute accounts receivable turnover.

	Accounts Receivable Turnover Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover Net sales / Average accounts receivable, net = Accounts receivable turnover 2015: $769,326 / $75,850 = 10.1 times 2014: $607,094 / $60,750 = 10.0 times

2015's Average accounts receivable: ($89,000 + $62,700)/2

2014's Average accounts receivable: ($62,700 + $58,800)/2

(3)	Compute inventory turnover.

	Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover Cost of goods sold / Average inventory = Inventory turnover 2015: $469,289 / $98,750 = 4.8 times 2014: $394,611 / $67,500 = 5.8 times

2015's Average inventory: ($114,500 + $83,000)/2
2014's Average inventory: ($83,000 + $52,000)/2

(4)	Compute days' sales in inventory.

	Days’ Sales In Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales In Inventory Ending inventory / Cost of goods sold x 365 = Days’ sales in inventory 2015: $114,500 / $469,289 x 365 = 89.1 days 2014: $83,000 / $394,611 x 365 = 76.8 days

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Questions 19-21

[The following information applies to the questions displayed below.]

Simon Company’s year-end balance sheets follow.

	At December 31			2015			2014			2013
	Assets
	Cash		$	29,910		$	36,746		$	35,719
	Accounts receivable, net			88,458			60,560			48,578
	Merchandise inventory			112,332			82,501			51,234
	Prepaid expenses			10,025			9,084			4,048
	Plant assets, net			276,576			257,058			221,221
	Total assets		$	517,301		$	445,949		$	360,800
	Liabilities and Equity
	Accounts payable		$	126,232		$	76,873		$	46,197
	Long-term notes payable secured by   mortgages on plant assets			95,308			104,620			80,534
	Common stock, $10 par value			162,500			162,500			162,500
	Retained earnings			133,261			101,956			71,569
	Total liabilities and equity		$	517,301		$	445,949		$	360,800

The company’s income statements for the years ended December 31, 2015 and 2014, follow.

For Year Ended December 31	2015						2014
Sales				$	672,491					$	530,679
Cost of goods sold	$	410,220					$	344,941
Other operating expenses		208,472						134,262
Interest expense		11,432						12,206
Income taxes		8,742						7,960
Total costs and expenses					638,866						499,369
Net income				$	33,625					$	31,310
Earnings per share				$	2.07					$	1.93

Calculate the company’s long-term risk and capital structure positions at the end of 2015 and 2014 by computing the following ratios.

19-21

(1)	Debt and equity ratios.

	Debt Ratio Choose Numerator: / Choose Denominator: = Debt Ratio Total liabilities / Total assets = Debt ratio 2015: $221,540 / $517,301 = 42.8 % 2014: $181,493 / $445,949 = 40.7 % Equity Ratio Choose Numerator: / Choose Denominator: = Equity Ratio Total equity / Total assets = Equity ratio 2015: $295,761 / $517,301 = 57.2 % 2014: $264,456 / $445,949 = 59.3 %

	2015						2014
Total liabilities and debt ratio
$126,232 + $95,308	$	221,540		42.8	%
$76,873 + $104,620							$	181,493		40.7	%
Total equity and equity ratio
$162,500 + $133,261		295,761		57.2	%
$162,500 + $101,956								264,456		59.3	%
Total liabilities and equity	$	517,301		100.0	%		$	445,949		100.0	%

(2)	Debt-to-equity ratio.

	Debt-To-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-To-Equity Ratio Total liabilities / Total equity = Debt-to-equity ratio 2015: $221,540 / $295,761 = 0.75 to 1 2014: $181,493 / $264,456 = 0.69 to 1

(3)	Times interest earned.

	Times Interest Earned Choose Numerator: / Choose Denominator: = Times Interest Earned Income before interest and inc tax / Interest expense = Times interest earned 2015: $53,799 / $11,432 = 4.7 times 2014: $51,476 / $12,206 = 4.2 times

2015's Income before interest and inc tax: ($33,625 + $8,742 + $11,432)

2014's Income before interest and inc tax: ($31,310 + $7,960 + $12,206)

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Questions 22-24

[The following information applies to the questions displayed below.]

Simon Company’s year-end balance sheets follow.

	At December 31			2015			2014			2013
	Assets
	Cash		$	31,600		$	35,500		$	37,400
	Accounts receivable, net			89,800			61,500			49,500
	Merchandise inventory			111,000			81,400			53,000
	Prepaid expenses			10,500			9,400			4,800
	Plant assets, net			281,000			251,000			235,000
	Total assets		$	523,900		$	438,800		$	379,700
	Liabilities and Equity
	Accounts payable		$	128,800		$	72,250		$	51,400
	Long-term notes payable secured by   mortgages on plant assets			95,000			99,000			83,600
	Common stock, $10 par value			162,500			162,500			162,500
	Retained earnings			137,600			105,050			82,200
	Total liabilities and equity		$	523,900		$	438,800		$	379,700

    

The company’s income statements for the years ended December 31, 2015 and 2014, follow.

