SOLUTIONS TO BRIEF EXERCISES by 3iZUqoP

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									             SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 18-1

(a)   Cash inflow from financing activity, $200,000
(b)   Cash outflow from investing activity, $150,000
(c)   Cash inflow from investing activity, $30,000
(d)   Cash outflow from financing activity, $50,000


BRIEF EXERCISE 18-2

(a)   Investing activity
(b)   Investing activity
(c)   Financing activity
(d)   Financing activity
(e)   Financing activity


BRIEF EXERCISE 18-3

                           BAKER COMPANY
                      Cash Flow Statement (Partial)
                 For the Year Ended December 31, 2003



Cash flows from financing activities
    Proceeds from issue of bonds payable ...............................                    $200,000
    Payment of dividends ............................................................         (45,000)
        Net cash provided by financing activities ....................                      $155,000




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BRIEF EXERCISE 18-4

                          DRESSMART.COM, INC.
                        Cash Flow Statement (Partial)
                   For the Year Ended December 31, 2003



      Net income ........................................................................       $2,500,000
      Adjustments to reconcile net income to net
       cash provided by operating activities:
           Amortization expense ............................. $280,000
           Accounts receivable decrease ...............                      350,000
           Accounts payable decrease ................... (310,000)                                 320,000
             Net cash provided by operating activities .........                                $2,820,000


BRIEF EXERCISE 18-5

                       STERLING ENGINEERING CO.
                        Cash Flow Statement (Partial)
                   For the Year Ended December 31, 2003



Cash flows from operating activities
    Net income ........................................................................          $250,000
    Adjustments to reconcile net income to net
       cash provided by operating activities:
         Amortization expense .............................                $60,000
         Loss on sale of capital assets ................                       9,000             0 69,000
            Net cash provided by operating activities .........                                  $319,000




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     BRIEF EXERCISE 18-6

                                  HARDEN COMPANY
                              Cash Flow Statement (Partial)
                         For the Year Ended December 31, 2003



     Net income ......................................................................................       $220,000
     Adjustments to reconcile net income to net
      cash provided by operating activities:
          Decrease in accounts receivable........................ $75,000
          Increase in prepaid expenses ............................. (12,000)
          Increase in inventories ........................................ (30,000)                            33,000
              Net cash provided by operating activities ......................                               $253,000


     BRIEF EXERCISE 18-7

     Original cost of equipment sold ...................................................                     $22,000
     Less: Accumulated amortization ................................................                         ( (5,500)
     Book value of equipment sold .....................................................                        16,500
     Less: Loss on sale of equipment ................................................                        ( (4,900)
     Cash received from sale of equipment ........................................                           $11,600


     BRIEF EXERCISE 18-8

                                                    + Decrease in accounts receivable
Receipts from     Sales
              =
 customers      revenues
                                                    - Increase in accounts receivable


     $460,000 = $470,000 – $10,000 Increase in accounts receivable

     BRIEF EXERCISE 18-9

 Cash payment                 Income               + Decrease in income tax payable
                         =
 for income tax                 tax

                                                                                                         3
               expense      – Increase in income tax payable


$95,000 = $90,000 + $5,000 Decrease in income tax payable



BRIEF EXERCISE 18-10

                                  + Increase in prepaid expenses
                                  – Decrease in prepaid expenses
   Cash         Operating
                                            And
payments for    expenses,
             =                  + Decrease in accrued expenses
 operating      excluding
 expenses      amortization payable
                                – Increase in accrued expenses
                            payable


$91,000 = $100,000 – $6,600 Decrease in prepaid expenses –
$2,400 Increase in accrued expenses payable




                                                               4
BRIEF EXERCISE 18-11

($ in millions)

(a) Cash current debt coverage

     $558.2
             0.96 times
     $581.6

(b) Cash return on sales

     $558.2
             72%
     $771.6

(c) Cash flow per share

     $558.2  $666.2  $52.5
                              ($1.97)
               28.2

(d) Cash total debt coverage

     $558.2
             0.63 times
     $884.6


*BRIEF EXERCISE 18-12

    (a)   8,000 (given)
    (b)   9,000
    (c)   14,000 (given)
    (d)   3,000
    (e)   35,000 (given)
    (f)   31,000 (given)
    (g)   20,000
    (h)   120,000
    (i)   40,000




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                    SOLUTIONS TO EXERCISES

EXERCISE 18-1

1.    Noncash investing and                      5.     Investing activities, (b)
      financing activities, (d)                  6.     Financing activities, (c)
2.    Financing activities, (c)                  7.     Operating activities, (a)
3.    Operating activities, (a)
4.    Financing activities, (c)


EXERCISE 18-2

(a) Investing activity                           (h) Operating activity
(b) Financing activity                           (i) Noncash investing and financing
(c) Investing activity                               activity
(d) Noncash investing                            (j) Operating activity
    activities                                   (k) Operating activity (loss); Investing
(e) Financing activity                               activity (cash proceeds from sale)
(f) Operating activity                           (l) Operating activity
(g) Financing activity


