Name: Guillermo, Mark Dave B.

Date: July 8, 2022

Year & Section: BSBA 1B
MODULE 1

LEARNING ACTIVITIES

Activity 1. Determination of Profitability and Preparation of Income Statement.

Arizona Book Company
Statement of Financial Performance (Income Statement)

For the Year Ended December 31, 2019

Sales (1,400 text books × $84 each) $ 117, 600

Cost of Goods Sold (1,400 text books × $63 each) (88, 200)
Gross Profit 29,400
Selling Expense (2,000)
Depreciation Expense (5,000)
Operating Profit 22,400
Interest Expense (5,000)
Earnings before taxes 17,400
Taxes (20% rate) (3,480)
Earnings after taxes $ 13,920

Arizona Book Company earned a profit in the year 2019 as being presented in the Income
Statement

Activity 2. Identify whether each of the following items increases or decreases cash flow:

Increase in accounts receivable- Decrease in prepaid expense-

DECREASES INCREASES
Increase in notes payable- Increase in inventory-
INCREASES DECREASES
Depreciation Expense- Dividend payment-
INCREASES DECREASES
Increase in investments – Increase in accrued expense-
DECREASES INCREASES
Decrease in accounts payable- Increase in long-term investment-
DECREASES DECREASES
Activity 3. Earnings per share and retained earnings

1. Harry Company has an operating profit of P200,000. Interest Expense for the year was
10,000; preferred share dividends paid were P18,750; and common share dividends were
30,000. The tax was 61,250. Harry Company has 20,000 shares of common share
outstanding.

a. Calculate the earnings per share and the common dividends per share for harry Company.

Operating Profit P 200,000

Interest Expense 10,000
Earnings before taxes 190, 000
Taxes (61,250)
Earnings after taxes 128,750
Preferred share dividends (18,750)
Earnings available to common shareholders 110,000
Common share dividends (30,000)
Increase in Retained Earnings P 80,000

Earnings per share = Earnings available to common shareholders

Common Shares Outstanding

= 110,000
20,000

Earnings per share = P5.50

Common dividends per share = Common shares dividends

Common shares Outstanding

= 30,000
20,000

Common dividends per share = P1.50

b. What is the increase of retained earnings for the year?

The increase in retained earnings for the year is P80,000 as shown and calculated in the
solution to part a.

Activity 4. Determining Book Value

Brother Company has an asset of $1,900,000, current liabilities of $700,000 and long-term
liabilities of $580,000. There is $170,000 in preferred stock outstanding; 30,000 shares of
common stock have been issued. Compute the book value per share.

Total Assets $ 1,900,000

Current Liabilities (700,000)
Long-Term Liabilities (580,000)
Total Liabilities (1,280,000)
Stockholder’s Equity 620,000
Preferred Stock Outstanding (170,000)
Net worth assigned to common shares 450,000
Divide: Common shares outstanding 30,000

Book value per share $ 15

MODULE 2

LEARNING ACTIVITIES

Activity 1. Determining Profitability

1. Gaddys Company has $800,000 in assets and $200,000 of debt. It reports net income of
$100,000.
a. What is the return on assets?

Return on Assets = Net Income

Total Assets

= $ 100,000
$ 800,000

= 0. 125 or 12.5%

b. What is the return on stockholders’ equity?

Return on Stockholders’ Equity = Net Income

Stockholder' s Equity

= $ 100,000
$ 800,000−$ 200,000

= $ 100,000
$ 600,000

= 0.1666 or 16.67%

2. Bass Company is considering expanding into a new product line. New assets to support this
expansion will cost $1,200,000. Bass estimates that it can generate $2million in annual sales,
with a 5 percent profit margin. What would net income and return on assets (investment) be
 for the year?

