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During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.       Assume that you are Cochran’s assistant and that you must help her answer the following questions: What effect did the expansion have on sales and net income? What effect did the expansion

During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.       Assume that you are Cochran’s assistant and that you must help her answer the following questions: What effect did the expansion have on sales and net income? What effect did the expansion

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.

 

 
 

Assume that you are Cochran’s assistant and that you must help her answer the following questions:

  1. What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What effect did it have on liabilities and equity?

  2. What do you conclude from the statement of cash flows?

Balance Sheets (Millions of Dollars) Assets Cash and equivalents Short-term investments. Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Common stock Retained earnings Total equity Total liabilities and equity Income Statement (Millions of Dollars) Net sales Cost of goods sold (excluding depr. & amort.) Depreciation and amortizationª Other operating expenses Total operating costs Earnings before interest and taxes (EBIT) Less interest Pre-tax earnings Taxes (25%) Net Income Note: *Computron has no amortization charges. Other Data Year-end common stock price Shares outstanding (millions) Common dividends (millions) Tax rate Weighted average cost of capital (WACC) Statement of Cash Flows (Millions of Dollars) Operating Activities Net income before preferred dividends Noncash Adjustments Depreciation and amortization Due to Changes in Working Capital Change in accounts receivable Change in inventories Change in accounts payable Change in accruals Net cash provided by operating activities Investing Activities Cash used to acquire fixed assets Change in short-term investments Net cash provided by investing activities Financing Activities Change in notes payable Change in long-term debt Payment of cash dividends Net cash provided by financing activities Net change in cash and equivalents Cash and securities at beginning of the year Cash and securities at end of the year 2022 $ 60 100 400 620 $ 1,180 $3,900 1,000 $2,900 $4,080 $300 50 200 $ 550 800 $1,350 1,000 1,730 $ 2,730 $4,080 2022 $5,500 4,300 290 350 $4,940 $ 560 68 $492 123 $369 2022 $50.00 100 $90 25% 10.00% 2023 $ 50 10 520 820 $1,400 $4,820 1,320 $3,500 $4,900 $ 400 250 240 $ 890 1,100 $ 1,990 1,000 1,910 $ 2,910 $4,900 2023 $6,000 4,800 320 420 $5,540 $ 460 108 $352 88 $ 264 2023 $30.00 100 $84 25% 10.00% 2023 $ 264 320 (120) (200) 100 40 $ 404 $(920) 90 $(830) $ 200 300 (84) $ 416 $ (10) 60 $50
Transcribed Image Text:Balance Sheets (Millions of Dollars) Assets Cash and equivalents Short-term investments. Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Common stock Retained earnings Total equity Total liabilities and equity Income Statement (Millions of Dollars) Net sales Cost of goods sold (excluding depr. & amort.) Depreciation and amortizationª Other operating expenses Total operating costs Earnings before interest and taxes (EBIT) Less interest Pre-tax earnings Taxes (25%) Net Income Note: *Computron has no amortization charges. Other Data Year-end common stock price Shares outstanding (millions) Common dividends (millions) Tax rate Weighted average cost of capital (WACC) Statement of Cash Flows (Millions of Dollars) Operating Activities Net income before preferred dividends Noncash Adjustments Depreciation and amortization Due to Changes in Working Capital Change in accounts receivable Change in inventories Change in accounts payable Change in accruals Net cash provided by operating activities Investing Activities Cash used to acquire fixed assets Change in short-term investments Net cash provided by investing activities Financing Activities Change in notes payable Change in long-term debt Payment of cash dividends Net cash provided by financing activities Net change in cash and equivalents Cash and securities at beginning of the year Cash and securities at end of the year 2022 $ 60 100 400 620 $ 1,180 $3,900 1,000 $2,900 $4,080 $300 50 200 $ 550 800 $1,350 1,000 1,730 $ 2,730 $4,080 2022 $5,500 4,300 290 350 $4,940 $ 560 68 $492 123 $369 2022 $50.00 100 $90 25% 10.00% 2023 $ 50 10 520 820 $1,400 $4,820 1,320 $3,500 $4,900 $ 400 250 240 $ 890 1,100 $ 1,990 1,000 1,910 $ 2,910 $4,900 2023 $6,000 4,800 320 420 $5,540 $ 460 108 $352 88 $ 264 2023 $30.00 100 $84 25% 10.00% 2023 $ 264 320 (120) (200) 100 40 $ 404 $(920) 90 $(830) $ 200 300 (84) $ 416 $ (10) 60 $50
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