For Year Ended December 31	2015						2014
Sales				$	775,000					$	550,000
Cost of goods sold	$	457,250					$	352,000
Other operating expenses		217,000						126,500
Interest expense		12,200						12,600
Income taxes		9,600						8,975
Total costs and expenses					696,050						500,075
Net income				$	78,950					$	49,925
Earnings per share				$	4.86					$	3.07

      

Evaluate the company's efficiency and profitability by computing the following for 2015 and 2014.

22-24

(1)	Profit margin ratio.

	Profit Margin Ratio Choose Numerator: / Choose Denominator: = Profit Margin Ratio Net income / Net sales = Profit margin ratio 2015 $78,950 / $775,000 = 10.2 % 2014 $49,925 / $550,000 = 9.1 %

(2)	Total asset turnover.

	Total Asset Turnover Choose Numerator: / Choose Denominator: = Total Asset Turnover Net sales / Average total assets = Total asset turnover 2015 $775,000 / +/-1$481,350 = 1.6 times 2014 $550,000 / +/-1$409,250 = 1.3 times

2015's Average total assets: ($523,900 + $438,800)/2

2014's Average total assets: ($438,800 + $379,700)/2

(3)	Return on total assets.

	Return On Total Assets Choose Numerator: / Choose Denominator: = Return On Total Assets Net income / Average total assets = Return on total assets 2015 $78,950 / +/-1$481,350 = 16.4 % 2014 $49,925 / +/-1$409,250 = 12.2 %

2015's Average total assets: ($523,900 + $438,800)/2

2014's Average total assets: ($438,800 + $379,700)/2

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25.

Stanford issues bonds dated January 1, 2015, with a par value of $246,000. The bonds’ annual contract rate is 8%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 10%, and the bonds are sold for $233,510.

1.	What is the amount of the discount on these bonds at issuance?

	Discount $12,490

Discount = Par value – Issue price = $246,000 – $233,510 = $12,490

2.	How much total bond interest expense will be recognized over the life of these bonds?

	Total Bond Interest Expense Over Life of Bonds: Amount repaid: 6 payments of $9,840 $59,040 Par value at maturity 246,000 Total repaid 305,040 Less amount borrowed (233,510) Total bond interest expense $71,530

$9,840 = $246,000 × 0.08 × 1/2

3.	Prepare an Amortization table using the effective interest method to amortize the discount for these bonds. (Enter all amounts positive values. Round all amounts to the nearest whole dollar.)

Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Discount Amortization Unamortized Discount Carrying Value 01/01/2015 $12,490 $233,510 06/30/2015 $9,840 $11,676 $1,836 10,654 235,346 12/31/2015 9,840 11,767 1,927 8,727 237,273 06/30/2016 9,840 11,864 2,024 6,703 239,297 12/31/2016 9,840 11,965 2,125 4,578 241,422 06/30/2017 9,840 12,071 2,231 2,347 243,653 12/31/2017 9,840 12,187 2,347 0 246,000 Total $59,040 $71,530 $12,490

Cash Interest Paid = 4.0% × $246,000

Bond Interest Expense = 5% × Prior Carrying Value

Discount Amortization = Bond Interest Expense − Cash Interest Paid

Unamortized Discount = Prior Unamortized Discount – Discount Amortization

Carrying Value = $246,000 – Unamortized Discount

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26.

Quatro Co. issues bonds dated January 1, 2015, with a par value of $750,000. The bonds’ annual contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 8%, and the bonds are sold for $769,646.

1.	What is the amount of the premium on these bonds at issuance?

	Premium $19,646

Premium = Issue price – Par value = $769,646 – $750,000 = $19,646

2.	How much total bond interest expense will be recognized over the life of these bonds?

	Total Bond Interest Expense Over the Life of the Bonds: Amount repaid: 6 payments of $33,750 $202,500 Par value at maturity 750,000 Total repaid 952,500 Less amount borrowed (769,646) Total bond interest expense $182,854

$750,000 × 0.09 × 1/2 = $33,750

3.	Prepare an amortization table for these bonds using the effective interest method to amortize the premium. (Enter all amounts positive values. Round all amounts to the nearest whole dollar.)

Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value 01/01/2013 $19,646 $769,646 06/30/2013 $33,750 $30,786 $2,964 16,682 766,682 12/31/2013 33,750 30,667 3,083 13,599 763,599 06/30/2014 33,750 30,544 3,206 10,393 760,393 12/31/2014 33,750 30,416 3,334 7,059 757,059 06/30/2015 33,750 30,282 3,468 3,591 753,591 12/31/2015 33,750 30,159 3,591 0 750,000 Total $202,500 $182,854 $19,646

Cash Interest Paid = 4.5% × $750,000

Bond Interest Expense = 4% ×  Prior Carrying Value

Premium Amortization = Cash Interest Paid – Bond Interest Expense

Unamortized Premium = Prior Unamortized Premium – Premium Amortization

Carrying Value = $750,000 + Unamortized Premium

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27.