Net Income = Sales × Profit Margin

= $ 2,000,000 × 5 %

= $ 100,000

Return on Assets (investment) = Net Income

Total Assets

= $ 100,000
$ 1,200,000

= 0.0833 or 8.33%

3. Hally Snore, INc., has an asset of $400,000 and turns over its assets 1.5 time per year. Return
on assets is 12 percent. What is the profit margin (return on sales)?

Sales = Assets × Total Asset Turnover

= $ 400,000 × 1.5

= $ 600,000

Net Income = Assets × Return on Assets

= $400,000 × 12 %

= $ 48,000

Return on Sales = Net Income

Sales

= $ 48,000
$ 600,000

= 0.08 or 8%

4. Baker Oats had and asset turnover of 1.6 times per year.
a. If the return on total assets (investment) was 11.2 percent, what was Bakers’ profit
margin?

Return on Total Assets = Asset Turnover × Profit Margin

11.2% = 1.6 × X

Profit Margin = Return on Total Assets

Asset Turnover

= 11.2 %
 1.6

= 0.07 or 7%

b. The following year, on the same level of assets, Baker’s assets turnover declined 1.4
times and its profit margin was 8%. How did the return on total assets change from that
of the previous year?

Return on Total Assets = Asset Turnover × Profit Margin

= 1.4 × 8%

= 11.2 %

The rate of return on total assets in the previous year is always the same and equal to the profit
rate of the following year because the increased profit margin reduces asset turnover.

Activity 2. Trend Analysis

Company Date Industry Data on

Year Net Income Total Assets Net Income/Total Assets
2018 350,000 2,800,000 11.50%
2019 375,000 3,200,000 8.40%
2020 375,000 3,750,000 5.50%

Industry Data on
Year Debt Total Assets Debt/Total Assets
2018 1,624,000 2,800,000 54.10%
2019 1,730,000 3,200,000 42%
2020 1,900,000 3,750,000 33.40%

As an industry analyst comparing the firm to the industry, you are more likely to praise or
criticize the firm in terms of

a. Net income /Total Assets?

The company's return on assets has been declining since 2018. It can be concluded
that the company is not maintaining its efficiency in generating profits to improve.
However, even though the return on assets is decreasing, it is still far ahead of the
industry, as seen and shown in the analysis.

b. Debt/ Total assets?

The company's debt ratio has improved since 2018. However, it has not
improved at the same rate as the industry ratio.

Activity 3. Using ratios to Construct Financial Statement.

Greg Company
Statement of Financial Statement
 Assets Liabilities & Stockholders' Equity
Cash $ 12,500 Current Debt $ 141,250
Accounts Receivable 150,000 Long-term Debt 163,750
Inventory 120,000 Total Debt 305,000
Fixed Assets 217,500 Equity 195,000
Total debt and
Total Assets $ 500,000 Stockholders Equity $ 500,000

Total Assets = Sales

Total assets turnover

= $ 1,200,000
2.4
= $ 500,000

Cash = Cash to total assets

Total assets

= 2.50 %
$ 500,000
= $ 12,500

Accounts Receivable = Sales

Accounts Receivable Turnover

= $ 1,200,000
8

= $ 150,000

Inventory = Sales
Inventory Turnover

= $ 1,200,000
10
= $ 120,000

Fixed Assets = Total Assets − Current Assets

= $ 500,000 – ($ 12,500 + $ 150,000 + $ 120,000)
= $ 500,000 - $ 282,500
= $ 217,500

Current Debt = Current Assets

Current Ratio

= $ 282,500
2
 = $ 141,250

Total Debt = Debt to total asset × Total Asset

= 61% × $500,000
= $ 305,000

Long-term Debt = Total Debt - Current Debt

= $305,000 - $ 141,250
= $ 163,750

Equity = Total assets – Total Debt

= $ 500,000 - $ 305,000
= $ 195,000

MODULE 3

LEARNING ACTIVITIES

Activity 1. Preparing Sales Projection

1. ER Medical Supplies had sales of 2,000 units at $160 per unit last year. The marketing
manager projects a 25% increase in unit volume this year with a 10 percent price increase.
Prepare a sales projection for this year.

