Assignment: Pro Forma Statements Fin 200 Week Three Solution

FIN 200

Axia College of University of Phoenix (UoP)

Foundations of Financial Management
Block Hirt Danielsen

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 3 Solution

Assignment: Pro Forma Statements

• Resource: Ch. 4 of Foundations of Financial Management
• Due Date: Day 7 [post to the Individual forum]
• Complete Problems 16 and 25
• Post the assignment as an attachment.

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16. J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year as:
September (actual) . . . . . . . . . . . . . $70,000
Fourth Quarter
October . . . . . . . . . . . . . . . . . . . . . . $60,000
November . . . . . . . . . . . . . . . . . . . . 55,000
December . . . . . . . . . . . . . . . . . . . . 80,000
Experience has shown that 30 percent of sales are collected in the month of sale, 60 percent in the following month, and 10 percent are never collected.
Prepare a schedule of cash receipts for J. Lo’s Clothiers covering the fourth quarter (October through December).

25. Carter Paint Company has plants in nine midwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary directly with sales.

BALANCE SHEET
(in $ millions)
Assets Liabilities and Stockholders’ Equity
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 5 Accounts payable . . . . . . . . . . . . . . $15
Accounts receivable. . . . . . . . . . . . . 15 Accrued wages . . . . . . . . . . . . . . . . 6
Inventory . . . . . . . . . . . . . . . . . . . . . 30 Accrued taxes . . . . . . . . . . . . . . . . . 4
Current assets . . . . . . . . . . . . . . . 50 Current liabilities . . . . . . . . . . . . . 25
Fixed assets . . . . . . . . . . . . . . . . . . 40 Notes payable . . . . . . . . . . . . . . . . . 30
Common stock . . . . . . . . . . . . . . . . . 15
Retained earnings . . . . . . . . . . . . . . 20
Total assets . . . . . . . . . . . . . . . . . . . $90 Total liabilities and
stockholders’ equity . . . . . . . . . . . $90

Carter Paint has an aftertax profit margin of 5 percent and a dividend payout ratio of 30 percent. If sales grow by 10 percent next year, determine how many dollars of new funds are needed to finance the expansion. (Assume Carter Paint is already using assets at full capacity and that plant must be added.)

Problem 9.4A (P9.4A) During the current year, Ramirez Developers disposed of plant assets in the following transactions

Financial and Managerial Accounting: The Basis for Business Decisions 13th ed
Williams, Haka, and Bettner

Financial Accounting
Managerial Accounting
Williams, Haka, and Bettner

Chapter 9

Problem 9.4A (P9.4A) During the current year, Ramirez Developers disposed of plant assets in the following transactions:
Disposal of Plant Assets
Feb. 10 Office equipment costing $26,000 was given to a scrap dealer at no charge. At the date of disposal, accumulated depreciation on the office equipment amounted to $25,800.
Apr. 1 Ramirez sold land and a building to Claypool Associates for $900,000, receiving $100,000 cash and a 5-year, 9 percent note receivable for the remaining balance. Ramirez's records showed the following amounts: Land, $50,000; Building, $550,000; Accumulated Depreciation: Building (at the date of disposal), $250,000.
Aug. 15 Ramirez traded in an old truck for a new one. The old truck had cost $26,000, and its accumulated depreciation amounted to $18,000. The list price of the new truck was $39,000, but Ramirez received a $10,000 trade-in allowance for the old truck and paid only $29,000 in cash. Ramirez includes trucks in its Vehicles account.
Oct. 1 Ramirez traded in its old computer system as part of the purchase of a new system. The old system had cost $15,000, and its accumulated depreciation amounted to $11,000. The new computer's list price was $8,000. Ramirez accepted a trade-in allowance of $500 for the old computer system, paying $1,500 down in cash, and issuing a l -year, 8 percent note payable for the $6,000 balance owed.

