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I actually have another question for you. Exam1MidtermACC600.docx ACC 600 Spring 2014 Midterm Refer to the financial statement data for the company ABC Financial Statements INCOME STATEMENT (in millions) Fiscal year end Sales Cost of Goods Sold Selling, General & Admin. Exp. Advertising Research and Development Royalty Expense Other Selling and Administrative Interest expense Income tax expense Net income Balance Sheet Fiscal year end ASSETS (in millions) Cash Accounts Receivable Inventories Prepayments Total current assets Property, plant & equipment Other Assets Total assets LIABILITIES Accounts payable Short-term borrowing Other current liabilities Total current liabilities Long term debt Other noncurrent liabilities Total liabilities Common stock Additional Paid-in Capital Retained earnings Accumulated Other Comprehensive Income Treasury Stock Total Shareholders’ equity Total Liabilities & Shareholders’ Equity 2013 $2,696 (1,252) 2012 $ 3,139 (1,288) 2011 $ 2,816 (1,099) (387) (157) (223) (385) (32) (64) $ 196 (364) (143) (248) (799) (53) (69) $ 175 (297) (154) (296) (788) (78) (29) $ 75 2013 2012 2011 2010 $ 625 579 195 219 $1,618 207 1,416 $3,241 $421 607 169 212 $1,409 200 1,554 $3,163 $ 496 555 190 191 $1,432 213 1,498 $3,143 $233 572 217 346 $1,368 236 1,765 $3,369 $ 168 342 584 $1,094 303 149 $1,546 $ 159 24 756 $ 939 687 141 $1,767 $ 166 223 578 $ 967 857 128 $1,952 $ 123 36 599 $ 758 1,166 92 $2,016 $ 105 381 1,776 82 (649) $1,695 $3,241 $ 105 398 1,558 30 (695) $1,396 $3,163 $ 105 458 1,430 (47) (755) $1,191 $3,143 $ 105 455 1,622 (68) (761) $1,353 $3,369 Requirement 1: Based on the above information, finish the Cash flow from operations part Statement of Cash Flows Operations Net Income Depreciation & Amortization (Increase) Decrease Accounts Receivables (Increase) Decrease Inventories (Increase) Decrease Prepayments (Decrease) Increase Accounts Payable & Other Cash flows from operations Investing Property Plant and Equipment acquired Other Investing Transactions Cash Flows from Investing Financing Increase in Common Stock Increase (Decrease) in Short-term Borrowing Increase (Decrease) in Long-term Borrowing Acquisition of Common Stock Dividends Other Financing Transactions $ $ 2013 196 145 28 -26 -7 9 4 2012 $175 164 -52 21 -21 -7 -59 2011 $75 184 17 27 155 43 426 ($79) -6 ($85) ($63) -2 ($65) ($59) -3 ($62) 0 318 -384 -46 -37 879 730 0 -199 -170 60 -21 243 -87 0 187 -309 -6 -21 -250 -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. Days Revenues Held in Cash Current Ratio Quick Ratio Days Accounts Receivable Days Inventory Days Accounts Payable Liabilities to Assets Ratio Liabilities to Shareholders’ Equity Ratio Long-Term Debt to Long-Term Capital Ratio Long-Term Debt to Shareholders’ Equity Ratio 2013 52.122 1.479 1.301 78.388 56.849 48.978 0.477 0.912 0.278 0.267 2012 48.953 1.501 1.095 67.558 50.868 46.813 0.559 1.266 0.33 0.492 2011 47 1.5 1.1 73 68 49 0.621 1.639 0.418 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

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