ER Medical Supplies

Unit volume 2,000 x 1.25 2,500

Price $160 x 1.10 $175
Total Sales $440,000
Returns (6%) 22,000
Net Sales $418,000

2. Gibby Manufacturing Corporation expects to sell the following number of units of steel
cables at the prices indicated under three different scenarios in economy. The probability
(likelihood to occur) of each outcome is indicated. Prepare a sales projection.
Product Probability Units Price
A 0.20 100 $20
B 0.50 180 25
C 0.30 210 3

Gibson Manufacturing Corporation

Outcome Probabilit Units Price Total Expected
y Value Value
(2 x 5)
A .20 100 $20 2,000 400
B .50 180 $25 4,500 2,250
C .30 210 $30 6,300 1,890
 Total expected value $4,540

Activity 2. Preparing Production Requirement

1. Sales for Roxxy Sports Equipment are expected to be 4,800 units for the coming month. The
company likes to maintain 10 percent of unit sales for each in ending inventory. Beginning
inventory is 300 units. How many units should the firm produce for the coming month?

Roxxy Sports Equipment

Projected sales 4,800 units

Desired ending inventory 480 (10% x 4,800)
Beginning inventory 300
Units to be produced 4,980

2. Digital Incorporation sales of 6,000 units in March. A 50% increase is expected in April. The
company will maintain 5 percent of expected unit sales for April in ending inventory.
Beginning inventory for April was 200 units. How many units should the company produce
in April?

Digital Incorporation

Projected sales 9,000 units (6,000 x 1.5)

Desired ending inventory 450 units (5% x 9,000)
Beginning inventory 200 units
Units to be produced 9,250 units

Activity 3. Cost of Goods Sold

1. On December 31, 2019, Bart Company had an inventory 600 units of its product, which cost
$28 per unit to produce. During 2020, Bart produced 1,200 units at a cost of $32 per unit.
Bart Company sold 1,500 units in 2020. Prepare the cost of goods sold for the year 2020.

Bart Company

Cost of goods sold on 1,500 units

Old inventory:
Quantity (Units) 600
Cost per unit $28
Total $16,800

New inventory:
Quantity (Units) 900
Cost per unit $32
Total $28,800
Total Cost of Goods Sold $45,600

2. At the end of January, Lemon Autoparts had an inventory of 825 units which cost $12 per
unit to produce. During February, the company produced 750 units at a cost of 16 per unit.
 The firm sold 1,050 units in February. Prepare the cost of goods sold.

Lemon Autoparts

a. LIFO Accounting

Cost of goods sold on 1,050 units

New inventory:
Quantity (Units) 750
Cost per unit $16
Total $12,000

Old inventory:
Quantity (Units) 300
Cost per unit $12
Total $3,600
Total Cost of Goods Sold $15,600

b. FIFO Accounting

Cost of goods sold on 1,500 units

Old inventory:
Quantity (Units) 825
Cost per unit $12
Total $9,900

New inventory:
Quantity (Units) 225
Cost per unit $16
Total $3,600
Total Cost of Goods Sold $13,500

Activity 4. Determining Gross Profit and Ending Inventory

1. Converse Company produces a product with the following costs as of July 1, 2019:
Material $6
Labor 4
Overhead 2
 Beginning inventory at these costs on July 1, 2019, was 5,000 units. From July 1 to December 31,
Converse produced 15,000 units. These units had a material cost of $10 per unit. The costs for
labor and overhead were the same with that of the beginning inventory. Converse uses the FIFO
inventory system.

Assuming Converse sold 17,000 units during the last six months for the year 2019 at $20 each.
Determine the gross profit and cost of ending inventory.

