practice questions for final

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AC711 – Practice Questions for Final Exam Problem 1. Statement of Cash Flows (25 points) The Balance Sheet, Income Statement, and some additional information for ZZX Corp are shown below. Construct the 2021 Statement of Cash Flows. 2021 2020 BALANCE SHEET Cash $6,000 $5,400 Accounts Receivable 11,200 9,000 Inventory 15,000 15,600 Prepaid Rent 1,200 1,800 PP&E 93,000 85,000 Accumulated Depreciation -35,000 -33,000 Total Assets 91,400 83,800 Accounts Payable 11,200 14,600 Wages Payable 9,000 6,800 Interest Payable 1,500 2,200 Deferred Revenue 6,500 4,700 Current Liabilities 28,200 28,300 Bonds Payable 28,000 28,400 Total Liabilities 56,200 56,700 Common Stock 10,000 10,000 Retained Earnings 25,200 17,100 Total Liabilities and Shareholders' Equity 91,400 83,800 2021 INCOME STATEMENT Revenues 109,100 COGS Expense 56,100 Gross Profit 53,100 Wage Expense 15,200 Rent Expense 9,000 Depreciation Expense 6,200 Interest Expense 2,900 Loss on Sale of Equipment 4,200 Net Income before Tax 15,600 Tax Expense 4,400 Net Income 11,200 Additional Information: 1. The book value of PPE sold was $11,300 2. The company purchased new PPE worth $23,500

Problem 2. Financial Statement Analysis (25 points) CAMPBELLS HORMEL FOODS 2010 2009 2010 2009 Return on Assets (%) (Net Income / Assets) 14.55% 13.28% 10.27% 9.84% Profit Margin Ratio (%) (Net Income / Revenue) 11.90% 10.60% 5.76% 5.56% Asset Turnover Ratio (Sales / Assets) 1.22 1.25 1.78 1.77 Return on Equity (%) (Net Income / Sh.Equity) 90.85% 100.68% 16.61% 16.29% Financial Leverage (Assets / Sh.Equity) 6.76 8.28 1.68 1.74 COGS/Sales 58.96% 60.08% 82.84% 83.18% SG&A/Sales 21.66% 21.99% 8.38% 8.68% R&D/Sales 1.60% 1.50% 0.00% 0.00% Inventory Turnover = COGS/Inventory 6.25 5.53 7.54 7.52 A/C Receivable Turnover = Sales / A/R 14.99 14.37 16.76 17.55 A/C Payable Turnover = COGS / A/P 8.30 8.01 16.56 17.35 Days in Inventory = 365 / Inv.Turnover 58.39 65.99 48.43 48.51 Days as A/c Receivable = 365 / A/R Turnover 24.35 25.40 21.78 20.80 Days as A/c Payable = 365 / A/P Turnover 43.95 45.56 22.04 21.04 Days Financing Needed 38.78 45.82 48.17 48.27

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1) Describe how ROE for Campbell Soup Company changed from 2009 to 2010, and identify the principal factor that drove this change. (5 points) 2) Describe how ROA for Campbell Soup Company changed from 2009 to 2010, and identify the principal factor that drove this change? (5 points)

3) In which years did Campbell’s common shareholders benefit from the company’s use of financial leverage? (5 points) Circle one: 2010 Only / 2009 Only / Both Years / Neither Year What is your evidence? 4) Describe how Campbell’s ROE differed from Hormel Foods’ ROE for 2010, and identify the principal factors explaining this difference? (5 points)

5) Based on the computed ratios for both firms, which firm, Campbell Soup or Hormel Foods, appears to be adopting a product differentiation strategy (as opposed to a volume-based strategy)? Explain your answer with evidence. (5 points)

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Problem 3. Cost-Volume-Profit Analysis (20 points) The Irvine Company makes inflatable mattresses. The selling price is $8.20 per unit. The manufacturing costs (based on production volume of 100,000 units) are the following: Direct material: $1.80 per unit* Direct labor: $12 per hour* (each worker can produce 40 units per hour) Packaging: $1.95 per unit* Insurance: $0.60 per unit Supervisory salaries, other production costs: $1.30 per unit In addition to the manufacturing costs listed above, the company also incurs selling and administrative costs. Based on sales volume of 100,000, these administrative costs are: Commissions to sales staff: $10% of selling price* Shipping: $0.40 per unit* Advertising: $0.35 per unit Admin salaries: $0.25 per unit *These costs vary with sales volume a. What is the breakeven volume? (7 points)

b. What sales volume is necessary to attain pre-tax income of $80,000? (7 points) c. Now suppose that insurance costs are fixed up to a volume of 100,000 units with an incremental cost of $1.00/unit for units above 100,000. What sales volume is necessary to attain pre-tax income of $80,000? (6 points)

Problem 4. Multiple Choice and Short Answer (30 points)

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