June 2019 – Page 307 – Homework Handlers

Business Analysis and Valuation: Using Financial Statements, Text and Cases

Demonstration Problem 2-2 Effect of Cost Structure

Which of the following is least likely to result in product innovations that have near-term commercial application?

Which of the following is the appropriate journal entry if a company performs a service and is paid immediately?

Business Analysis and Valuation: Using Financial Statements, Text and Cases

Demonstration Problem 2-2 Effect of Cost Structure

Which of the following is least likely to result in product innovations that have near-term commercial application?

Which of the following is the appropriate journal entry if a company performs a service and is paid immediately?

Experience

Talk to us...

Our mission

Latest Posts

June 24, 2019/in Uncategorized /by John

Text book [Palepu, K., Healy, P., (2013) Business Analysis and Valuation: Using Financial Statements, Text and Cases (5th ed) ]

Use the sample templates in Tables 4-1, 4-2, and 4-3 as a reference to recast the financial statements for Amazon.com below. Step 1 is to classify the lines appropriately, then step 2 is to aggregate like items to produce the standardized

Helpful Notes: (a) fulfillment costs Ac€?o these are viewed as cost of sales for most retailers; (b) stock option costs Ac€?o these are probably for senior management and hence should probably be classified as SG&A; and (c) in the cash flow statement gains and losses on currency translations (shown at the end of the statement are shown as operating factors that imply that cash from operations in the standardized format does not equate to that reported by the firm.

Income Statement

*Classifications*		2002	2001	2000
	Net sales	$3,932,936	$3,122,433	$2,761,983
	Cost of sales	2,940,318	2,323,875	2,106,206
	Gross profit	992,618	798,558	655,777
	Operating expenses:
	Fulfillment	392,467	374,250	414,509
	Marketing	125,383	138,283	179,980
	Technology and content	215,617	241,165	269,326
	General and administrative	79,049	89,862	108,962
	Stock-based compensation	68,927	4,637	24,797
	Amortization of goodwill and other intangibles	5,478	181,033	321,772
	Restructuring-related and other	41,573	181,585	200,311
	Total operating expenses	$928,494	$1,210,815	$1,519,657
	Income (loss) from operations	64,124	-412,257	-863,880
	Interest income	23,687	29,103	40,821
	Interest expense	-142,925	-139,232	-130,921
	Other income (expense), net	5,623	-1,900	-10,058
	Other gains (losses), net	-96,273	-2,141	-142,639
	Total non-operating expenses, net	($209,888)	($114,170)	($242,797)
	Loss before equity in losses of equity-method investees	-145,764	-526,427	-1,106,677
	Equity in losses of equity-method investees, net	-4,169	-30,327	-304,596
	Loss before change in accounting principle	($149,933)	($556,754)	($1,411,273)
	Cumulative effect of change in accounting principle	801	-10,523
	Net loss	($149,132)	($567,277)	($1,411,273)

Balance Sheet

*Classifications*	Year Beginning January 1, ($000’s)	2003	2002
	Current assets:
	Cash and cash equivalents	$738,254	$540,282
	Marketable securities	562,715	456,303
	Inventories	202,425	143,722
	Accounts receivable, net & other current assets	112,282	67,613
	Total current assets	$1,615,676	$1,207,920
	Fixed assets, net	239,398	271,751
	Goodwill, net	70,811	45,367
	Other intangibles, net	3,460	34,382
	Other equity investments	15,442	28,359
	Other assets	45,662	49,768
	Total assets	$1,990,449	$1,637,547
	LIABILITIES AND STOCKHOLDERS’ DEFICIT
	Current liabilities:
	Accounts payable	618,128	444,748
	Accrued expenses and other current liabilities	314,935	305,064
	Unearned revenue	47,916	87,978
	Interest payable	71,661	68,632
	Current portion of long-term debt and other	13,318	14,992
	Total current liabilities	$1,065,958	$921,414
	Long-term debt and other	2,277,305	2,156,133
	ShareholdersAc€?c deficit
	Common stock, $0.01 par value: Authorized shares 5,000,000 Issued and outstanding shares — 387,906 and 373,218 shares, respectively	3,879	3,732
	Additional paid-in capital	$1,649,946	$1,462,769
	Deferred stock-based compensation	-6,591	-9,853
	Accumulated other comprehensive income (loss)	9,662	-36,070
	Accumulated deficit	-3,009,710	-2,860,578
	Total stockholders’ deficit	($1,352,814)	($1,440,000)
	Total liabilities and stockholders’ deficit	1,990,449	1,637,547