Instructions
a. Prepare journal entries to record each of the disposal transactions. Assume that depreciation expense on each asset has been recorded up to the date of disposal. Thus, you need not update the accumulated depreciation figures stated in the problem.
AND SO ON

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Problem 9.3A (P9.3A) Smart Hardware purchased new shelving for its store on April 1, 2005

Financial and Managerial Accounting: The Basis for Business Decisions 13th ed
Williams, Haka, and Bettner

Financial Accounting
Managerial Accounting
Williams, Haka, and Bettner

Chapter 9

Problem 9.3A (P9.3A) Smart Hardware purchased new shelving for its store on April 1, 2005. The shelving is expected to have a 20-year life and no residual value. The following expenditures were associated with the purchase:

Cost of the shelving $12,000
Freight charges 520
Sales taxes 780
Installation of shelving 2,700
Cost to repair shelf damaged during installation 400

Instructions
a. Compute depreciation expense for the years 2005 through 200S under each depreciation method listed below:
1. Straight-line, with fractional years rounded to the nearest whole month.
2. 200 percent declining-balance, using the half-year convention.
3. 150 percent declining-balance, using the half-year convention.
AND SO ON

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Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2008. They invested $25,000 cash and received common

ACCT 100 : Introduction to Financial Accounting
San Francisco State University (SFSU)

Financial Accounting
Jerry J. Weygandt

Decision Making Across The Organization

BYP 1-4 Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2008. They invested $25,000 cash and received common stock in exchange for their investment. A caddy shack was constructed for cash at a cost of $8,000 and $800 was spent on golf balls and golf clubs. The Grays leased five acres of land at a cost of $1,000 per month and paid the first month’s rent. During the first month, advertising costs totaled $750, of which $150 was unpaid at March 31, and $400 was paid to members of the high school golf team for retrieving golf balls. All revenues from customers were deposited in the company’s bank account. On March 15, Mary and Jack received a dividend of $1,000. A $100 utility bill was received on March 31 but was not paid. On March 31, the balance in the company’s bank account was $18,900.
Mary and Jack thought they had a pretty good first month of operations. But, their estimates of profitability ranged from a loss of $6,100 to net income of $2,450.

Instructions
(a) How could the Grays have concluded that the business operated at a loss of $6,100? Was this a valid basis on which to determine net income?
(b) How could the Grays have concluded that the business operated a t a net income of $2,450? (Hint: Prepare a balance sheet at March 31.) Was the valid basis on which to determine net income?
(c) Without preparing an income statement, determine the actual net income for March.
(d) What was the revenue earned in March?

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BYP 1-4 Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2008

ACCT 100 : Introduction to Financial Accounting
San Francisco State University (SFSU)

Financial Accounting
Jerry J. Weygandt

Decision Making Across The Organization

BYP 1-4 Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2008. They invested $25,000 cash and received common stock in exchange for their investment. A caddy shack was constructed for cash at a cost of $8,000 and $800 was spent on golf balls and golf clubs. The Grays leased five acres of land at a cost of $1,000 per month and paid the first month’s rent. During the first month, advertising costs totaled $750, of which $150 was unpaid at March 31, and $400 was paid to members of the high school golf team for retrieving golf balls. All revenues from customers were deposited in the company’s bank account. On March 15, Mary and Jack received a dividend of $1,000. A $100 utility bill was received on March 31 but was not paid. On March 31, the balance in the company’s bank account was $18,900.
Mary and Jack thought they had a pretty good first month of operations. But, their estimates of profitability ranged from a loss of $6,100 to net income of $2,450.

Instructions
(a) How could the Grays have concluded that the business operated at a loss of $6,100? Was this a valid basis on which to determine net income?
(b) How could the Grays have concluded that the business operated a t a net income of $2,450? (Hint: Prepare a balance sheet at March 31.) Was the valid basis on which to determine net income?
(c) Without preparing an income statement, determine the actual net income for March.
(d) What was the revenue earned in March?

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You plan to retire in exactly 20 years. Your goal is to create a fund that will allow you to receive $20,000 at the end of each year for the 30 years

Finance 419 (FIN 419)
Business Finance

Principles of Managerial Finance
Brief Fourth 4th Edition
Lawrence J. Gitman

Prepare responses to the following problems from the text:

Chapter 4

P4-23. LG 3: Funding Your Retirement

You plan to retire in exactly 20 years. Your goal is to create a fund that will allow you to receive $20,000 at the end of each year for the 30 years between retirement and death (a psychic told you that you will die exactly 30 years after you retire). You know you will be able to earn 11% per year during the 30-year retirement period.
a) How large a fund will you need when you retire in 20 years to provide the 30-year, $20,000 retirement annuity?
b) How much will you need today as a single amount to provide the fund calculated in part (a) if you earn only 9% per year during the 20 years preceding retirement?
c) What effect would an increase in the rate you can earn both during and prior to retirement have on the values found in part (a) and (b)?