Converse Company
Sales (17,000 @ $20) $340,000
Cost of goods sold:
Old inventory: Value of ending inventory:
Quantity (Units) 5,000
Cost per unit Beginning inventory (5,000 x $12) $12
Total $60,000
$60,000
Total production (15,000 x $16) $240,000
New inventory:Total inventory available for sale $300,000
Cost of goods sold
Quantity (Units) 12,000 $252,000
Cost per unit Ending inventory (3,000 units x $16) $16 $48,000
Total $192,000
Total Cost of Goods Sold
sold $252,000
Gross profit $88,000

2. Jerico Company had a beginning inventory of 7,000 units on January 1, 2019. The cost
associated with the inventory were; Materials, $9 per unit; Labor, $5 per unit; Overhead,
$4.10 per unit. During 2019, Jerico produced 28,500 units with the following cost: Materials,
$11.50 per unit; Labor, $4.80 per unit; Overhead, $6.20 per unit.

Sales for the year were 31,500 units at $29.60 each. Jerico uses FIFO inventory system.
Determine the gross profit and cost of ending inventory.

Jerico Company
Sales (31,500 @ $29.60) $932,400
Cost of goods sold:
Old inventory: Value of ending inventory:
Quantity (Units) 28,500
Cost per unit Beginning inventory (7,000 x $18.10) $22.50
Total $126,700
$641,250
Total production (28,500 x $22.50) $641,250
New inventory:Total inventory available for sale $767,9500
Cost of goods sold
Quantity (Units) 3,000 $695,550
Cost per unit Ending inventory (4,000 units x $18.10) $18.10 $72,400
Total $54,300
Total Cost of Goods Sold
sold $695,550
Gross profit $236,850
 Activity 5. Schedule of Cash Receipts

1. Monica’s Flower Shops has forecast credit sales for the fourth quarter of the year as:
September (actual) $70,000
Fourth Quarter:
October 60,000
November 55,000
December 80,000

Experience has shown that 30% of sales are collected in the month of sale, 60% in the following
month, and 10% are never collected. Prepare the schedule of cash receipts for Monica’s Flower
Shops covering the fourth quarter of the year 2020.

Monica’s Flower Shops

September October November December

Credit sales $70,000 $60,000 $55,000 $80,000
30% Collected in month of sales 18,000 16,000 24,000
60% Collected in month of sales 42,000 36,000 33,000
Total cash receipts $60,000 $52,500 $57,000

2. Pirata Video Company has made the following sales projections for the next six months. All
sales are credit sales.
March 24,000 June 28,000
April 30,000 July 35,000
May 18,000 August 38,000

Sales in January and February were $27,000 and $26,000, respectively. Experience shown that of
total sales, 10% are uncollectible, 30% are collected in the month of sale, 40% are collected in the
following month, and 20% are collected two months after sale.

Prepare a monthly cash receipts schedule for the firm for March through August.

Of the sales expected to be made during the six months from March through August, how much
will still be uncollected at the end of August? How much of this is expected to be collected later?

Pirata Video Company

January February March April May June July August

Sales $27,000 $26,000 $24,000 $30,000 $18,000 $28,000 $35,000 $38,000
Collections 7,200 9,000 5,400 8,400 10,500 11,400
(30% of
current
sales)
Collections 10,400 9,600 12,000 7,200 11,200 14,000
(40% of
prior
month’s
sales)
Collections 5,400 5,200 4,800 6,000 3,600 5,600
(20% of
sales 2
month’s
earlier)
Total Cash $23,000 $23,800 $22,200 $21,600 $25,300 $31,000
receipt

Still due (uncollected) in August:

