BUSN 5600 Name:_____________________________
Midterm Exam 2012 Email :
Paul’s Big Screen TV Shop had the following accounts and amounts in its
financial statements on December 31, 2013. Assume that all balance sheet items
reflect account balances at December 31, 2013, and that all income statement
items reflect activities that occurred during the year then ended.
a. Calculate the difference between current assets and current liabilities for
Paul’s at December 31, 2013.
b. Calculate the total assets at December 31, 2013.
c. Calculate the earnings from operations (operating income) for the year
ended December 31, 2013.
d. Calculate the net income (or loss) for the year ended December 31, 2013.
e. What was the average income tax rate for Paul’s for 2013?
f. If $256,000 of dividends had been declared and paid during the year,
what was the January 1, 2013, balance of retained earnings?
Using the DuPont model, perform ROI analysis for the following:
a. Firm D has net income of $83,700, sales of $2,790,000, and average total
assets of $1,395,000. Calculate the firm’s margin, turnover, and ROI.
b. Firm E has net income of $150,000, sales of $2,500,000, and ROI of 15%.
Calculate the firm’s turnover and average total assets.
c. Firm F has ROI of 12.6%, average total assets of $1,730,159, and
turnover of 1.4. Calculate the firm’s sales, margin, and net income. Round
your answers to the nearest whole numbers.
Natalie Smith spent much of her childhood learning the art of cookie making
from her grandmother. They spent many happy hours mastering every type of
cookie imaginable and later devised new recipes that were both healthy and
delicious. Now at the start of her second year in college, Natalie is investigating
possibilities for starting her own business as part of the entrepreneurship
program in which she is enrolled.
A long time friend insists that Natalie has to include cookies in her business plan.
After a series of brainstorming sessions, Natalie settles on the idea of operating a
cookie-making school. She will start on a part-time basis and offer her services
in people’s homes. Now that she has started thinking about it, the possibilities
seem endless. She will offer group sessions and individual lessons. The first
difficult decision is coming up with the perfect name for her business. She
settles on “Cookie Creations,” and then moves on to more important issues.
Required: You are Natalie’s business consultant, and she wants you to provide
her with your best possible advice to the following.
a) Will Natalie need accounting information? If yes, what information will
she need and why? How often will she need this information?
b) Identify specific asset, liability, revenue, and expense accounts that
Cookie Creations will likely use to record its business transactions.
c) Should Natalie open a separate bank account for the business? Why or
If you were the CEO of a company, what are the benefits to employees by
making financial statements available to all employees?
As a financial analyst in the planning department for Tootsie Roll Industries, you
have been requested to develop some key ratios from the comparative financial
statements (2012 vs 2011). This information is to be used to convince creditors
that Tootsie Roll is liquid, solvent, and profitable, and that it deserves their
continued support. Lenders are particularly concerned about the company’s
ability to continue as a going concern.
Presented below are the data requested and the computations developed from
the financial statements:
Current ratio 3.1 2.1
Working capital up 22% down 7%
Cash Flow up 25% up 18%
Debt to total assets ratio 0.60 0.70
Net Income up 32% down 8%
Earnings per share $2.40 $1.15
Tootsie Roll asks you to prepare brief comments stating how each of these items
supports the argument that its financial health is improving. The company
wishes to use these comments to support presentation of data to its creditors.
Prepare your comments giving the implications and the limitations of each item
separately, and then the collective inference that may be drawn from them about
Tootsie’s financial well-being.