EXERCISE 18-3

                               PESCI COMPANY
                        Cash Flow Statement (Partial)
                       For the Year Ended July 31, 2003



Net income ......................................................................................... $195,000
Adjustments to reconcile net income to net
 cash provided by operating activities:
     Amortization expense ............................................... $45,000
     Increase in accounts receivable ............................... (15,000)
     Increase in accounts payable ...................................                       8,000
     Decrease in prepaid expenses..................................                         4,000
     Loss on sale of equipment ........................................                     5,000 0 47,000


                                                                                            6
Net cash provided by operating activities .........................   $242,000




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EXERCISE 18-4

                                     INVEST.COM INC.
                                Cash Flow Statement (Partial)
                           For the Year Ended December 31, 2003


Cash flows from operating activities
    Net income .............................................................................       $163,000
    Adjustments to reconcile net income to net
      cash provided by operating activities:
         Amortization expense ................................... $30,000
         Increase in accounts receivable .................. (21,000)
         Decrease in inventory ...................................                15,000
Decrease in prepaid expenses     5,000
          Increase in accrued expenses payable .......       10,000
          Decrease in accounts payable ..................... (7,000)                               0 32,000
             Net cash provided by operating activities ..............                              $195,000




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EXERCISE 18-5

                                        DUPRÉ CORP.
                                 Cash Flow Statement (Partial)
                            For the Year Ended December 31, 2003


Cash flows from operating activities
    Net income ............................................................                         $ 57,000
    Adjustments to reconcile net income
       to net cash provided by operating activities:
         Amortization expense ................................... $24,000
         Loss on sale of equipment ...........................              0 4,000                  028,000
            Net cash provided by operating activities                                                 85,000

Cash flows from investing activities
    Sale of equipment .................................................             $11,000*
    Purchase of equipment ........................................                  (70,000)
    Construction of equipment ..................................                     (53,000)
            Net cash used by investing activities .....                                             (112,000)

Cash flows from financing activities
    Payment of cash dividends ..................................                                     (14,000)


      *Cost of equipment sold.......................................                $45,000
       Accumulated amortization .................................                   030,000
       Net book value.....................................................           15,000
       Loss on sale of equipment .................................                  004,000
       Cash proceeds ....................................................           $11,000

      Cash.......................................................................    11,000
      Accumulated Amortization ..................................                    30,000
      Loss on Sale of Equipment ..................................                    4,000
          Equipment .....................................................                             45,000




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EXERCISE 18-10

(a)                                 VÉFOUR COMPANY
                                    Cash Flow Statement
                           For the Year Ended December 31, 2003


Cash flows from operating activities
    Net income ............................................................                 $125,000
    Adjustments to reconcile net income to net
      cash provided by operating activities:
         Amortization expense ...................................              $24,000
         Increase in accounts receivable ..................                     (9,000)
         Decrease in inventory ...................................               9,000
         Decrease in accounts payable .....................                    (13,000)
         Gain on sale of land ......................................            (5,000)      006,000
            Net cash provided by operating activities                                        131,000

Cash flows from investing activities
    Sale of land ...........................................................   $30,000
    Purchase of equipment ........................................             (60,000)
            Net cash used by investing activities .....                                      (30,000)

Cash flows from financing activities
    Payment of cash dividends ..................................               $(60,000)
    Redemption of bonds ...........................................             (50,000)
    Issue of common shares ......................................               050,000
            Net cash used by financing activities ....                                       (60,000)

Net increase in cash.....................................................                     41,000
Cash, January 1 ............................................................                0 22,000
Cash, December 31 ......................................................                    $ 63,000

EXERCISE 18-10 (Continued)

(b)

1.    Cash current debt coverage



                                                                                       10
           $131,000
                            3.2 times
      $34,000  $47,000 
     
              2         
                         


2.   Cash return on sales

     $131,000
               13.4%
     $978,000


3.   Cash total debt coverage

            $131,000
                              0.6 times
      $184,000  $247,000 
     
               2          
                           




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EXERCISE 18-11


                           Cash
                          Current                 Cash                                    Cash Total
                           Debt                 Return on           Cash Flow               Debt
                         Coverage                 Sales             per Share             Coverage

Reitmans                  $32,548                $32,548               $33,810               $32,548
                          $65,521               $477,730                8,764                $65,689
                            = 0.50                = 6.8%               = $3.86                = 0.50
                            times                                                             times

La Senza                  $24,784                $24,784                $3,584              $24,784
                          $50,576               $354,279                9,338               $106,480
                            = 0.49                = 6.9%               = $0.38                = 0.23
                            times                                                             times


In terms of liquidity, both Reitmans and La Senza appear to be in a similar position since their cash current

debt coverage ratios are relatively the same.



With regards to profitability, both companies are generating similar cash returns on sales. However,

Reitman’s shareholders appear to be enjoying a better cash flow per share. However, cash flow per share is

difficult to compare between companies because of differences in the number of shares and share structure.



Looking at solvency, Reitmans appears to be in a stronger
position with significantly more cash generated for total debt
coverage.




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