ACC – The Impact of Management Decisions (Problems)

The Impact of Management Decisions and Other Topics The most recent balance sheet and income statement of Teramoto Corporation appear below:Comparative Balance Sheet Ending Balance Beginning BalanceAssets:Cash and cash equivalents $43 $35Accounts receivable 53 59Inventory 73 69Plant and equipment 582 490Less accumulated depreciation 301 286Total assets $450 $367Liabilities and stockholders’ equityAccounts payable $57 $48Wages payable 21 18Taxes payable 15 13Bonds payable 21 20 Deferred taxes 20 21Common stock 55 50Retained earnings 261 197Total liabilities and stockholders’ equity $450 $367 Income StatementSales $893—Cost of good sold $587- -Gross margin $306–Selling and administrative expense $189-Net operating income$ 117– Income taxes 35– Net income $82 1. The net cash provided by (used by) investing activities for the year was A. $92. B. ($92). C. $77. D. ($77).2. Cridwell Company’s selling and administrative expenses for last year totaled $210,000. During the year, the company’s prepaid expense account balance increased by $18,000, and accrued liabilities increased by $12,000. Depreciation charges for the year were $24,000. Based on this information, selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be A. $180,000. B. $240,000. C. $192,000. D. $228,000.3-The most recent balance sheet and income statement of Teramoto Corporation appear below:Comparative Balance Sheet EndingBalance BeginningBalanceAssets:Cash and cash equivalentsAccounts receivableInventoryPlant and equipmentLess accumulated depreciationTotal assets $435373582301$450 $355969490286$367Liabilities and stockholders’ equityAccounts payableWages payableTaxes payableBonds payableDeferred taxesCommon stockRetained earningsTotal liabilities and stockholders’ equity $572115212055261$450 $481813202150197$367 Income StatementSalesCost of good soldGross marginSelling and administrative expenseNet operating incomeIncome taxesNet income $89358730618911735$82Cash dividends were $18.3. The net cash provided by (used by) financing activities for the year wasA. $1. B. ($18). C. ($12). D. $5.4-Financial statements for Larkins Company appear below:Larkins CompanyStatement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 14-Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expensesTotal current assetsNoncurrent assets: Plant & equipment, net $180210130505701,540 $180180120505301,480Total assets $2,110 $2,010Current liabilities: Accounts payable Accrued liabilities Notes payable, short termTotal current liabilitiesNoncurrent liabilities: Bonds payableTotal liabilitiesStockholders’ equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital–common stock Retained earningsTotal stockholders’ equityTotal liabilities & stockholders’ equity $10060902504807301201802408401,380$2,110 $130601203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxesIncome taxes (30%)Net income $2,7601,93083033050050450135$315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.4. Larkins Company’s dividend payout ratio for Year 2 was closest to:A. 40.6% B. 24.6% C. 42.9% D. 14.8% 5. The Clemson Company reported the following results last year for the manufacture and sale of one of its products known as a Tam.Sales (6,500 Tams at $130 each) $845,000Variable cost of sales 390,000Variable distribution costs 65,000Fixed advertising expense 275,000Salary of product line manager 25,000Fixed manufacturing overhead 145,000Net operating loss $(55,000)Clemson Company is trying to determine whether to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product isn’t dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were dropped, there would be no change in the fixed manufacturing costs of the company.Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, the change in annual operating income (or loss) should be aA. $65,000 decrease. B. $70,000 increase. C. $55,000 decrease. D$90,000decrease.6. Fonics Corporation is considering the following three competing investment proposals: Aye Bee CeeInitial investment required $62,000 $74,000 $95,000Net present value $10,000 $8,000 $12,000Internal rate of return 15% 17% 18%Using the project profitability index, how would the above investments be ranked (highest to lowest)?A. Cee, Bee, Aye B. Aye, Bee, Cee C. Aye, Cee, Bee D. Bee, Cee, Aye7. Which of the following would be classified as a financing activity on the statement of cash flows? A. Dividends received on investments in another company’s common stockB. Dividends paid to shareholders of the company on the company’s common stockC. Interest received on investments in another company’s bondsD. Interest paid on bonds issued by the reporting company8. (Ignore income taxes in this problem.) The following data pertain to an investment:Cost of the investment $18,955. Life of the project 5 years. Annual cost savings $5,000 Estimated salvage value $1,000. Discount rate 10% The net present value of the proposed investment is A. $621. B. $0. C. $3,355. D. $(3,430).9. A project profitability index greater than zero for a project indicates that A. the discount rate is less than the internal rate of return.B. the project is unattractive and shouldn’t be pursued.C. the company should reevaluate its discount rate.D. there has been a calculation error.10. Centerville Company’s debt-to-equity ratio is 0.60 Total assets are $320,000, current assets are $170,000, and working capital is $80,000. Centerville’s long-term liabilities must be A. $120,000. B. $80,000. C. $90,000. D. $30,000.11. Kava Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as K65. Data concerning this product are given below: Per Unit Selling price $180–Direct materials $29–Direct labor $5—Variable manufacturing overhead $4 Fixed manufacturing overhead $21—-Variable selling expense $2—Fixed selling and administrative expense $17The above per unit data are based on annual production of 4,000 units of the component. Direct labor can be considered to be a variable cost. (Source: CMA, adapted)The company has received a special, one-time-only order for 500 units of component K65. There would be no variable selling expense on this special order, and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company wouldn’t be affected by the order. Assuming that Kava