Group Problem Set 1: This problem Set is based on materials covered in module

1/week 1. It is designed for you to demonstrate your understanding of basic financial

statements, financial statement analysis, break-even concepts, financial and operating

leverages. Before you start this assignment, please review weeks 1 and 2 materials

thoroughly.

Items 2016

Sales $3,432,000 Cash 9,000

2017

$5,834,400 7,282 720,000 97,632 1,000,000 4,980,000 116,960 20,000 1,202,950 176,000

100,000 6 632,160 324,000 1,287,360 720,000 263,160 284,960

40%

Other Expenses

Retained Earnings

Long-term debt

Cost of goods sold

Depreciation18,900Short-term investments

Fixed Assets

Interest Expenses

Shares outstanding (par value = $4.60)

Market Price of stock Accounts Receivable Accounts payable

Inventory

Notes Payable

Accumulated Depreciation Accruals

Tax Rate

Instructions:

48,600 491,000 62,500

340,000 203,768 323,432

2,864,000

100,000 8.50 351,200 145,600 715,200 200,000 146,200 136,000

40%

As a group, complete the following activities using the financial information above:Part 1:Financial Statements

1. Prepare the income statement for 2016 and 2017. Include statement of retained earnings for 2017
2. Prepare the balance sheet for 2016 and 2017
3. Prepare Common-Size financial statements of income statement and balance
4. sheet.
5. Prepare Statement of Cash Flows

Part 2:Financial Statement Analysis

A. Based on your financial statements (from Part 1), calculate the following ratios for

the two years.

Current ratio

Quick ratio

Inventory turnover (times)

Average collection period (days)

Total asset turnover (times)

Debt ratio

Times interest earned

Gross profit margin

Net profit margin

Return on total assets

Return on equity

P/E ratio

Return on equity using DuPont Analysis

1. Comments on the ratios by comparing 2016 to 2017 ratios.
2. Assume Adams Stores, Inc. is a retail company similar to WalMart, Myers, or Target. Compare 2017 ratios to the industry average. Please note that Adams Stores, Inc. is not a real company. To find comparable industry ratios, you need to search for industry ratios for retail. See information on Moodle for instructions on how to find industry ratios. Based on the industry average, how is Adams Stores, Inc. doing financially?

Show all your calculations in good form. Show your formulas. If

you use excel, each calculation need to show the excel formula

Part 3:Break-even, Financial and Operating Leverages

Johnson Products, Inc.

Income Statement

For the Year Ended December 31, 2018

Sales (40,000 bags at $50 each) .................................. Less: Variable costs (40,000 bags at $25)................ Fixed costs.............................................................. Earnings before interest and taxes .............................. Interest expense ........................................................... Earnings before taxes ................................................. Income tax expense (20%) .......................................... Net income ..................................................................

$2,000,000 1,000,000 600,000 400,000 120,000 280,000 56,000 $ 224,000

Based on the information above, calculate(show all calculations and responses in good form):

1. Break-even in units (in dollars and units). Explain what your numbers mean. As a manager, how would you use the numbers in financial planning?
2. What is the degree of financial leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?
3. What is the degree of operating leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?

Specific Instructions:

1. Complete and submit your assignment no later than the last day of Module 1/Week 1.
2. Include only the names of your group members who participated in this assignment when you submit.
3. Submit only one copy per group.
4. You may use Excel or Word. Please DO NOT use any other format such PDF,
5. etc.

Side Note: Please note that this is not the type of assignment where the assignment is

divided and each student completes the part that is assigned. Each person in your