Bad debts: ($24,000 + 30,000 + 18,000 + 28,000 + 35,000 + 38,000) x .1

= (173,000) x .1 = $17,300

To be collected from August sales: ($38,000 x .60) = $22,800

To be collected from July sales: ($35,000 x .20) = $7,000

$17,300 + $22,800 + $7,000 = $47,100 due

Expected to be collected: $47,100 due - $17,300 bad debts

= $29,800 to be collected

Activity 6. Schedule of Cash payment

1. The Elly Corporation has forecast the following sales for the first seven months for the year:

January 12,000 May 12,000

February 16,000 June 20,000
March 18,000 July 22,000
April 24,000

Monthly materials purchased are set equal to 20% of forecasted sales for the next month. Of the
total material costs, 40% are paid in the month of purchase and 60% in the following month.
Labor costs will run $6,000 per month and fixed overhead is $3,000 per month. Interest payments
on debt will be $4,500 for both March and June. Finally, Elly sales force will receive a 3%
commission on total sales for the first six months of the year, to be paid on June 30. Prepare a
schedule of cash payments from January through June.
 Elly Corporation

December January February March April May June July

Sales $12,000 $16,000 $18,000 $24,000 $12,000 $20,000 $22,000
Purchases 2,400 3,200 3,600 4,800 2,400 4,000 4,400
(20% of
next
month’s
sales)
Payment 1,280 1,440 1,920 960 1,600 1,760
(40% of
current
purchases)
Material 1,440 1,920 2,160 2,880 1,440 2,400
Payment
(60% of
previous
month’s
purchases)
Total 2,720 3,360 4,080 3,840 3,040 4,160
payment
for
materials
Labor cost 6,000 6,000 6,000 6,000 6,000 6,000
Fixed 3,000 3,000 3,000 3,000 3,000 3,000
overheads
Interest 4,500 4,500
payments
Sales 3,060
Commissio
n
(3% of
$102,000)
Total $11,720 $12,360 $17,580 $12,840 $12,040 $20,720
payments

MODULE 4

LEARNING ACTIVITIES

1. Bonds issued by the Optical Company have a par value of P1,000 which is also the amount of
principal to be paid at maturity. The bonds are currently selling for 850. They have 10 years
remaining to maturity. The annual interest payment is 9% (90). Determine the approximate
 yield to maturity.

Optical Company

Approximate Yield to Maturity is represented by Y’

Annual interest payment + Principal payment – Price of the bond
Y’ = Number of years to maturity
.6 (Prize of the bond) + .4 (Principal payment)
$90 + $1,000 - 850
= 10___
.6 ($850) + .4 ($1,000)

$90 + $150
= 10___
$510 + 400

= $90 + 15 = $105 = 11.54%

910 $910

2. Robert Brown is considering a bond investment in Southwest Technology Company. The

1,000 bonds have a quoted annual interest rate of 8% and the interest is paid semiannually.
The yield to maturity on the bonds is 10% annual interest. There are 25 years to maturity.
How much is the value of the bonds?

Robert Brown

8% interest / 2 – 4% semiannual interest rate

4% x $1,000 = $40 semiannual interest
25 x 2 = 50 number of periods (n)
10% / 2 = 5% yield to maturity expressed on a semiannual basis (i)
Present value of Interest Payments
PVA = A x PVIFA (n = 50, I = 5%)
PVA = $40 x 18.256 = $730.24
Present value of Principal Payments at Maturity
PVA = FV x PVIF (n = 50, I = 5%)
PVA = $1000 x .087 = $87
$730.24
$87
$817.24
3. North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of
$6 per share. With the passage of time, yield have soared from 6% to 14%.
A. What is the original issue price of the preferred stock?
 B. What is the current value of this preferred stock?
C. If the yield on the Preferred stock Index declines, how will the price of the Preferred stock
be affected?
North Pole Cruise Lines
a. Original Price
Pp = Dp = $6.00 = $100
Kp .06

b. Current value
$6.00 = $42.86
.14
c. The price of preferred stock will increase as the yield decreases. Since preferred
shares are fixed-income securities, their price is inversely proportional to returns, as
is the case with bond prices. The present value of an income stream is a present value
that is higher when the discount rate falls and lower when the discount rate increases.

