accounting course

accounting course. 10.

value: 3.00 points

 

Problem 4-19 Schedule of cash receipts [LO2]

Watt’s Lighting Stores made the following sales projections for the next six months. All sales are credit sales.

 

March	$	48,000	June	$ 52,000
April		54,000	July	60,000
May		43,000	August	62,000

 

Sales in January and February were $51,000 and $50,000, respectively.       Experience has shown that of total sales, 10 percent are uncollectible, 35 percent are collected in the month of sale, 45 percent are collected in the following month, and 10 percent are collected two months after sale.

 

(a)	Prepare a monthly cash receipts schedule for the firm for March through August. (Omit the “$” sign in your response.)

 

WATT’S LIGHTING STORES Cash Receipts Schedule
	January	February	March	April	May	June	July	August
Sales	$	$	$	$	$	$	$	$
Collections of current sales
Collections of prior month’s sales
Collections of sales 2 months   earlier
Total cash receipts			$	$	$	$	$	$

 

(b)	Of the sales expected to be made during the six months from March through August, how much will still be uncollected at the end of August? How much of this is expected to be collected later? (Omit the “$” sign in your response.)

	Amount
Uncollected	$
Expected to be collected	$

VOLT BATTERY COMPANY Summary of Cash payments
	Dec.	Jan.	Feb.	March	April	May	June
Units produced
Material cost		$	$	$	$	$	$
Labor cost
Overhead cost
Interest
Employee bonuses
Total cash payments		$	$	$	$	$	$

11.

value: 4.00 points

 

Problem 4-23 Schedule of cash payments [LO2]

The Volt Battery Company has forecast its sales in units as follows:

 

January	2,300		May	2,850
February	2,150		June	3,000
March	2,100		July	2,700
April	2,600

 

Volt Battery always keeps an ending inventory equal to 130% of the next month’s expected sales. The ending inventory for December (January’s beginning inventory) is 2,990 units, which is consistent with this policy.

Materials cost $12 per unit and are paid for in the month after purchase. Labor cost is $5 per unit and is paid in the month the cost is incurred. Overhead costs are $13,500 per month. Interest of $9,500 is scheduled to be paid in March, and employee bonuses of $14,700 will be paid in June.

 

(a)	Prepare a monthly production schedule for January through June.

 

VOLT BATTERY COMPANY Production Schedule
	Jan.	Feb.	March	April	May	June	July
Forecasted unit sales
Desired ending inventory
Beginning inventory
Units to be produced

 

(b)	Prepare a monthly summary of cash payments for January through June. Volt  produced 2,100 units in December. (Omit the “$” sign in your response.)

 

12.

value: 5.00 points

 

Problem 4-25 Complete cash budget [LO2]

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures:

 

Actual		Forecast		Additional Information
November	$ 270,000		January	$ 420,000		April forecast	$ 410,000
December	360,000		February	460,000
			March	420,000

 

Of the firm’s sales, 30 percent are for cash and the remaining 70 percent are on credit. Of credit sales, 40 percent are paid in the month after sale and 60 percent are paid in the second month after the sale. Materials cost 40 percent of sales and are purchased and received each month in an amount sufficient to cover the following month’s expected sales. Materials are paid for in the month after they are received. Labor expense is 25 percent of sales and is paid for in the month of sales. Selling and administrative expense is 25 percent of sales and is also paid in the month of sales. Overhead expense is $31,500 in cash per month.

 

Depreciation expense is $10,700 per month. Taxes of $8,700 will be paid in January, and dividends of $5,500 will be paid in March. Cash at the beginning of January is $94,000, and the minimum desired cash balance is $89,000.

 

(a)	Prepare a schedule of monthly cash receipts for January, February and March. (Omit the “$” sign in your response.)

 

HARRY’S CARRY-OUT STORES Cash Receipts Schedule
	November	December	January	February	March	April
Sales	$	$	$	$	$	$
Cash sales
Credit sales
Collections in the month   after credit sales)
Collections two months   after credit sales)
Total cash receipts			$	$	$

 

(b)	Prepare a schedule of  monthly cash payments for January, February and March. (Omit the “$” sign in your response.)

 

HARRY’S CARRY-OUT STORES Cash Payments Schedule
	January	February	March
Payments for purchases	$	$	$
Labor expense
Selling and admin. exp.
Overhead
Taxes
Dividends
Total cash payments	$	$	$

 

(c)	Prepare a schedule of monthly cash budget with borrowings and repayments for January, February and March. (Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Omit the “$” sign in your response.)

 

HARRY’S CARRY-OUT STORES Cash Budget
	January	February	March
Total cash receipts	$	$	$
Total cash payments
Net cash flow
Beginning cash balance
Cumulative cash balance
Monthly loan or (repayment)
Cumulative loan balance
Ending cash balance	$	$	$

13.

value: 1.00 points

 

Problem 4-28 Percent-of-sales method [LO3]

The Manning Company has financial statements as shown below, which are representative of the company’s historical average.

