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Ratios, Investment in bonds

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1.Using the Data in the Balance Sheet Attached, calculate the following:

Balance Sheet
ABC CORPORATION
June 30, 1988

Assets Liabilities
Cash $165,000 Accounts payable $166,000
Marketable securities 18,000 Accrued taxes 70,000
Accounts receivable 260,000 Notes payable 84,000
Inventory 455,000 Accrues Expenses 151,000

Total Current Assets $898,000 Total current Liabilities $471,000

First mortgage bonds: 500,000
7 1/2% ----due 1/1/94
Total Liabilities $971,000

Property, plant and equipment: Stockholders' Equity
Land $ 75,000
Buildings 506,000
Equipment 89,000 Preferred stock 100,000
Machinery 164,000 ($100 par)
834,000 1,000 shares authorized,
issued , and outstanding

Less: Accumulated -217,000 Common Stock ($25 par) 300,000
Depreciation 12,000 shares authorized,
issued and outstanding
Net property, plant & $ 617,000
Equipment Paid-in capital 58,000
Intangibles 204,000 Accumulated retained 290,000
earnings

Total Assets $1,719,000 Total stockholders' $ 748,000
_________ equity
Total liabilities and
Stockholders' equity $ 1,719,000
__________

a- ABC's capitalization or capital structure
b- ABC's working capital
c- ABC's current ratio
d- ABC's Acid-test ratio

2. Assuming that the following is the Income Statement for ABC Corporation is :
Income Statement
ABC Corporation
June 87 - June 88

Net Sales $60,000
Cost of goods sold $10,000
General Operating Expenses $30,000 $40,000

Operating Income $20,000
Interest expenses $4,000
Pretax Income $16,000
Taxes $6,000
Net Income after tax $10,000
Preferred Dividend $1,000

Earning Available to Common $9,000

a- What is ABC's EPS?
b- What is ABC's return on equity?
c- What is ABC's preferred dividend rate?
d- What is ABC's book value per share?

3. If you are in a 28% tax bracket, which of the following two investments you pick
a- A $10,000 Municipal Bond with 7% coupon rate, or
b- A $10,000 Corporate Bond with 8.5% coupon rate?

4. What is the tax-free yield equivalent of a taxable 9.2% corporate bond for an individual in a 25% tax bracket?

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1.Using the Data in the Balance Sheet Attached, figure out the following:

a- ABC's capitalization or capital structure

Long-term debt ratio =Long-term debt/ (Long-term debt + Total Equity)

Long term debt= $500,000
Total Equity= $748,000
$1,248,000

Long-term debt ratio =Long-term debt/ (Long-term debt + Total Equity)= 0.40 =500000 / 1248000

b- ABC's working capital

Current Assets= $898,000
Current Liabilities= $471,000
Working Capital = Current Assets- Current Liabilities= $427,000 =898000 - 471000

c- ABC's current ratio

Current ratio = Current Assets ÷ Current Liabilities= 1.91 =898000 ÷ 471000

d- ABC's Acid-test ratio

Acid-test ratio = (Cash + Short-term investments + Net current receivables) ÷ Total current liabilities
Or Acid-test ratio = (Current Assets - Inventory) ÷ Total current liabilities

Current Assets= $898,000 ...

Solution Summary

Calculates capital structure, working capital, current ratio, acid-test ratio, EPS, return on equity, preferred dividend rate, book value per share, tax-free yield equivalent.

$2.19
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PLEASE HELP ME UNDERSTAND THESE:
Ch 10 Depreciation terminology
Ch 10 Calculate Depreciation
Ch 11 Calculate interest expense on note
Ch 11 Payroll taxes versus employee withholdings
Ch 12 Advantages/disadvantages of partnerships
Ch 12 Steps in partnership liquidation
Ch 13 Issue stock to acquire non-cash asset
Ch 13 Stock terminology
Ch 14 Journal entry for stock dividend
Ch 14 Calculate Earnings Per Share (EPS)
Ch 15 Bond terminology
Ch 15 Bond terminology
Ch 15 Bond prices versus interest rates
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Ch 16 Methods of accounting for stock investments
Ch 17 Meaning of statement of Cash Flows activities
Ch 17 Classify items into activities
Ch 17 Calculate cash received from customers
Ch 18 Ratio
Ch 18 Extraordinary item

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