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Mark each of the accounts listed in the following table as follows

Finance 419 (FIN 419)
Business Finance

Principles of Managerial Finance
Brief Fourth 4th Edition
Lawrence J. Gitman

Prepare responses to the following problems from the text:

Chapter 2

P2-2. LG 1: Financial Statement Account Identification

Mark each of the accounts listed in the following table as follows:
a. In column (1), indicate in which statement-income statement (IS) or balance sheet (BS)-the account belongs.
b. In column (2), indicate whether the account is a current asset (CA), current liability (CL), expense (E), fixed asset (FA), long-term debt (LTD), revenue(R), or stockholders' equity (SE).

(1) (2)
Account name Statement Type of account
Accounts payable _______ _______
Accounts receivable _______ _______
AND SO ON

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The income statement for the year ended December 31, 2006, the balance sheets for

Finance 419 (FIN 419)
Business Finance

Principles of Managerial Finance
Brief Fourth 4th Edition
Lawrence J. Gitman

Prepare responses to the following problems from the text:

Chapter 2

P2-1. LG 1: Reviewing Basic Financial Statements

The income statement for the year ended December 31, 2006, the balance sheets for December 31, 2006 and 2005, and the statement of retained earnings for the year ended December 31, 2006, for Technica, Inc., are given on pages 82 and 83. Briefly discuss the form and informational content of each of these statements. AND SO ON

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P1-2A On August 31, the balance sheet of Nashville Veterinary Clinic Nashville Veterinary Clinic

ACCT 100 : Introduction to Financial Accounting
San Francisco State University (SFSU)

Financial Accounting
Jerry J. Weygandt

P1-2A On August 31, the balance sheet of Nashville Veterinary Clinic showed Cash $9,000, Accounts Receivable $1,700, Supplies $600, Office Equipment $6,000, Accounts Payable $3,600, Common Stock $13,000, and Retained Earnings $700. During September the following transactions occurred.
1. Paid $2,900 cash for accounts payable due.
2. Collected $1,300 of accounts receivable.
3. Purchased additional office equipment for $2,100, paying $800 in cash and the balance on account.
4. Earned revenue of $8,000 of which $2,500 is paid in cash and the balance is due in October.
5. Declared and paid a $1,000 cash dividend.
6. Paid salaries $1,700, rent for September $900, and advertising expenses $300.
7. Incurred utility expenses for month on account $170.
8. Received $10,000 from Capital Bank on a 6-month note payable.
Instructions
(a) Prepare a tabular analysis of the September transactions beginning with August 31 balances. The column headings should be as follows:
(b) Prepare an income statement for September, a retained earnings statement for September, and a balance sheet at September 30

Check: (a) Ending Retained Earnings $4,630
(b) Net Income $4,930; Total Assets $29,800

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Swanson Corporation issued $8 million of 20-year, 8 percent bonds on April 1,2005, at 102

Financial and Managerial Accounting: The Basis for Business Decisions 13th ed
Williams, Haka, and Bettner

Financial Accounting
Managerial Accounting
Williams, Haka, and Bettner

Chapter 10

Exercise 10.10 (Ex 10.10) Swanson Corporation issued $8 million of 20-year, 8 percent bonds on April 1,2005, at 102. Interest is due on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2025. Swanson's fiscal year ends on December 31. Prepare the following journal entries:

Instructions
a. April 1, 2005, to record the issuance of the bonds.
b. September 30,2005, to pay interest and to amortize the bond premium.
c. March 31, 2025, to pay interest, amortize the bond premium, and retire the bonds at maturity.(Make two separate entries).
AND SO ON

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During the current year, Ramirez Developers disposed of plant assets in the following transactions

Financial and Managerial Accounting: The Basis for Business Decisions 13th ed
Williams, Haka, and Bettner

Financial Accounting
Managerial Accounting
Williams, Haka, and Bettner

Chapter 9

Problem 9.4A (P9.4A) During the current year, Ramirez Developers disposed of plant assets in the following transactions:
Disposal of Plant Assets
Feb. 10 Office equipment costing $26,000 was given to a scrap dealer at no charge. At the date of disposal, accumulated depreciation on the office equipment amounted to $25,800.
Apr. 1 Ramirez sold land and a building to Claypool Associates for $900,000, receiving $100,000 cash and a 5-year, 9 percent note receivable for the remaining balance. Ramirez's records showed the following amounts: Land, $50,000; Building, $550,000; Accumulated Depreciation: Building (at the date of disposal), $250,000.
Aug. 15 Ramirez traded in an old truck for a new one. The old truck had cost $26,000, and its accumulated depreciation amounted to $18,000. The list price of the new truck was $39,000, but Ramirez received a $10,000 trade-in allowance for the old truck and paid only $29,000 in cash. Ramirez includes trucks in its Vehicles account.
Oct. 1 Ramirez traded in its old computer system as part of the purchase of a new system. The old system had cost $15,000, and its accumulated depreciation amounted to $11,000. The new computer's list price was $8,000. Ramirez accepted a trade-in allowance of $500 for the old computer system, paying $1,500 down in cash, and issuing a l -year, 8 percent note payable for the $6,000 balance owed.

