# 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

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

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 %

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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