01:202:203 Lecture Notes - Lecture 11: Racial Integration
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Can someone help with this case please, and:
Fill in all the blanks spaces in the spreadsheet for the 2017 column and the 2017 %rev column
Balance the B/S
Answer all questions in full sentence format
Please put in the correct number for forecasted PP&E based on narrative (I highlighted the phrase in the narrative)
Show work for how you calculated the forecasted interest for 2017.
Thank you so much for all your help.
Q.
After the financial analysis based on 2016 preliminary estimates was completed, a number of changes were adopted to improve financial and business results for S&S Air during 2016. The customer that awarded the large 40 aircraft order agreed to make interim payments as finished aircraft were delivered (for a price concession). Revenue was revised up slightly due to updated marketing plans. Expenses were trimmed and controls were established that greatly reduced on hand inventory needs. A portion of the line of credit was converted to a 5 year, fixed rate loan. Cash on hand and general liquidity was forecasted to improve to acceptable levels by the end of the year.
Mark and Marie approached Chris about creating a forecast for 2017. They had learned the value of the financial analysis done for 2016 and wanted to get a look at any issues or problems that might be looming in the future. Of particular concern was the continuing need for external funds as the firm continued to grow. The general consensus of Mark and Marie was that S&S Air should realize an increase in revenue of 17% in 2017 from the 2016 results, based on anticipated demand of aircraft. It was felt expenses would change by the same percent of sales as incurred in 2016. However, it was estimated that annual depreciation in 2017 would increase 70% (to a total of $1,075,000), due to the substantial increase in assets that were going to be needed. Finally, Chris said that her banking contract indicted that interest expense should be about 8% of both notes payable and long term debt in 2017.
By the end of 2016, the firm would be operating at capacity; it was estimated that further growth in 2017 would require $6,500,000 (including all depreciation â that is, adding $6.5 million to the 2016 Net PP&E to derive PP&E for 2017) in plant upgrades and additions to meet anticipated production volume. Everyone felt that all other asset categories (including cash) and current liabilities (including the line of credit) would change by percent of revenue. Both owners were concerned about where any needed external financing would come from. Neither was interested in raising any further equity, and agreed that they would likely secure long term financing for any external funds needed. The plan was to pay dividends totaling $400,000 in 2017.
Chris knew that a key exhibit would be the forecast mode. She planned to set up the model so that a key input would be the sales growth forecast. The âplugâ to reconcile the balance sheet would be long term debt.
Q U E S T I O N S (please use full sentences)
1) Completed forecast model. Fill in all blanks for the 2017 and 2017 % of rev columns.
2) Compare PM, ROA, and ROE from 2016 to 2017. Why the differences?
3) Compare debt ratios from 2016 to 2017. Why the differences?
4) Compare total asset turnover from 2016 to 2017. Why the difference? What observations can you make regarding capacity utilization from 2016 to 2017?
5) Estimate the maximum revenue possible given the new level of assets in 2017, based on TATO in 2016 (at full capacity).
6) If COGS could be decreased by 1% of revenue, how much increase in EBIT would result? Express the change in EBIT in both dollar terms and % change.
7) Do a DuPont analysis on S&S Air for both 2016 and 2017. If the owners asked you for any issues or concerns about the basic results forecasted for 2017, what would you tell them? Consider operating, investing, and financing issues.
7a) Operating comments:
7b) Investing comments:
7c) Financing comments:
Income statement | 2016 | % rev | 2017 | % rev | ||
Sales | $21,566,000 | 100.0% | 17%% | |||
COGS | 14,786,000 | 68.6% | % of rev | 68.6% | ||
Other expenses | 2,375,000 | 11.0% | % of rev | 11.0% | ||
Depreciation | 625,000 | 2.9% | given | 1,075,000 | ||
EBIT | 3,780,000 | 17.5% | calc | |||
Interest | 437,000 | 2.0% | given | 8.0% | ||
Taxable income | 3,343,000 | 15.5% | calc | |||
Taxes (40%) | 1,337,200 | 6.2% | calc TI * tax rate | 40.0% | ||
Net income | 2,005,800 | 9.3% | calc | |||
Dividends | 375,000 | 1.7% | given | 400,000 | ||
Add to RE | 1,630,800 | 7.6% | calc |
B A L A N C E S H E E T | ||||||
2016 | % rev | 2017 | % | |||
Current Assets | ||||||
Cash | 425,000 | 2.0% | % of rev | 2.0% | ||
Accounts rec. | 855,000 | 4.0% | % of rev | 4.0% | ||
Inventory | 689,000 | 3.2% | % of rev | 3.2% | ||
Total CA | 1,969,000 | 9.1% | calc | |||
Fixed assets | ||||||
Net PP&E | 9,873,000 | 45.8% | given | 6,500,000 | ||
Total Assets | 11,842,000 | 54.9% | calc | |||
Current Liabilities | ||||||
Accounts Payable | 727,000 | 3.4% | % of rev | 3.4% | ||
Notes Payable | 1,467,000 | 6.8% | % of rev | 6.8% | ||
Total CL | 2,194,000 | 10.2% | calc | |||
Long-term debt | 2,908,800 | 13.5% | PLUG | |||
TOTAL CL + LTL | 5,102,800 | |||||
Shareholder Equity | ||||||
Common stock | 120,000 | 0.6% | no change | |||
Retained earnings | 6,619,200 | 30.7% | +2017 RE | |||
Total Equity | 6,739,200 | 31.2% | calc | |||
Total L&E | 11,842,000 | 54.9% | calc |
Ratio Analysis | ||
2016 | 2017 | |
PM | ||
ROA | ||
ROE | ||
Debt / Equity | ||
Debt / Total Assets | ||
Equity Multiplier | ||
Total Asset TO |
Thank you
Byte of Accounting, Inc. Create a generalJournal | |
Transaction | Description of transaction |
