FIN 200: Week Two Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 2 Solution

CheckPoint: Financial Ratios

• Resource: Ch. 3 of Foundations of Financial Management
• Due Date: Day 5 [Individual forum]
• Complete Problem 34 on p. 84.

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Using the financial statements for the Goodyear Calendar Company, calculate
The 13 basic ratios found in the chapter.

GOODYEAR CALENDAR COMPANY
Balance Sheet
December 31, 2008
Assets
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 370,000
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (100,000)
Net plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 760,000
GOODYEAR CALENDAR COMPANY
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000
Long-term liabilities:
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000
Stockholders’ equity
Preferred stock, $100 par value . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Common stock, $1 par value . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Capital paid in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . 480,000
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . $ 760,000
GOODYEAR CALENDAR COMPANY
Income Statement
For the Year Ending December 31, 2008
Sales (on credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000
Less: Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000
Less: Selling and administrative expenses . . . . . . . . . . . . . . . 400,000*
Operating profit (EBIT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Less: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Earnings before taxes (EBT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000
Less: Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,000
Earnings after taxes (EAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 168,000
*Includes $10,000 in lease payments.

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