has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company shouldn’t go? A. $59 B. $38 C. $180 D. $7812-Financial statements for Larkins Company appear below:Larkins Company Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 1Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expensesTotal current assetsNoncurrent assets: Plant & equipment, net $180210130505701,540 $180180120505301,480Total assets $2,110 $2,010Current liabilities: Accounts payable Accrued liabilities Notes payable, short termTotal current liabilitiesNoncurrent liabilities: Bonds payableTotal liabilitiesStockholders’ equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital–common stock Retained earningsTotal stockholders’ equityTotal liabilities & stockholders’ equity $10060902504807301201802408401,380$2,110 $130601203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxesIncome taxes (30%)Net income $2,7601,93083033050050450135$315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.12- Larkins Company’s earnings per share of common stock for Year 2 was closest to:A. $25.00. B. $17.50. C. $7.21. D. $16.83.13. Brittman Corporation makes three products that use the current constraint-a particular type of machine. Data concerning those products appear below: IP NI YDSelling price per unit $183.57 $207.74 $348.15Variable cost per unit $144.42 $155.04 $269.50Minutes on the constraint 2.90 3.40 5.50Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource?A. $15.50 per minute B. $13.50 per minute C. $78.65 per unit D. $39.15 per unit14-The most recent balance sheet and income statement of Teramoto Corporation appear below:Comparative Balance Sheet EndingBalance BeginningBalanceAssets:Cash and cash equivalentsAccounts receivableInventoryPlant and equipmentLess accumulated depreciationTotal assets $435373582301$450 $355969490286$367Liabilities and stockholders’ equityAccounts payableWages payableTaxes payableBonds payableDeferred taxesCommon stockRetained earningsTotal liabilities and stockholders’ equity $572115212055261$450 $481813202150197$367Income StatementSalesCost of good soldGross marginSelling and administrative expenseNet operating incomeIncome taxesNet income $89358730618911735$82The net cash provided by (used by) operations for the year wasA. $117. B. $52. C. $112. D. $30.15. Which of the following would be considered a “use” of cash for the purpose of constructing a statement of cash flows? A. Issuing long-term debt B. Amortizing a patentC. Purchasing equipment D. Selling the company’s own common stock to investors16-Financial statements for Larkins Company appear below:Larkins Company Statement of Financial PositionDecember 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 1Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expensesTotal current assetsNoncurrent assets: Plant & equipment, net $180210130505701,540 $180180120505301,480Total assets $2,110 $2,010Current liabilities: Accounts payable Accrued liabilities Notes payable, short termTotal current liabilitiesNoncurrent liabilities: Bonds payableTotal liabilitiesStockholders’ equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital–common stock Retained earningsTotal stockholders’ equityTotal liabilities & stockholders’ equity $10060902504807301201802408401,380$2,110 $130601203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxesIncome taxes (30%)Net income $2,7601,93083033050050450135$315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.16. Larkins Company’s price-earnings ratio on December 31, Year 2 was closest to: A. 6.00 B. 8.57 C. 8.91 D. 20.7917-Financial statements for Larkins Company appear below:Larkins CompanyStatement of Financial PositionDecember 31, Year 2 and Year 1(dollars in thousands) Year 2 Year 1Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expensesTotal current assetsNoncurrent assets: Plant & equipment, net $180210130505701,540 $180180120505301,480Total assets $2,110 $2,010Current liabilities: Accounts payable Accrued liabilities Notes payable, short termTotal current liabilitiesNoncurrent liabilities: Bonds payableTotal liabilitiesStockholders’ equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital–common stock Retained earningsTotal stockholders’ equityTotal liabilities & stockholders’ equity $10060902504807301201802408401,380$2,110 $130601203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxesIncome taxes (30%)Net income $2,7601,93083033050050450135$315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.. Larkins Company’s book value per share at the end of Year 2 was closest to: A. $70.00. B. $10.00. C. $23.33. D. $76.67.18. Ignore income taxes in this problem.) Purvell Company has just acquired a new machine. Data on the machine follow:Purchase cost $50,000 Annual cost savings $15,000 Life of the machine 8 years The company uses straight-line depreciation and a $5,000 salvage value. (The company considers salvage value in making depreciation deductions.) Assume cash flows occur uniformly throughout a year.The simple rate of return would be closest to A. 12.5%. B. 17.5%. C. 30.0%. D. 18.75%.19-Financial statements for Larkins Company appear below:Larkins Company Statement of Financial Position December 31, Year 2 and Year 1(dollars in thousands) Year 2 Year 1Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expensesTotal current assetsNoncurrent assets: Plant & equipment, net $180210130505701,540 $180180120505301,480Total assets $2,110 $2,010Current liabilities: Accounts payable Accrued liabilities Notes payable, short termTotal current liabilitiesNoncurrent liabilities: Bonds payableTotal liabilitiesStockholders’ equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital–common stock Retained earningsTotal stockholders’ equityTotal liabilities & stockholders’ equity $10060902504807301201802408401,380$2,110 $130601203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxesIncome taxes (30%)Net income $2,7601,93083033050050450135$315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.19.Larkins Company’s dividend yield ratio on December 31, Year 2 was closest to: A. 4.1%. B. 4.6%. C. 5.0%. D. 2.1%.20. An increase in the market price of a company’s common stock will immediately affect its A. earnings per share of common stock.B. dividend payout ratio.C. debt-to-equity ratio.D. dividend yield ratio.