01. | June 1: Byte of Accounting, Inc. issued2,580 shares of its common stock to Jeremy after $26,780 in cashand computer equipment with a fair market value of $40,300 werereceived. |
02. | June 1: Byte of Accounting, Inc. issued1,968 shares of its common stock after acquiring from Courtney$35,100 in cash, computer equipment with a fair market value of$15,080 and office equipment with a fair value of $988. |
03. | June 1: Byte of Accounting,Inc. acquired $72,800 in cash from Kai and issued 2,800 shares ofits common stock. |
04. | June 2: A down payment of $33,000 in cashwas made on additional computer equipment that was purchased for$165,000. A five-year note was executed by Byte for thebalance. |
05. | June 4: Additional office equipmentcosting $700 was purchased on credit from Discount ComputerCorporation. |
06. | June 8: Unsatisfactory office equipmentcosting $140 was returned to Discount Computer for credit to beapplied against the outstanding balance owed by Byte. |
07. | June 10: Byte paid $25,250 on the balanceit owed on the June 2 purchase of computer equipment. |
08. | June 14: A one-year insurance policycovering its computer equipment was purchased by Byte for $5,136 incash. The effective date of the policy was June 16. |
09. | June 16: Computer consultation revenue of$6,000 was received. |
10. | June 16: Byte purchased a building and theland it is on for $125,000, to house its repair facilities and tostore computer equipment. The lot on which the building is locatedis valued at $20,000. The balance of the cost is to be allocated tothe building. Byte made a cash down payment of $12,500 and executeda mortgage for the balance. The mortgage is payable in eight equalannual installments beginning July 1. |
11. | June 17: Cash of $7,600 was paid for rentfor June, July, August and September. Put the total amount into thePrepaid Rent account. |
12. | June 17: Received a bill of $375 from thelocal newspaper for advertising. |
13. | June 21: Billed various miscellaneouslocal customers $4,600 for consulting services performed. |
14. | June 21: A fax machine for the office waspurchased for $775 cash. |
15. | June 21: Accounts payable in the amount of$560 were paid. |
16. | June 22: Paid the advertising bill thatwas received on June 17. |
17. | June 22: Received a bill for $1,090 fromComputer Parts and Repair Co. for repairs to the computerequipment. |
18. | June 22: Paid salaries of $985 toequipment operators for the week ending June 18. |
19. | June 23: Cash in the amount of $3,685 wasreceived on billings. |
20. | June 23: Purchased office supplies for$530 on credit. Record the purchase as an increase to theassets. |
21. | June 28: Billed $5,280 to miscellaneouscustomers for services performed to June 25. |
22. | June 29: Cash in the amount of $5,001 wasreceived for billings. |
23. | June 29: Paid the bill received on June22, from Computer Parts and Repairs Co. |
24. | June 29: Paid salaries of $985 toequipment operators for the week ending June 25. |
25. | June 30: Received a bill for the amount of$815 from O & G Oil and Gas Co. |
26. | June 30: Paid a cash dividend of $0.15 pershare to the three shareholders of Byte. [IMPORTANT NOTE: Thenumber of shares of capital stock outstanding can be determinedfrom the first three transactions.] |
Adjusting Entries - Round to two decimalplaces. | |
27. | The rent payment made on June 17 was forJune, July, August and September. Expense the amount associatedwith one month's rent. |
28. | A physical inventory showed that only$214.00 worth of office supplies remained on hand as of June30. |
29. | The annual interest rate on the mortgagepayable was 8.25 percent. Interest expense for one-half monthshould be computed because the building and land were purchased andthe liability incurred on June 16. |
30. | Information relating to the prepaidinsurance may be obtained from the transaction recorded on June 14.Expense the amount associated with one half month's insurance. |
31. | A review of Byteâs job worksheets showthat there are unbilled revenues in the amount of $5,500 for theperiod of June 28-30. |
32. | The fixed assets have estimated usefullives as follows: |
Building - 31.5 years | |
Computer Equipment - 5.0 years | |
Office Equipment - 7.0 years | |
Use the straight-line method ofdepreciation. Management has decided that assets purchased during amonth are treated as if purchased on the first day of the month.The buildingâs scrap value is $500. The office equipment has ascrap value of $350. The computer equipment has no scrap value.Calculate the depreciation for one month. | |
33. | A review of the payroll records show thatunpaid salaries in the amount of $591 are owed by Byte for threedays, June 28 - 30. |
34. | The note payable relating to the June 2,and 10 transactions is a five-year note, with interest at the rateof 12 percent annually. Interest expense should be computed basedon a 360 day year. |
[IMPORTANT NOTE: The original note on thecomputer equipment purchased on June 2 was $132,000. OnJune 10, eight days later, $25,250 was repaid. Interest expensemust be | |
calculated on the $132,000 for eight days.In addition, interest expense on the $106,750 balance of the loan($132,000 less $25,250 = $106,750) must be calculated for the 20days remaining in the month of June.] | |
35. | Income taxes are to be computed at therate of 25 percent of net income before taxes. |
[IMPORTANT NOTE: Since the income taxesare a percent of the net income you will want to prepare the IncomeStatements through the Net Income Before Tax line. The worksheetcontains all of the accounts and their balances which you can thentransfer to the appropriate financial statement.] | |
Closing Entries | |
36. | Close the revenue accounts. |
37. | Close the expense accounts. |
38. | Close the income summary account. |
39. | Close the dividends account. |