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    Accounting and Finance

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    1. The Sally Corporation's income statement is given below.
    Sally Corporation
    Sales.......................................$250,000
    Cost of Goods Sold....................... 145,000
    Gross Profit.................................105,000
    Fixed Charges (other than interest)...... 25,000
    Income before interest and taxes...........80,000
    Interest.........................................20,000
    Income before taxes......................... 60,000
    Taxes (35%)................................... 21,000
    Income after taxes............................$39,000
    a. What is Sally's Time-Interest-Earned Ratio?
    b. What is the Fixed-Charge-Coverage Ratio? Go to investopedia.com. Formula is given.
    c. What is the Net Profit Margin?
    d. What is the Gross Profit Margin?

    2. 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 470,000
    Interest expense 40,000
    Cost of goods sold 140,000
    Taxes 45,000

    3. Database Systems is considering expansion into a new product line. Assets to support expansion will cost $500,000. It is estimated that Database can generate $1,200,000 in annual sales, with a 6 percent profit margin. What would net income and return on assets (investment) be for the year?

    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 10,000
    Bonds payable 136,000
    Accounts receivable 48,000
    Plant and equipment?original cost 680,000
    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. The King Card Company has a return-on-assets (investment) ratio of 12 percent.
    a. If the debt-to-total-assets ratio is 40 percent, what is the return on equity?
    b. If the firm had no debt, what would the return-on-equity ratio be?

    6. Using the Du Pont method, evaluate the effects of the following relationships for the Lollar Corporation.
    a. Lollar Corporation has a profit margin of 5 percent and its return on assets (investment) is 13.5 percent. What is its asset turnover ratio?
    b. If the Lollar Corporation has a debt-to-total-assets ratio of 60 percent, what will the firm's return on equity be?
    c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 40 percent?

    7. Mervyn's Fine Fashions has an average collection period of 40 days. The accounts receivable balance is $80,000. What is the value of its credit sales?

    8. The cash account for Presley Corporation shows the following for the year ended December 31,2006.

    Beginning cash balance . . . . . . . . . . $ ?
    Cash receipts during year from:
    Services . . . . . . . . . . . . . . . . . . . . . 2,214,000
    Investments by owners . . . . . . . . . 93,000
    Sale of land . . . . . . . . . . . . . . . . . . 194,000
    Cash payments during year for:
    Operating expenses . . . . . . . . . . . . 1,735,000
    Taxes . . . . . . . . . . . . . . . . . . . . . . 207,000
    Purchase of building . . . . . . . . . . . 352,000
    Distributions to owners . . . . . . . . . 68,000
    Ending cash balance . . . . . . . . . . . . . 815,000

    Required:
    Prepare a statement of cash flows for Presley Corporation for the year ended December 31,2006.

    9. Fisk Corporation is trying to improve its inventory control system and has installed an on-line computer at its retail stores. Fisk anticipates sales of 75,000 units per year, an ordering cost of $8 per order, and carrying costs of $12.0 per unit.
    a. What is the economic ordering quantity?
    b. How many orders will be placed during the year?
    c. What will the average inventory be?
    d. What is the total cost of ordering and carrying inventory?

    10. Phatty Phun Corporation sells electronic games. Its three salespersons are currently being paid fixed salaries of $30,000 each; however, the sales manager has suggested that it might be more profitable to pay the salespersons on a straight commission basis. He has suggested a commissionof 15% of sales.
    Current data for Phatty Phun Corporation are as follows:
    Sales volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15,000 units
    Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40 per unit
    Variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29 per unit
    Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,000

    Required
    a. Assuming that Phatty Phun Corporation has a target income of $50,000 for next year,
    which alternative is more attractive?
    b. The sales manager believes that by switching to a commission basis, sales will increase 20%. If that is the case, which alternative is more attractive? (Assume that sales are expected to remain at 15,000 units under the fixed salary alternative.)

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    https://brainmass.com/economics/income-distribution/accounting-and-finance-133363

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