Hillside issues $2,600,000 of 5%, 15-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $2,246,690.

Required:
1.	Prepare the January 1, 2015, journal entry to record the bonds’ issuance.

Date	General Journal	Debit	Credit
Jan 01, 2015	Cash	2,246,690
	Discount on bonds payable	353,310
	Bonds payable		2,600,000

2(a)	For each semiannual period, complete the table below to calculate the cash payment.

	Par (maturity) value Annual Rate Year Semiannual cash interest payment $2,600,000 x 5% x 6/12 = $65,000

2(b)	For each semiannual period, complete the table below to calculate the straight-line discount amortization.

	Par (maturity) value Bonds price Discount on Bonds Payable Semiannual periods Straight-line discount amortization $2,600,000 - $2,246,690 = $353,310 ÷ 30 = $11,777

2(c)	For each semiannual period, complete the table below to calculate the bond interest expense.

	Semiannual cash payment Discount amortization Bond interest expense $65,000 + $11,777 = $76,777

3.	Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.

	Total bond interest expense over life of bonds: Amount repaid: 30 payments of $65,000 $1,950,000 Par value at maturity 2,600,000 Total repaid 4,550,000 Less amount borrowed (2,246,690) Total bond interest expense $2,303,310

4	Prepare the first two years of an amortization table using the straight-line method.

	Semiannual Period-End Unamortized Discount Carrying Value 01/01/2013 $353,310 $2,246,690 06/30/2013 341,533 2,258,467 12/31/2013 329,756 2,270,244 06/30/2014 317,979 2,282,021 12/31/2014 306,202 2,293,798

5	Prepare the journal entries to record the first two interest payments.

Date	General Journal	Debit	Credit
Jun 30, 2015	Bond interest expense	76,777
	Discount on bonds payable		11,777
	Cash		65,000
Dec 31, 2015	Bond interest expense	76,777
	Discount on bonds payable		11,777
	Cash		65,000

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28.

Kohler Corporation reports the following components of stockholders’ equity on December 31, 2015:

Common stock—$20 par value, 100,000 shares authorized, 55,000 shares issued and    outstanding	$	1,100,000
Paid-in capital in excess of par value, common stock		70,000
Retained earnings		430,000
Total stockholders’ equity	$	1,600,000

In year 2016, the following transactions affected its stockholders’ equity accounts.
Jan.	1		Purchased 5,000 shares of its own stock at $20 cash per share.
Jan.	5		Directors declared a $4 per share cash dividend payable on Feb. 28 to the Feb. 5 stockholders of record.
Feb.	28		Paid the dividend declared on January 5.
July	6		Sold 1,875 of its treasury shares at $24 cash per share.
Aug.	22		Sold 3,125 of its treasury shares at $17 cash per share.
Sept.	5		Directors declared a $4 per share cash dividend payable on October 28 to the September 25 stockholders of record.
Oct.	28		Paid the dividend declared on September 5.
Dec.	31		Closed the $408,000 credit balance (from net income) in the Income Summary account to Retained Earnings.

Required:
1.	Prepare journal entries to record each of these transactions for 2016.

Date	General Journal	Debit	Credit
Jan 01	Treasury stock, Common	100,000
	Cash		100,000
Jan 05	Retained earnings	200,000
	Common dividend payable		200,000
Feb 28	Common dividend payable	200,000
	Cash		200,000
Jul 06	Cash	45,000
	Treasury stock, Common		37,500
	Paid-In capital, Treasury stock		7,500
Aug 22	Cash	53,125
	Paid-In capital, Treasury stock	7,500
	Retained earnings	1,875
	Treasury stock, Common		62,500
Sep 05	Retained earnings	220,000
	Common dividend payable		220,000
Oct 28	Common dividend payable	220,000
	Cash		220,000
Dec 31	Income summary	408,000
	Retained earnings		408,000

Jan.	1		Purchased treasury stock (5,000 × $20) = $100,000.
Jan.	5		Declared $4 dividend on 50,000 outstanding shares
July	6		Cash = (1,875 × $24) = $45,000.
			Treasury Stock, Common = (1,875 × $20) = $37,500.
			Paid-In Capital, Treasury Stock = (1,875 × $4) = $7,500.
Aug.	22		Cash = (3,125 × $17) = 53,125.
			Treasury Stock, Common = (3,125 × $20) = $62,500.
Sept.	5		Declared $4 dividend on 55,000 outstanding shares = $220,000.