4. Friedman Steel Company will pay a dividend of $1.50 per share in the next 12 months (D1).
The required rate of return (K) is 10% and the Constant Growth rate is 5 percent. Answer the
following independently:
Friedman Steel Company

P0 = D1
Ke – g

A. Value of the Common share

$1.50 = $1.50 = $30.00
.10 - .05 .07

B. Assume K, the required rate of return, goes up to 12%, what will be the new value of the
common share?
$1.50 = $1.50 = $21.43
.12 - .05 .07

C. Assume the growth rate goes up to 7% what will be the new value of the common share?
$1.50 = $1.50 = $50.00
.10 - .07 .03

D. Assume D1 is $2, what will be the new value of the common share?
$2.00 = $2.00 = $40.00
.10 - .05 .05

MODULE 5

LEARNING ACTIVITIES
Activity 1.

1. The Charitable Foundation, which is tax exempt, issued debt last year at 8 percent to help
finance a new playground facility in Chicago. This year, the cost of debt is 15 percent
higher; that is, firms that paid 10 percent for debt last year would be paying 11.5 percent
this year.

A. If the Charitable Foundation borrowed money this year, what would be the after tax
cost of debt be, based on their cost last year and the 15 percent increase?

Kd = Yield (1 – T)

Yield = 8% x 1.15

= 9.20%

Kd = 9.20% (1 – 0)

= 9.20% (1)

= 9.20%

B. If the Foundation was found to be taxable by International Reporting Standards at a

rate of 35% because it was involved in political activities, what would be the after-tax
cost of debt?

Kd = 9.20% (1 – 0.35)
= 9.20% (0.65)
= 5.68%

2. Burger Queen can sell preferred stock for P70 with an estimated floatation cost of P2.50.
It is anticipated that the preferred stock will pay P6 per share in dividends.

A. Compute the cost of preferred stock for Burger Queen.

Kp = Dp
Pp – F

= $6.00
$70.00 - $2.50

= $6.50
$67.50

= 8.89%

B. Do we need to make a tax adjustment for the issuing firm?

 No tax adjustments are required. Dividends on preferred stock are not tax
deductible expenses for the issuer. The dividends are 70% tax exempt to a corporate
recipient.

MODULE 6

LEARNING ACTIVITIES

1. Kelvin Corporation is considering the purchase of a new machine costing P450,000. The
machine will have an economic life of 5 years with no salvage value at the end of its life. It
will be depreciated using the straight line method and is expected to produce annual cash
flows from operations, net of income taxes, of P150,000. Kelvin Corporation’s cost of capital
is 10%. It is subject to an income tax rate of 32%. What is the net present value of this
capital investment project?

Years Cashflows Discounting Factor (1/(1+rate)^years Net Present Value

(Cashflow*discounting Factor)
0 (450,000) 1 (450,000)
1 150000 0.909090909 136,364
2 150000 0.826446281 123,967
3 150000 0.751314801 112,697
4 150000 0.683013455 102,452
5 150000 0.620921323 93,138

Annual Cash Flow 150,000.00

Present Value of Annuity of 1 at 10% for 5 periods 3.790786769
Present Value of cash Inflow 568,618.014
Initial Investment 450,000
Net Present Value of Capital Investment 118,618.014

2. Ysabelle Corporation is planning to buy production machinery costing P380,000. The

machines’ estimated useful life is five (5) years, with a residual value of P5,000 at the end of
its useful life. Ysabelle Corporation requires a rate of return of 20% and has calculated the
following annual cash inflows, net of income tax, pertaining to the operation of the new
machine:

What is the Net Present Value of the Machine?

Present Value of Cash inflows

Annual Inflows PV Factor PV of cash inflows
240,000.00 0.833 199,920.00
120,000.00 0.694 83,280.00
80,000.00 0.579 46,320.00
80,000.00 0.482 38,560.00
80,000.00 0.402 32,160.00
 400,240.00

Present value of Salvage Value:

5,000.00 0.402 2,010.00
Total Present Value 402,250.00
Initial Investment 380,000.00
Net Present Value 22,250.00