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Due 12/13/2017
Type your answer, insert Spreadsheet to show your calculation. Insert space as you need.
1. Linda’s Clothing is a retailer of contemporary women’s clothing. Selected financial information for Linda’s
appears below:
Net sales
Net Income
Total Assets at year-end
Weighted Average number of shares
Outstanding
Total Liabilities at year-end
Common Stockholders' Equity at year-end
Interest Expense
2011
$978,560
$ 56,759
$381,500
2010
$786,500
$ 31,150
$246,250
2009
$520,650
$ 15,375
$145,490
2008
$245,820
$14,750
$71,268
84,215
205,967
$175,533
165
80,546
119,657
$126,593
195
77,965
60,522
$ 84,968
258
75,888
17,623
$53,645
368
Required:
a. Compute the rate of return on assets for the years 2009-2011. Linda’s has an effective tax
rate of 35%.
b. Compute the rate of return on common shareholders’ equity for the years 2009-2011.
c.
If Linda wants to improve its ROA, propose two scenarios to improve the operation by breaking
down the ROA. Provide your numeric analysis by inserting a spreadsheet of proposed change of one item
at a time. (Answer to this part of question is used to assess Morgan student's mastery of Excel
presentation and/or chart-making ability. Do your best presentation of an analysis to demonstrate your
Excel ability. The presentation will not be evaluated as part of your semester grade; the content of the
answer will).
2. a). Explain the difference between the Basic EPS and the Diluted EPS.
b). Identify two capital structures that require the calculation of diluted EPS.
c). Mathematically present the calculation of an anti-dilution scenario.
3.Below is selected data of Pronto Company:
Balance Sheet Data
Accounts receivable
Allowance for doubtful accounts
Net accounts receivable
Inventories - LCM
Income Statement Data
Net credit sales
Net cash sales
Net sales
Cost of goods sold
Selling, general and adm. expenses
Other
Total operating expenses
Net income
As of December 31:
2012
2011
$671,000
$642,000
31,000
22,000
$640,000
$620,000
$542,500
$642,500
$3,150,000
800,000
$3,950,000
$2,390,000
475,000
150,000
$3,015,000
$ 935,000
$3,000,000
600,000
$3,600,000
$2,160,000
350,000
125,000
$2,635,000
$ 965,000
Required:
a. What is the accounts receivable turnover for 2012?
b. What is the inventory turnover for 2012?
c. Comment on the change of quality of the account receivables from 2011 to 2012. Assuming
the estimate of the Allowance account is about right, is it justifiable to accept the change of
account receivable quality from 2011 to 2012?
4. On January 1, 2012, Porter Corporation signed a five-year non-cancelable lease for certain machinery. The
terms of the lease called for:
A)
B)
C)
D)
E)
Porter to make annual payments of $60,000 at the end of each year (starting on Dec.
31, 2012) for five years. Porter must return the equipment to the lessor end of this
period.
The machinery has an estimated useful life of 6 years and no expected salvage value.
Porter uses the straight-line method of depreciation for all of its fixed assets.
Porter’s incremental borrowing rate is 8%.
The fair value of the asset at January 1, 2012 is $275,000.
Required:
1.
Discuss whether Porter should account for the lease as an operating or capital lease and
why.
2.
Using the above information to show how the lease would affect Porter’s financial
statements in 2013 in the following sections. Show your calculations.
a). Assets:
b). Liabilities:
c). Expenses:
d). Operating Cash flows:
e). Investing Cash flows:
5.Six years ago Moline Industries acquired a new machine to use in its primary manufacturing operations. The
machine cost $47 million and the company expected the machine to have a ten-year useful life with a zero
salvage value. The company uses straight-line depreciation for the asset. However, because of changes
within the industry, Moline reevaluated the machine at the end of Year 6 and estimated that the machine
is capable of generating undiscounted future cash flows of $12 million. Based on the quoted market
prices of similar assets, Moline estimates the fair value of the machine at $10.5 million.
Required:
1. What is the machine’s book value at the end of Year 6?
2. Should Moline recognize an impairment of the asset? Why or why not? If yes, what amount?
3. At the end of Year 6, what amount should the machine be listed at on Moline’s balance sheet? Is the
accounting treatment any different if reported under the IFRS?
Rubric in evaluating Technology Proficiency (Excel Application)
Rater:
Course:
Student:
7
Inadequate
Obtains incorrect data
11
Satisfactory
Obtains data from
exercise with minor
errors
15
Excellent
Obtains the correct data
Processes the data with
many errors
Processes the data
with minor errors.
Processes the data
accurately.
3
Data Outputs: Analyze and
calculate the ending balances
of the accounts in the pension
worksheet.
Analyzes the data with
significant errors.
Analyzes the data
with minor errors.
Analyzes the data
correctly.
4
Data Presentation: Record
the journal entry of pension
expense.
Uses the outputs from data
analysis incorrectly.
Uses the outputs
from data analysis
with minor errors.
Uses the outputs from
data analysis correctly.
1
2
Tech Skill
Data Inputs:Locate and input
data pertaining to pension
expense in the appropriate
cells.
Data Process: calculate
components of pension
expense as well as other
pension related accounts in
the appropriate cells.
Total Score
Score