Cash Flow Statement

*Classifications*	Year Ended December 31, ($000’s)	2002	2001	2000
	OPERATING ACTIVITIES:
	Net loss	($149,132)	($567,277)	($1,411,273)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation of fixed assets and other amortization	82,274	84,709	84,460
	Stock-based compensation	68,927	4,637	24,797
	Equity in losses of equity-method investees	4,169	30,327	304,596
	Amortization of goodwill and other intangibles	5,478	181,033	321,772
	Non-cash restructuring-related and other	3,470	73,293	200,311
	Gain on sale of marketable securities, net	-5,700	-1,335	-280
	Other losses (gains), net	96,273	2,141	142,639
	Non-cash interest expense and other	29,586	26,629	24,766
	Cumulative effect of change in accounting principle	-801	10,523
	Changes in operating assets and liabilities:
	Inventories	-51,303	30,628	46,083
	Accounts receivable, net and other cur. assets	-32,948	20,732	-8,585
	Accounts payable	156,542	-44,438	22,357
	Accrued expenses and other current liabilities	4,491	50,031	93,967
	Unearned revenue	95,404	114,738	97,818
	Amortization of previously unearned revenue	-135,466	-135,808	-108,211
	Interest payable	3,027	-345	34,341
	Net cash provided by (used in) operating activities	$174,291	($119,782)	($130,442)
	Year Ended December 31, ($000’s)	2002	2001	2000
	INVESTING ACTIVITIES:
	Sales/maturities of marketable securities and investments	553,289	370,377	545,724
	Purchases of marketable securities	-635,810	-567,152	-184,455
	Purchases of fixed assets, including internal-use software	-39,163	-50,321	-134,758
	Investments (including in equity-method investees)		-6,198	-62,533
	Net cash provided by (used in) investing activities	($121,684)	($253,294)	$163,978
	FINANCING ACTIVITIES:
	Proceeds from exercise of stock options and other	121,689	16,625	44,697
	Proceeds from issuance of common stock, net of issue costs		99,831
	Proceeds from long-term debt and other		10,000	681,499
	Repayment of capital lease obligations and other	-14,795	-19,575	-16,927
	Financing costs			-16,122
	Net cash provided by financing activities	$106,894	$106,881	$693,147
	Effect of exchange-rate changes on cash and cash equivalents	38,471	-15,958	-37,557
	Net increase (decrease) in cash and cash equivalents	$197,972	($282,153)	$689,126

June 24, 2019/in Uncategorized /by John

Demonstration Problem 2-2 Effect of Cost Structure (3 pts.)

My Company / Your Company

My Company and Your Company provide rafting tours on Big Bear River. My Company pays tour guides fixed salaries. It budgets salaries expense at $160,000 per year. Your Company pays tour guides $40 per rafter served. Rafters are charged $50 per tour. Both companies expect to carry approximately 4,000 rafters during the year.

Required

a. Prepare budgeted annual income statements for the two companies.

b. In an effort to lure rafters away from Your Company, My Company lowers the price per rafter to $39. Prepare revised income statements for both companies. Assume that My Company serves 6,000 rafters who each pay $39 per tour, while Your Company serves only 2,000 rafters who pay $50 per tour.

d. Suppose Your Company matches the $39 price set by My Company. Prepare income statements for both companies assuming that each company serves 4,000 customers.

Demonstration Problem 2-2 Work Papers

a.

		MyCompany	YourCompany
Number of Rafters		4,000	4,000

Revenue
Cost of Guides My Company	Fixed
Cost of Guides Your Company	Variable
Net income

b.

		MyCompany	YourCompany
Number of Rafters (a)		6,000	2,000

Revenue My Company
Revenue Your Company
Cost of Guides My Company	Fixed
Cost of Guides Your Company	Variable
Net Income

d.

		MyCompany	YourCompany
Number of Rafters		4,000	4,000

Revenue
Cost of Guides My Company	Fixed
Cost of Guides Your Company	Variable
Net Loss

Demonstration Problem 2-3 Effect of Operating Leverage (2 pts.)

Sharon Virgil owns a delivery service company. She charges customers $10 per delivery. The companyA????1s variable expenses average $2 per delivery and fixed costs are $600 per month. Ms. Virgil provided 100 deliveries during the most recent month.

Required

a. Prepare an income statement using a contribution margin format.

b. Determine the magnitude of operating leverage. Use your answer to determine the percentage change in net income if sales increase by 10%.

c. Assume that sales increase by 10% (deliveries increase to 110). Prepare a contribution margin format income statement assuming 110 deliveries. Calculate the percentage change in net income and compare your answer with your solution to part b.

