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
DeVry ACC 600 Midterm Exam Latest
