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94cf9f3562bae23fc0b06dc4fb5c4922
Accounting 122
Group Project Problem 1 100 Points
The comparative financial statements of the Summer Company are as follows.
The market price of the Summer Company common stock was $36 on
December 31, 2016 and $11.20 on December 31, 2017.
Summer Company
Comparative Balance Sheet
December 31, 2017, 2016 and 2015
ASSETS
2017
Current Assets
Cash
Accounts Receivable
Merchandise Inventory
Prepaid Expenses
Total Current Assets
Plant Assets
Less: Accumulated Depreciation
Plant Assets (net)
Total Assets
$176,200
238,850
62,500
700
$478,250
696,100
(70,000)
626,100
$1,104,350
2016
$253,100
31,850
42,500
1,700
$329,150
726,100
(60,000)
666,100
$995,250
Liabilities and Stockholder’s Equity
Current Liabilites
Accounts Payable
Accrued Liabilities
Dividends Payable
Total Current Liabilities
Long-Term Liabilities
Mortgage Note Payable
Bonds Payable
Less: Discount on Bonds Payable
Total Long-Term Liabilities
Total Liabilities
Stockholders’ Equity
Common Stock, $10 Par
Paid in Capital in Excess of Par
Retained Earnings
Less: Treasury Stock
Total Stockholders’ Equity
Total Liabilities and
Stockholders’ Equity
Page 1
$55,000
1,000
0
$56,000
$30,000
8,000
10,000
$48,000
$9,000
240,000
(4,500)
$244,500
$300,500
$29,000
340,000
(5,500)
$363,500
$411,500
$411,900
162,350
236,600
(7,000)
$803,850
$311,900
72,350
209,500
(10,000)
$583,750
$1,104,350
$995,250
94cf9f3562bae23fc0b06dc4fb5c4922
The Summer Company
Retained Earnings Statement
For the years Ended December 31, 2017 and 2016
2017
2016
Retained Earnings. Jan. 1,
Add: Net Income
Less: Dividends Declared
Retained Earnings Dec. 31
$209,500
27,100
$149,400
70,100
$236,600
(10,000)
$209,500
The Summer Company
Income Statement
For the years ended December 31, 2017 and 2016
2017
2016
Sales
$260,000
$521,000
less: Cost of Merchandise Sold
200,000
387,500
Gross Profit
60,000
133,500
less: Operating Expenses; excluding Depreciation
11,000
8,500
Depreciation Expense
20,000
20,000
Income from Operations
$29,000
$105,000
Add: Other Income: Gain on sale of equipment
10,000
0
Less: Other Expenses: Loss on sale of equipment
8,000
$39,000
$97,000
Less: Interest Expense
3,900
5,900
Income before Income Tax
$35,100
$91,100
Less: Income Tax expense
8,000
21,000
$27,100
$70,100
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The Summer Company
Statement of Cash Flows
For the year ended December 31, 2016
Cash Flow From Operating Activities:
Net Income
Add:
Net decrease in Accounts Receivable
Net decrease in Merchandise Inventory
Net decrease in Prepaid Expenses
Loss on Sale of Plant Assets
(1)
Depreciation Expense
(1)
Amortization of Bond Discount
(2)
Deduct:
Deduct:
Decrease in Accounts Payable
Decrease in Accrued Liabilities
Cash Flow From Operating Activities
Cash Flow from Investing Activities:
Sale of Plant Assets for cash
(1)
Cash Flow from Investing Activities
Cash Flow from Financing Activities
Issued Bonds for cash
(2)
Cash Dividends Paid
Mortgage paid
Cash Flow from Financing Activities
Net Increase in Cash
Page 3
$35,500
87,500
500
8,000
20,000
1,000
$30,000
4,000
12,000
48,000
2,000
20,000
22,000
94cf9f3562bae23fc0b06dc4fb5c4922
1/1/2016 Cash Balance
12/31/2016 Cash Balance
(1)
(2)
Sold Plant Assets with a book value of $20,000.
Issued bonds for $48,000. Face Value $50,000.
The following transactions occurred during 2017 to assist you in preparing the Statement
of Cash Flows for 2017.
A. Dividends were declared in 2016 and paid 2017.
B. Purchased Treasury Stock for $10,000 on 1/1/2017.
C. Sold Treasury Stock receiving cash.
D. Sold Plant Assets, receiving cash. The net book value of the plant asset was $20,000.
E. Paid off a portion of the mortg
age note.
F. Retired bonds at their maturity value.
G. Amortized the Discount on Bonds Payable.
H. Issued common stock, receiving cash.
Required:1. Prepare the Statement of Cash Flows for the year ended December 31, 2017.
(Show all required computations).
Assume that your manager, who has a marketing background ask you the
following questions 2-5, after reviewing the Statement of Cash Flows for 2017
and 2016.
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As you can see from the premise of the questions, that your manager does not
have a basic understanding of the statement of cash flows. Take that into
consideration when answering questions 2-5.
2. “How can Depreciation be a cash flow”?
3. “How can a gain on the sale of non-current assets be a deduction from Net
Income in determining the Cash Flow from Operating Activities?
4. “How can a Loss on the Sale of non current assets be be an
addition to Net Income in determining Cash Flow from Operating Activities?
5. “Why does the bank need a Statement of Cash Flows anyway? They can
compute the increase or decrease in cash flow from the Balance Sheet for the
last two years”?