Instructions
a. Prepare journal entries to record each of the disposal transactions. Assume that depreciation expense on each asset has been recorded up to the date of disposal. Thus, you need not update the accumulated depreciation figures stated in the problem.
AND SO ON

Click here for the SOLUTION

Smart Hardware purchased new shelving for its store on April 1, 2005

Financial and Managerial Accounting: The Basis for Business Decisions 13th ed
Williams, Haka, and Bettner

Financial Accounting
Managerial Accounting
Williams, Haka, and Bettner

Chapter 9

Problem 9.3A (P9.3A) Smart Hardware purchased new shelving for its store on April 1, 2005. The shelving is expected to have a 20-year life and no residual value. The following expenditures were associated with the purchase:

Cost of the shelving $12,000
Freight charges 520
Sales taxes 780
Installation of shelving 2,700
Cost to repair shelf damaged during installation 400

Instructions
a. Compute depreciation expense for the years 2005 through 200S under each depreciation method listed below:
1. Straight-line, with fractional years rounded to the nearest whole month.
2. 200 percent declining-balance, using the half-year convention.
3. 150 percent declining-balance, using the half-year convention.
AND SO ON

Click here for the SOLUTION

Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2008

ACCT 100 : Introduction to Financial Accounting
San Francisco State University (SFSU)

Financial Accounting
Jerry J. Weygandt

Decision Making Across The Organization

BYP 1-4 Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2008. They invested $25,000 cash and received common stock in exchange for their investment. A caddy shack was constructed for cash at a cost of $8,000 and $800 was spent on golf balls and golf clubs. The Grays leased five acres of land at a cost of $1,000 per month and paid the first month’s rent. During the first month, advertising costs totaled $750, of which $150 was unpaid at March 31, and $400 was paid to members of the high school golf team for retrieving golf balls. All revenues from customers were deposited in the company’s bank account. On March 15, Mary and Jack received a dividend of $1,000. A $100 utility bill was received on March 31 but was not paid. On March 31, the balance in the company’s bank account was $18,900.
Mary and Jack thought they had a pretty good first month of operations. But, their estimates of profitability ranged from a loss of $6,100 to net income of $2,450.

Instructions
(a) How could the Grays have concluded that the business operated at a loss of $6,100? Was this a valid basis on which to determine net income?
(b) How could the Grays have concluded that the business operated a t a net income of $2,450? (Hint: Prepare a balance sheet at March 31.) Was the valid basis on which to determine net income?
(c) Without preparing an income statement, determine the actual net income for March.
(d) What was the revenue earned in March?

Click here for the SOLUTION

On August 31, the balance sheet of Nashville Veterinary Clinic showed Cash $9,000, Accounts Receivable $1,700, Supplies $600, Office Equipment $6,000

ACCT 100 : Introduction to Financial Accounting
San Francisco State University (SFSU)

Financial Accounting
Jerry J. Weygandt

P1-2A On August 31, the balance sheet of Nashville Veterinary Clinic showed Cash $9,000, Accounts Receivable $1,700, Supplies $600, Office Equipment $6,000, Accounts Payable $3,600, Common Stock $13,000, and Retained Earnings $700. During September the following transactions occurred.
1. Paid $2,900 cash for accounts payable due.
2. Collected $1,300 of accounts receivable.
3. Purchased additional office equipment for $2,100, paying $800 in cash and the balance on account.
4. Earned revenue of $8,000 of which $2,500 is paid in cash and the balance is due in October.
5. Declared and paid a $1,000 cash dividend.
6. Paid salaries $1,700, rent for September $900, and advertising expenses $300.
7. Incurred utility expenses for month on account $170.
8. Received $10,000 from Capital Bank on a 6-month note payable.
Instructions
(a) Prepare a tabular analysis of the September transactions beginning with August 31 balances. The column headings should be as follows:
(b) Prepare an income statement for September, a retained earnings statement for September, and a balance sheet at September 30

Check: (a) Ending Retained Earnings $4,630
(b) Net Income $4,930; Total Assets $29,800

Click here for the SOLUTION