Finance Problems: Sample Questions

1. Chuck McElravy owns Common Grounds Coffee House, near the campus of Manatee College. The business has cash of $2,000, furniture that cost $8,000 and account receivable from customers for $1,000. Debts include accounts payable of $1,000 and a $6,000 note payable. How much equity does McElravy have in the business? Using McElravy's figures, write the accounting equation of Common Grounds Coffee House.

2. Michaels Corporation expects earnings before interest and taxes to be $45,000 for this period. Assuming an ordinary tax rate of 40 percent, compute the firm's earnings after taxes and earnings available for common stockholders (earnings after taxes and preferred stock dividends, if any) under the following conditions:
a. The firm pays $10,000 in interest.
b. The firm pays $10,000 in preferred stock dividends.

3. Given the following information, prepare, in good form, an income statement for the Dental Drilling Company as of December 31, 2003.

Selling and administrative expense $ 60,000
Depreciation expense 70,000
Sales 500,000
Interest expense 40,000
Cost of goods sold 140,000
Taxes 45,000

4. For ABC Corporation as of December 31, 2002 prepare a Balance Sheet in proper order based on the following information. Arrange the following items in proper balance sheet presentation.

Accumulated depreciation $ 300,000
Retained earnings 96,000
Cash 20,000
Bonds payable 166,000
Accounts receivable 48,000
Plant and equipment original cost 700,000
Accounts payable 35,000
Allowance for bad debts 6,000
Common stock $1 par, 100,000 shares outstanding 100,000
Inventory 66,000
Preferred stock, $50 par, 1,000 shares outstanding 50,000
Marketable securities 20,000
Investments 20,000
Notes payable 33,000
Capital paid in excess of par (common stock) 88,000

5. Louis Nicosia operates four 7-11 stores. He has just received the monthly bank statement at October 31 from City National Bank, and the statement shows an ending balance of $3,840. Listed on the statement are an EFT rent collection of $400, a service charge of $12, two NSF checks totaling $74, and a $9 charge for printed checks. In reviewing his cash records, Nicosia identifies outstanding checks totaling $467 and an October 31 deposit in transit of $1,788. During October, he recorded a $290 check for the salary of a part-time employee by debiting Salary Expense and crediting Cash for $29. Nicosia's Cash account shows an October 31 cash balance of $5,117. Prepare the bank reconciliation at October 31.