6. Prepare the following financial statement analysis for the 2017 and 2016.
Define each measure and whether the Summer Company did better or worse
and why?
A. Current ratio.
B. Quick ratio.
C. Rate of Return on Total Assets.
D. Rate of Return on Common Stockholders’ Equity.
E. Earnings Per Share on Common Sock. (When computing the earnings per
share assume there is no Treasury Stock). Use the outstanding shares as of
12/31/2017 for 2017 and the outstanding shares as of 12/31/ 2016 for 2016. Do
not use the weighted average outstanding shares.
F. Accounts Receivable Turnover. Assume all Sales are on account.
G. Average collection period. Assume all Sales are on account.
H. Inventory Turnover.
I. Debt to equity ratio
J. Times Interest Earned Ratio.
K. Price Earnings Ratio.
L. Operating Cash Flow to current liability ratio
M. Vertical analysis for the Income Statement for 2017 and 2016.
Below is an example of how you should present the information.
2011
Working Capital:
Current Assets
$478,250
Current Liabilities
56,000
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Net Working Capital
422,250
Strength or Weakness
Working Capital measures the ability of a company to meet it’s short-term obligations with
current assets. In 2011 Summer is performing much better since they have more current
assets available to meet their short-term obligations.
7. From your analysis, summarize the major strenths and weaknesses comparing
Summer’s 2017 and 2016 performance. Summarize part 6 A through M.
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any are as follows.
nce Sheet
7, 2016 and 2015
2015
$26,500
67,350
130,000
2,200
$226,050
786,100
(80,000)
706,100
$932,150
$60,000
12,000
2,000
$74,000
$49,000
290,000
(4,500)
$334,500
$408,500
$311,900
72,350
149,400
(10,000)
$523,650
$932,150
Page 7
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s Statement
mber 31, 2017 and 2016
17 and 2016
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$70,100
152,500
222,600
34,000
188,600
12,000
26,000
226,600
Page 9
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26,500
253,100
preparing the Statement
ant asset was $20,000.
ed December 31, 2017.
ound ask you the
f Cash Flows for 2017
Page 10
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our manager does not
ws. Take that into
a deduction from Net
m Operating Activities?
anyway? They can
he Balance Sheet for the
the 2017 and 2016.
any did better or worse
uting the earnings per
outstanding shares as of
of 12/31/ 2016 for 2016. Do
re on account.
7 and 2016.
formation.
2010
$329,150
48,000
Page 11
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281,150
ort-term obligations with
hey have more current
d weaknesses comparing
art 6 A through M.
Page 12
Summer Company
Statement of Cash Flows
For the year Ended Dec. 31, 2011
Cash Flow from operating activities:
Net Income
Add:
$
–
$
–
$
–
$
–
$
–
Deduct:
Net Cash flow from operating activities
Cash flows from investing activities:
Less:
Net cash flow used for investing activities
Cash flows from financing activities:
Add:
Less:
Net cash flow used for financing activites
Increase or Decrease in Cash
Cash at the beginning of the year
Cash at the end of the year
$
–
$
–
$
$
–
$
–
Part 2
Part 3
Part 4
Part 5
PART 6 A.
Current Ratio
2017
2016
2017
2016
Strengths and Weaknesses
PART 6 B.
Quick Ratio
Strengths and Weaknesses
PART 6 C.
Rate of Return on Total Assets
2017
2016
2017
2016
Strengths and Weaknesses
PART 6 D.
Rate of Return on Common Stockholder’s Equity
Strengths and Weaknesses
PART 6 E.
Earnings Per Share
2017
2016
2017
2016
Strengths and Weaknesses
PART 6 F.
Accounts Receivable Turnover
Strengths and Weaknesses
PART6 G.
Average Collection Period
2017
2016
2017
2016
Strengths and Weaknesses
PART 6 H.
Merchandise Inventory Turnover
Strengths and Weaknesses
PART 6 I.
Debt to Equity Ratio
2017
2016
2017
2016
Strengths and Weaknesses
PART 6 J.
Times Interest Earned
Strengths and Weaknesses
PART 6 k.
Price Earnings Ratio
2017
2016
2017
2016
Strengths and Weaknesses
PART 6 L.
Operating Cash Flow to Current Liabilitey Ratio
Strengths and Weaknesses
2017
PART 6 L. Vertical Analysis
Strengths and Weaknesses
2016
Group Name’s
Part 4 A.
Strengths and Weaknesses
Part 4 B.
Current Ratio
Strengths and Weaknesses
Part 4 C.
Quick Ratio (Acid-Test Ratio)
Strengths and Weaknesses
Part 4 D.
Accounts Receivable Turnover
Strengths and Weaknesses
Part 4 E.
Days’ Sales in Receivables
Strengths and Weaknesses
Part 4 F.
Inventory Turnover Ratio
Strengths and Weaknesses
Part 4 G.
Times Interest Earned Ratio
Strengths and Weaknesses
Part 4 H.
Rate of Return on Common Stockholders’ Equity
Strengths and Weaknesses
Part 4 I.
Rate of Return on Total Assets
Strengths and Weaknesses
Part 4 J.
Debt to Equity Ratio
Strengths and Weaknesses
Part 4 K.
Debt Ratio
Strengths and Weaknesses
Part 4 L.
Asset Turnover Ratio
Strengths and Weaknesses
Part 4 M.
Price Earnings Ratio
Strengths and Weaknesses
Vertical Analysis
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