Exercise 1: Balance sheet completion using ratios

Complete the 2006 balance sheet for O’keefe Industries using the information that
follows it.

O’Keefe Industries
Balance sheet
December 31, 2006
Assets
Liabilities and stockholders’ Equity

Cash $33,720 Account Payable $120,000

Marketable securities 25,000 Notes Payable ????????
Accounts-receivable ??????? Accruals 20,000
Inventories ????????

Total current assets ????????? Total Current liabilities ????????

Net fixed assets ????????? Long-term debt ????????

Stockholders’equity 600,000

Total liabilities and

Total Assets $????????? Stockholders’equity $?????????

The following financial data for 2006 are also available:

1- Sales totalled $1,800,000.
2- The gross profit margin was 25%.
3- Inventory turnover was 6.0.
4- There are 365 days in Year.
5- The average collection period was 40 days.
6- The current ratio was 1.60
7- The total asset turnover ratio was 1.20
8- The debt ratio was 60%.

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 Exercise 2:
Classify the following changes in each of the accounts as either an outflow or an
inflow of cash. During the year
1- marketable securities decreased
2- Land and buildings increased
3- Accounts payable decreased
4- Vehicles decreased
5- Accounts receivable increased
6- Dividends were paid.

Exercise 3 : Initial sale price of common stock.

Beck Corporation has one issue of preferred stock and one issue of common stock
outstanding. Given Beck’s stockholders’ equity account that follows, determine the
original price per share at which the firm sold its single issue of common stock.

Stockholder’s Equity ($000)

Preferred stock $125

Common stock ($0.75 par, 300,000 shares outstanding) 225
Paid in capital in excess of par on common stock 2,625
Retained earnings 900
Total stockholders’ equity $3,875

Exercise 4: Statement of retained earnings

Hayes Enterprises began 2006 with a retained earnings balance of $928,000. During
2006, the firm earned $377,000 after taxes. From this amount, preferred stockholders
were paid $47,000 in dividends. At year-end 2006, the firm’s retained earnings
totalled $1,048,000. The firm had 140,000 shares of common stock outstanding
during 2006.

1- Prepare a statement of retained earnings for the year ended December 31, 2006,
for Hayes enterprises. (Note: Be sure to calculate and include the amount of cash
dividends paid in 2006).
2- Calculate the firm’s 2006 earnings per share (EPS).

Exercise 5: net profits before taxes

Rimier Corp. forecasts sales of $ 650,000 for 2007. Assume the firm has fixed costs of
$250,000 and variable costs amounting to 35% of sales. Operating expenses are estimated
to include fixed costs of $28,000 and a variable portion equal to 7.5% of sales. Interest
expenses for the coming year are estimated to be $20,000. Estimate Rimier’s net profits
before taxes for 2007.

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 Exercise 6: Balance sheet preparation
Use the appropriate items from the following list to prepare in good form Owen Davis
Company’s balance sheet at December 31, 2006.

Item value ($000) at Item Value ($000)

December 31, 2006 December 31, 2006

Accounts payable $220 Inventories $375

Accounts receivable 450 Land 100
Accruals 55 Long-term debts 420
Accumulated depreciation 265 Machinery 420
Buildings 225 Marketable securities 75
Cash 215 Notes payable 475
Common stock (at par) 90 paid in capital in excess
Cost o goods sold 2,500 of par 360
Depreciation expense 45 preferred stock 100
Equipment 140 retained earnings 210
Furniture and fixtures 170 Sales revenue 3,600
General expense 320 Vehicles 25

Exercise 7:
You are a summer interne at the office of a local tax-prepare. To test your basic
knowledge of financial statements, your manager, who graduated from your alma mater 2
years ago, gives you the following list if accounts and asks you to prepare a simple
income statement using those accounts.
Accounts ($000,000)
Depreciation 25
General and administrative expenses 22
Sales 345
Sales expenses 18
Cost of goods sold 255
Lease expense 4
Interest expense 3

1- Arrange the accounts into a well-labeled income statement. Make sure you label
and solve for gross profit, operating profit, and net profit before taxes.
2- Using a 35% tax rate, calculate taxes paid and net profit after taxes.
3- Assuming a dividend of $1.10 per share with 4.25 million share outstanding,
Calculate EPS and additions to retained earnings.

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