Demonstration Problem 2-3 Work Papers

Income Statement Using a Contribution Margin Format, Volume of 100 Deliveries


Revenue
Variable Expenses
Contribution Margin
Fixed Expenses
Net Income

Magnitude of Operating Leverage = Contribution Margin A????1 Net Income:

$________ A????1 $_________ = ___ times.

Therefore, a 10% increase in sales will produce a _________ increase in net income. Similarly, a 10% decrease in sales will produce a __________ decrease in net income.

Income Statement Using a Contribution Margin Format, Volume of 110 Deliveries


Revenue
Variable Expenses
Contribution Margin
Fixed Expenses
Net Income

(Alternative Net Income – Base Net Income) A????1 Base:

($______ – $______) A????1 $______ = _____%

Demonstration Problem 3-1 Cost-Volume-Profit Analysis (10)

Jeff Jamail is evaluating a business opportunity to sell cookware at trade shows. Mr. Jamail can buy the cookware at a wholesale cost of $210 per set. He plans to sell the cookware for $350 per set. He estimates fixed costs such as plane fare, booth rental cost, and lodging to be $5,600 per trade show.

Required

a. Determine the number of cookware sets Mr. Jamail must sell at a trade show to break even (zero profit or loss). Use the following structure to answer this question:

(1) Contribution Margin Per Unit Approach:

a. Determine the amount of the contribution margin per unit.

b. Explain that when the total contribution margin is sufficient to pay for the fixed cost, Mr. Jamail will break even. Show the computation of break-even in units.

c. Show how to compute the break-even point in number of dollars using the break-even point in units and the selling price.

d. Confirm the results by preparing an income statement.

(1) Contribution Margin Per Unit Approach

(a) Determine the contribution margin per unit.

Per Unit Contribution Margin
Sales Price	$

	$

(b) When the total contribution margin is sufficient to pay for the fixed costs, Mr. Jamail will break even. The number of units required to break even can be computed as follows:

Formula for Computation of Break-Even Point in Units

		$
—————————–	=	————	=
		$

(c) The break-even point in number of dollars can be computed as follows:

Break-Even Point in Sales Dollars

Sales Price Per Unit	$

	$

(d) Confirm the results by preparing an income statement.

Income Statement

Sales	$
	( )

	( )
Net Income	$ 0

(2) Contribution Margin Ratio Approach.

a. Calculate the contribution margin ratio.

b. Use the ratio to calculate the break-even point in sales dollars, then use the results and the selling price to calculate the break-even point in units.

(2) Contribution Margin Ratio Approach

(a) The contribution margin ratio is computed as follows.

(b) Using the contribution margin ratio, calculate the break-even point in sales dollars and units.

(3) Equation Approach.

a. Calculate the break-even point in units.

b. Calculate the break-even point in sales dollars.

(3) Equation Approach

(a) Use the break-even equation and solve for number of units:

Break-Even Equation

(b) Compute the break-even point in dollars as in part a3 above:

Break-Even Point in Sales Dollars

Sales Price	$

	$

b. Assume Mr. Jamail desires to earn a profit of $4,900 per show.

(1) Determine the sales volume in units (sets of cookware) necessary to earn the desired profit.

(2) Determine the sales volume in dollars necessary to earn the desired profit.

(3) Using the contribution margin format, prepare an income statement to confirm your answers to parts 1 and 2.

(1) Sales Volume Required to Earn a Desired Profit

Formula for Computation of Sales Volume Necessary to Earn a Target Profit of $4,900


—————————————	=	———————	=

(2) Determine the sales volume in dollars required to earn the desired profit.

Required Sales in Number of Dollars

Sales Price	$

	$

(3) Confirm the answers by preparing an income statement.

Income Statement

Sales	$
	( )

	( )
Net Income	$

Determine the margin of safety between the sales volume at the break-even point and the sales volume required to earn the desired profit.Determine the margin of safety both in sales dollars and as a percentage.

c. Margin of Safety

(1) Margin of Safety Expressed in Sales Dollars:

Margin of Safety

	$

	$12,250

(2) Margin of Safety Expressed as a Percentage:

Margin of Safety Percentage


———————-	=	——————	=

June 24, 2019/in Uncategorized /by John

1. Making plans for how products that have reached the end of their useful lives will be dealt with is the primary subject of.

		cradle-to-grave assessment.
		end-of-life programs.
		life-cycle analysis.
		three R’s programs.
		process mapping.2. Which of the following is an example of a postponement tactic? mass customization standardization process mapping delayed differentiation service blueprinting3. Similar to that in manufacturing, the service scheduling hierarchy begins with __________ and ends with _________. aggregate planning; detailed daily scheduling aggregate planning; master scheduling master scheduling; detailed material planning aggregate planning; detailed material planning quarterly planning; monthly planning4. In a decision-making setting, if the manager has to contend with limits on the amount of information he or she can consider, this __________ can lead to a poor decision. bounded rationality suboptimization risk aversion misspecification complexification5. Which one of these is not used in decision making under risk? EVPI EMV decision trees minimax regret All are used for risk situations.