The firm is expecting a 40 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.

 

Income Statement
Sales	$	300,000
Expenses		246,800
Earnings before interest and taxes	$	53,200
Interest		9,100
Earnings before taxes	$	44,100
Taxes		17,100
Earnings after taxes	$	27,000
Dividends	$	5,400

 

Balance Sheet
Assets	Liabilities and Stockholders’ Equity
Cash	$	9,000	Accounts payable	$	29,000
Accounts receivable		56,000	Accrued wages		2,250
Inventory		70,000	Accrued taxes		4,750
Current assets	$	135,000	Current liabilities	$	36,000
Fixed assets		86,000	Notes payable		9,100
			Long-term debt		25,500
			Common stock		125,000
			Retained earnings		25,400
Total assets	$	221,000	Total liabilities and     stockholders’ equity	$	221,000

 

Using the percent-of-sales method, determine the amount of external financing needs, or a surplus of funds required by the company. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations. Input the amount as positive value. Omit the “$” sign in your response.)

 

The firm  $  in .

rev: 09_10_2011

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16.

value: 1.00 points

 

Problem 5-8 Cash break-even analysis [LO2]

Air Purifier, Inc., computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $2,410,000, but 10 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $32. How many units does the firm need to sell to reach the cash break-even point? (Round your answer to the nearest whole number.)

 

Cash break-even point

units

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23.

value: 2.00 points

 

Problem 5-20 Combining operating and financial leverage [LO5]

Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows:

 

Capital Structure
	Sinclair		Boswell
Debt @ 11%	$	1,260,000			0
Common stock, $10 per share		840,000		$	2,100,000
Total	$	2,100,000		$	2,100,000
Common shares		84,000			210,000
Operating Plan
Sales (61,000 units at $20 each)	$	1,220,000		$	1,220,000
Less: Variable costs		976,000			610,000
	($	16 per unit)		($	10 per unit)
Fixed costs		0			311,000
Earnings before interest and taxes (EBIT)	$	244,000		$	299,000

(a)	If you combine Sinclair’s capital structure with Boswell’s operating plan, what is the degree of combined leverage? (Enter only numeric value rounded to 2 decimal places.)

Degree of combined leverage

 

(b)	If you combine Boswell’s capital structure with Sinclair’s operating plan, what is the degree of combined leverage? (Enter only numeric value.)

Degree of combined leverage

(d)	In part b, if sales double, by what percentage will EPS increase? (Omit the “%” sign in your response.)

EPS will increase by

%

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24.

value: 3.00 points

 

Problem 5-23 Leverage and sensitivity analysis [LO6]

Dickinson Company has $11,840,000 in assets. Currently half of these assets are financed with long-term debt at 9.2 percent and half with common stock having a par value of $8. Ms. Smith, vice-president of finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.2 percent. The tax rate is 45 percent.

 

Under Plan D, a $2,960,000 long-term bond would be sold at an interest rate of 11.2 percent and 370,000 shares of stock would be purchased in the market at $8 per share and retired.

 

Under Plan E, 370,000 shares of stock would be sold at $8 per share and the $2,960,000 in proceeds would be used to reduce long-term debt.

 

(a)	Compute the earnings per share for the current plan and the two new plans. (Round your answers to 2 decimal places. Omit the “$” sign in your response.)

 

	Current Plan	Plan D	Plan E
Earnings per share	$	$	$

 

(b-1)

Compute the earnings per share if return on assets fell to 4.60 percent. (Round your answers to 2 decimal places. Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Omit the “$” sign in your response.)

 

	Current Plan	Plan D	Plan E
Earnings per share	$	$	$

 

(b-2)	Which plan would be most favorable if return on assets fell to 4.60 percent? Consider the current plan and the two new plans.
	Plan D Current Plan Plan E

 

(b-3)

Compute the earnings per share if return on assets increased to 14.2 percent. (Round your answers to 2 decimal places. Omit the “$” sign in your response.)

 

	Current Plan	Plan D	Plan E
Earnings per share	$	$	$

 

(b-4)	Which plan would be most favorable if return on assets increased to 14.2 percent? Consider the current plan and the two new plans.
	Plan D Plan E Current Plan

 

(c-1)

If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $2,960,000 in debt will be used to retire stock in Plan D and $2,960,000 of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 9.2 percent. (Round your answers to 2 decimal places. Omit the “$” sign in your response.)

 

	Current Plan	Plan D	Plan E
Earnings per share	$	$	$

 

(c-2)	If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive?
	Current Plan Plan E Plan D

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