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Questions 29-31

[The following information applies to the questions displayed below.]

Raphael Corporation’s common stock is currently selling on a stock exchange at $192 per share, and its current balance sheet shows the following stockholders’ equity section:

Preferred stock—5% cumulative, $___ par value, 1,000 shares     authorized, issued, and outstanding	$	95,000
Common stock—$___ par value, 4,000 shares authorized, issued,     and outstanding		160,000
Retained earnings		350,000
Total stockholders' equity	$	605,000

29-31

Required:
1.	What is the current market value (price) of this corporation’s common stock?

	Market price $192 per share

2.	What are the par values of the corporation's preferred stock and its common stock?

	Par Value Corporation's preferred stock $95 Corporation's common stock $40

Computation of stock par values

Preferred: Paid-in amount / Number of shares = $95,000 / 1,000 = $95

Common: Paid-in amount / Number of shares = $160,000 / 4,000 = $40

6.1	If two years’ preferred dividends are in arrears and the board of directors declares cash dividends of $21,250, what total amount will be paid to the preferred and to the common shareholders?

	Total amount paid to the preferred shareholders $14,250 Total amount paid to the common shareholders $7,000

Dividend allocation in total

	Preferred			Common			Total
2 years' dividends in arrears	$	9,500		$	0		$	9,500
Current year dividends		4,750						4,750
Remainder to common					7,000			7,000
Totals	$	14,250		$	7,000		$	21,250

6.2	What is the amount of dividends per share for the common stock? (Round your answer to two decimal places.)

	Dividend per share $1.75

$7,000 / 4,000 shares = $1.75

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Corporations may buy back their own stock for any of the following reasons except to:

Allow management to assume the voting rights.

Three of the most common tools of financial analysis are:

Horizontal analysis, vertical analysis, ratio analysis.

Morgan Company issues 9%, 20-year bonds with a par value of $750,000 that pay interest semi-annually. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is:

$33,750.

Preferred stock which confers rights to prior periods' unpaid dividends even if they were not declared is called:

Cumulative preferred stock.

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

Noncumulative preferred stock.

All of the following regarding accounting for Treasury Stock under U.S. GAAP and IRFS is true except:

Only gains are recognized on retirements of treasury stock under IFRS.

The comparison of a company's financial condition and performance to a base amount is known as:

Vertical analysis.

Book value per share:

Reflects the value per share if a company is liquidated at balance sheet amounts.

Sinking fund bonds:

Require the issuer to set aside assets at specified amounts to retire the bonds at maturity.

The ability to generate future revenues and meet long-term obligations is referred to as:

Solvency.

Preferred stock that the issuing corporation has the option to retire by paying a specified amount to the preferred stockholders is called:

Callable preferred stock.

All of the following statements regarding leases are true except:

Capital leases do not transfer ownership of the asset under the lease, but operating leases often do.

A pension plan:

Is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire.

A premium on common stock:

Occurs when a corporation sells its stock for more than par or stated value.

Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called:

Participating preferred stock.

The ability to provide financial rewards sufficient to attract and retain financing is called:

Profitability.

A bond sells at a discount when the:

Contract rate is below the market rate.

A company has earnings per share of $9.60. Its dividend per share is $0.50, its market price per share is $110, and its book value per share is $96. Its price-earnings ratio equals:

11.46

Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:

Common-size comparative statements.

Stockholders' equity consists of which of the following?

Paid-in capital and retained earnings.

The building blocks of financial statement analysis do not include:

External analyst services.

A dividend preference for preferred stock means that:

Preferred stockholders are allocated their dividends before dividends are allocated to common shareholders.

Net sales divided by Average accounts receivable, net is the:

Accounts receivable turnover ratio.

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

Serial bonds.

Which of the following is true of a stock dividend?

Does not affect total equity, but transfer amounts between the components of equity.

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection, are called:

Coupon bonds.

The comparison of a company's financial condition and performance across time is known as:

Horizontal analysis.

Quick assets divided by current liabilities is the:

Acid-test ratio.

The statement of changes in stockholders' equity:

Describes changes in paid-in capital and retained earnings subcategories.

Standards for comparisons in financial statement analysis do not include:

Management standards.

Stocks that pay relatively large cash dividends on a regular basis are called:

Income stocks.

The following data were reported by a corporation:

Authorized shares	20,000
Issued shares	15,000
Treasury shares	3,000

The number of outstanding shares is:

12,000

The following data has been collected about Keller Company's stockholders' equity accounts:

Common stock $10 par value 20,000 shares authorized and 10,000 shares issued, 9,000 shares outstanding	$100,000
Paid-in capital in excess of par value, common stock	50,000
Retained earnings	25,000
Treasury stock	11,500

Assuming the treasury shares were all purchased at the same price, the cost per share of the treasury stock is:

$11.50