6. A decision maker’s worst option has an expected value of $1,000, and her best option has an expected value of $3,000. With perfect information, the expected value would be $5,000. The decision maker has discovered a firm that will, for a fee of $1,000, make her position-risk free. How much better off will her firm be if she takes this firm up on its offer?

		$5,000
		$4,000
		$3,000
		$2,000
		$1,0007. A systemic view of the organization and its operations processes can help minimize the risk of __________ leading to a poor decision. bounded rationality suboptimization risk aversion misspecification complexification8. A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called a. payoff table. feasible region. Laplace table. decision tree. payback period matrix.

		9. Which of the following is least likely to result in product innovations that have near-term commercial application? process blueprinting development applied research quality function deployment basic research

June 24, 2019/in Uncategorized /by John

9. Which of the following is the appropriate journal entry if a company performs a service and is paid immediately?

A. Debit to Cash, Debit to Revenue

B. Debit to Cash, Credit to Revenue

C. Debit to Accounts Receivable, Credit to Cash

D. Debit to Revenue, Credit to Accounts Receivable

E. Debit to Accounts Receivable, Credit to Revenue

10. Which of the following is the appropriate journal entry if a company purchases equipment costing $100,000 by paying cash of $10,000?

A. Debit to Cash, Debit to Equipment, Credit to Accounts Payable

B. No entry should be made

C. Debit to Equipment, Credit to Notes Payable, Credit to Cash

D. Debit to Cash, Debit to Notes Payable, Credit to Equipment

E. Debit to Equipment, Debit to Notes Payable, Credit to Cash

11. What are the total assets for Shiver Ice House?

Common Stock	$120,000	Accounts Payable	$25,000
Cash	$116,640	Accounts Receivable	$22,450
Supplies	$ 1,500	Office Equipment	$23,300
Prepaid Rent	$ 3,200	Unearned Revenue	$ 4,152
Revenue	$ 20,000	Utilities Expense	$ 422
Retained Earnings	$ 30,000	Shaving Equipment	$31,640

A. $291,340

B. $106,962

C. $198,730

D. $218,730

E. $221,580

12. What is net income for Shiver Ice House?

Common Stock	$120,000	Accounts Payable	$25,000
Cash	$116,640	Accounts Receivable	$22,450
Supplies	$ 1,500	Office Equipment	$23,300
Prepaid Rent	$ 3,200	Unearned Revenue	$ 4,152
Revenue	$ 20,000	Utilities Expense	$ 422
Retained Earnings	$ 30,000	Shaving Equipment	$31,640

A. $19,578

B. $20,528

C. $23,728

D. $49,578

E. $24,578

13. What is total for the debits on the Trial Balance for Shiver Ice House?

Common Stock$120,000Accounts Payable$25,000Cash$116,640Accounts Receivable$22,450Supplies$ 1,500Office Equipment$23,300Prepaid Rent$ 3,200Unearned Revenue$ 4,152Revenue$ 20,000Utilities Expense$ 422Retained Earnings$ 30,000Shaving Equipment$31,640

A. $291,340

B. $106,964

C. $199,152

D. $193,390

E. $203.152

14. Find net income using the following transactions.1. Bill Co. paid $2,000 for one month rent

1.Bill Co. paid $2,000 for one month rent2.Bill Co. paid $1,200 for two weeks wages3.Bill Co. performed $5,200 in consulting services on account4.Bill Co billed a customer $1,500 for services performed5.Bill Co. received $5,200 in payment for item 36.Bill Co performed services and immediately collected $2,0007.Bill Co. paid $500 for advertising in the local paper

A. $10,200

B. $ 5,000

C. $ 8,700

D. $13,900

E. $ 7,000

15. During the month of February, Hoffer Company had cash receipts of $7,500 and cash disbursements of $8,600. The February 28 cash balance was $1,800. What was the January 31 beginning cash balance?

A. $700

B. $1,100

C. $2,900

D. $0

E. $4,300

16. Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash?

A. Acme washes 500 cars

B. J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed

C. Clean Company, a supplier, sells 50 pounds of soap to ABC Company

D. Sudsey Company, a supplier, goes out of business

E. Acme hires Andrea as a receptionist

17. Internal users of accounting information always include: (Points : 1)

A. Shareholders

B. Managers

C. Lenders

D. Suppliers

E. Customers

Contribution Margin Ratio

Contribution

Margin

————————————-