For all present value problems, supporting calculations must be

rounded to four decimal places and final answers rounded to two

decimal places.

Prepare your answers in MS Excel and use formulas for all cells

requiring calculations.

Below are the financial statements for The Corporation (aka The

Firm) followed by other, more general information about the economy,

stock market, and The Corporation.

The Corporation

Comparative Balance Sheet

For the 12 Months Ended December 31

20X11 20X10 20X9

Cash 710,000 625,000 560,000

Accounts Receivable 494,000 450,000 410,000

Inventory 526,000 487,000 443,000

Prepaid Insurance 46,000 51,000 43,000

Total Current Assets 1,776,000 1,613,000 1,456,000

Land 1,520,000 1,340,000 1,400,000

Buildings 2,530,000 2,440,000 2,350,000

Less: Accumulated Depreciation -550,000 -480,000 -420,000

Net Buildings 1,980,000 1,960,000 1,930,000

Total Long-Term Assets 3,500,000 3,300,000 3,330,000

Total Assets 5,276,000 4,913,000 4,786,000

Accounts Payable 284,000 277,000 240,000

Salaries and Wages Payable 83,000 74,000 67,000

Dividends Payable 47,044 37,995 44,000

Notes PayableLine of Credit 212,000 230,000 210,000

Page 2 of 9

Total Current Liabilities 626,044 618,995 561,000

Notes PayableLong Term 2,090,587 1,609,831 1,105,421

Bonds Payable 1,000,000 1,000,000 1,000,000

Less: Discount on Bonds Payable -249,244 -263,260 -275,973

Net Bonds Payable 750,756 736,740 724,027

Total Long-Term Liabilities 2,841,343 2,346,571 1,829,448

Total Liabilities 3,467,387 2,965,566 2,390,448

Contributed Capital 500,000 500,000 500,000

Retained Earnings 3,424,613 2,679,434 1,983,552

Treasury Stock -2,116,000 -1,232,000 -88,000

Total Stockholders Equity

(SE)

1,808,613 1,947,434 2,395,552

Total Liabilities and SE 5,276,000 4,913,000 4,786,000

The Corporation

Income Statement

For the 12 Months Ended December 31

20X11 20X10 20X9

Sales $6,150,000 $ 5,150,000 $ 3,450,000

Cost of Goods Sold -3,890,000 -3,215,000 -1,680,000

Salaries and Wages -912,000 -875,000 -823,000

Depreciation-Building -134,000 -123,000 -120,000

Insurance -78,000 -92,000 -89,000

Total Expenses -5,014,000 -4,305,000 -2,712,000

Operating Income 1,136,000 845,000 738,000

Interest ExpenseNotes -134,757 -95,410 -43,917

Interest Expense - Bonds -74,016 -72,713 -71,531

Gain (Loss) Sale of Buildings -120,000 21,000 38,000

Gain (Loss) Sale of Land -31,000 27,000 -77,000

Total Other Revenues & Expenses -359,773 -120,123 -154,448

Net Income $ 776,227 $ 724,877 $ 583,552

Earnings Per Share (EPS) $ 6.16 $ 4.77 $ 2.98

Page 3 of 9

The Corporation

Statement of Cash Flows

For the 12 Months Ended December 31 20X11

20X11 20X10

Cash received from customers $ 6,106,000 $ 5,110,000

Cash paid to suppliers -3,922,000 -3,222,000

Cash paid for salaries and wages -903,000 -868,000

Cash paid for insurance -73,000 -100,000

Cash paid for interestBonds -60,000 -60,000

Cash paid for interestNotes Payable -134,757 -95,410

Net Cash from Operating Activities $ 1,013,243 $ 764,590

Investment in Land -790,000 -980,000

Investment in Building -770,000 -720,000

Sale of Building 496,000 588,000

Sale of Land 579,000 1,067,000

Net Cash from Investing Activities $ (485,000) $ (45,000)

Proceeds (Payment) Notes Pay 462,757 524,410

Purchase of Treasury Stock -884,000 -1,144,000

Dividends Paid -22,000 -35,000

Net Cash from Financing Activities $ (443,243) $ (654,590)

Net Change in Cash 85,000 65,000

Beginning Cash 625,000 560,000

Ending Cash $ 710,000 $ 625,000

Page 4 of 9

The Corporation & Industry

Financial Ratios

20X11 20X10 20X11/20X10

Industry

Return on Equity 0.41 0.33 0.16

Dividend Payout 0.04 0.04 0.12

Return on Assets 0.15 0.15 0.09

Return on Sales 0.13 0.14 0.09

Asset Turnover 1.21 1.06 0.90

Current Ratio 2.84 2.61 2.75

Quick Ratio 1.92 1.74 1.82

Debt/Assets 0.54 0.48 0.20

Accounts Receivable Days 28.01 30.48 32.01

Inventory Days 47.53 52.79 49.53

Accounts Payable Days 26.59 29.75 24.59

Summary: Cash Conversion Days 48.95 53.51 56.95

Other Information

Bonds Payable: On December 31, 20X1, the firm issued

1,000 bonds with a 20-year maturity. The bonds pay interest

every six months (June 30 and December 31), and the yield

to maturity/effective interest rate is 10 percent.

Stock Price-Firm: The market price of the stock (per the stock

5. Prepare the journal entry to record the sale of bonds on

December 31, 20X1. (5 points)

exchange) was $34 at year-end 20X11, $26 at year-end

20X10, $22 at year-end 20X9, and $17 at year-end 2006.

Market Information: The average return in the market over

20X920X11 is 12 percent, and its standard deviation 6.50

percent.

Treasury Bonds: The average rate on U.S. Treasury bonds

was 5 percent.

Stock Shares: The firm has 600,000 authorized shares and

200,000 issued, and 126,000 outstanding at year-end

20X11.

Stock Valuation Data: The required rate of return

demanded by investors approximates 17 percent. The

Page 5 of 9

firms beta is 1.75. The firm estimates that the growth rate

in dividends is 20% for 20X12 and 20X13, and 14% for all

years thereafter.

Treasury Stock: The firm had zero treasury stock at year-end

20X8. The firm purchased 4,000 treasury shares at year-end

20X9, 44,000 at year-end 20X10, and 26,000 at year-end

20X11. There were no sales of treasury stock during this

periodonly purchases of treasury stock.

Financial Ratio Formulas

Return on Equity: Net Income/Average Stockholders

Equity

Dividend Payout: Dividends Declared/Net Income

Return on Assets: Net Income/Average Total Assets

Asset Turnover: Total Sales/Average Assets

Current Ratio: Current Assets/Current Liabilities

Quick Ratio: (Cash + Marketable

Securities + AR)/Current Liabilities

Debt-Asset Ratio: Total Liabilities/Total Assets

Accounts Receivable Days: 365/A/R Turnover

Inventory Days: 365/Inventory Turnover

Accounts Payable:

365/A/P Turnover

Cash Conversion Days: A/R Days + Inventory Days - A/P

Days

A/R Turnover: Total Sales/Average Accounts Receivable

Inventory Turnover: Total Cost of Goods Sold

Expense/Average Inventory.

Accounts Payable Turnover: Purchases/Average Accounts

Payable.