DeVry ACC 600 Midterm Exam Latest

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DeVry ACC 600 Midterm Exam Latest

 

ACC 600 Spring 2014 Midterm

Refer to the financial statement data for the company ABC

Financial Statements

INCOME STATEMENT (in millions)
Fiscal year end 2013 2012 2011
Sales $2,696 $ 3,139 $ 2,816
Cost of Goods Sold (1,252) (1,288) (1,099)
Selling, General & Admin. Exp.
Advertising (387) (364) (297)
Research and Development (157) (143) (154)
Royalty Expense (223) (248) (296)
Other Selling and Administrative (385) (799) (788)
Interest expense (32) (53) (78)
Income tax expense (64) (69) (29)
Net income $ 196 $ 175 $ 75

 

Balance Sheet
Fiscal year end 2013 2012 2011 2010
ASSETS (in millions)
Cash $ 625 $421 $ 496 $233
Accounts Receivable 579 607 555 572
Inventories 195 169 190 217
Prepayments 219 212 191 346
Total current assets $1,618 $1,409 $1,432 $1,368
Property, plant & equipment 207 200 213 236
Other Assets 1,416 1,554 1,498 1,765
Total assets $3,241 $3,163 $3,143 $3,369
LIABILITIES
Accounts payable $ 168 $ 159 $ 166 $ 123
Short-term borrowing 342 24 223 36
Other current liabilities 584 756 578 599
Total current liabilities $1,094 $ 939 $ 967 $ 758
Long term debt 303 687 857 1,166
Other noncurrent liabilities 149 141 128 92
Total liabilities $1,546 $1,767 $1,952 $2,016
Common stock $ 105 $ 105 $ 105 $ 105
Additional Paid-in Capital 381 398 458 455
Retained earnings 1,776 1,558 1,430 1,622
Accumulated Other Comprehensive Income 82 30 (47) (68)
Treasury Stock (649) (695) (755) (761)
Total Shareholders’ equity $1,695 $1,396 $1,191 $1,353
Total Liabilities & Shareholders’ Equity $3,241 $3,163 $3,143 $3,369

 

 

Requirement 1: Based on the above information, finish the Cash flow from operations part

Statement of Cash Flows

Operations 2013 2012 2011
Net Income $ 196 $175 $75
Depreciation & Amortization $ 145 164 184
(Increase) Decrease Accounts Receivables 28 -52 17
(Increase) Decrease Inventories -26 21 27
(Increase) Decrease Prepayments -7 -21 155
(Decrease) Increase Accounts Payable & Other 9 -7 43
Cash flows from operations 4 -59 426
Investing
Property Plant and Equipment acquired ($79) ($63) ($59)
Other Investing Transactions -6 -2 -3
Cash Flows from Investing ($85) ($65) ($62)
Financing
Increase in Common Stock 0 0 0
Increase (Decrease) in Short-term Borrowing 318 -199 187
Increase (Decrease) in Long-term Borrowing -384 -170 -309
Acquisition of Common Stock -46 60 -6
Dividends -37 -21 -21
Other Financing Transactions 879 243 -250
730 -87 -399

Required 2: You will find the company is growing each year. Evaluate if the growth is sustainable.

Solution:

The growth of the company is sustainable, the company has been able to reduce its expenses and increase its profitability despite seeing a decrease in sales. The company’s investment in the plant and property has increased in 2013 as compared to the previous year. Apart from investing activities, the company has increased its short-term borrowings. The company has paid off its long-term borrowings, with which its long-term debt has decreased.

Apart from this, the solvency ratio of the firm has decreased which can be a risk to its credibility and solvency. On the other hand, the company has tried maintaining its liquidity ratios and profitability ratios.

Required 3:

Please finish the following ratio chart for 2013.

2013 2012 2011
Days Revenues Held in Cash 52.122 48.953 47
Current Ratio 1.479 1.501 1.5
Quick Ratio 1.301 1.095 1.1
Days Accounts Receivable 78.388 67.558 73
Days Inventory 56.849 50.868 68
Days Accounts Payable 48.978 46.813 49
Liabilities to Assets Ratio 0.477 0.559 0.621
Liabilities to Shareholders’ Equity Ratio 0.912 1.266 1.639
Long-Term Debt to Long-Term Capital Ratio 0.278 0.33 0.418
Long-Term Debt to Shareholders’ Equity Ratio 0.267 0.492 0.72

 

 

Required 4: Suppose the inventory balance for 2013 is under stated by 60 (the correct amount should be 255).How does the correction of the inventory affect your answers in Required 3? Please recalculate ratios you presented.

Solution:

Recalculating the ratios

2013 2012 2011
Days Revenues Held in Cash 52.122 48.953 47
Current Ratio 1.534 1.501 1.5
Quick Ratio 1.246 1.095 1.1
Days Accounts Receivable 78.388 67.558 73
Days Inventory 74.341 50.868 68
Days Accounts Payable 48.978 46.813 49
Liabilities to Assets Ratio 0.468 0.559 0.621
Liabilities to Shareholders’ Equity Ratio 0.912 1.266 1.639
Long-Term Debt to Long-Term Capital Ratio 0.278 0.33 0.418
Long-Term Debt to Shareholders’ Equity Ratio 0.267 0.492 0.72

Required 5: Compare your profitability assessments based on your answers on 3 and 4.

Comparing the profitability based on the ratio calculation of answers 3 and 4, we can say that with the increase in the inventory, the profitability of the company has increased a bit. With the increase in the inventory, the current ratio has increased whereas there is a slight decrease in the quick ratio. The days in inventory has increased in 4 as compared to 3.

In terms of the profitability of the company, we can see that the profitability of the company has increased to 7.27% in 2013 as compared to 5.57% in 2012. The profitability of the company has been increasing over the year. The company is trying to emphasize sustainable growth; the only problem that the company is likely to face is the issue in respect to the solvency as the liabilities of the company is increasing as compared to its shareholder’s equity.

 

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DeVry ACC 600 Midterm Exam Latest

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DeVry ACC 600 Midterm Exam Latest