Summer Tut CH2 Solutions

Summer Tut CH2 Solutions - McGill Faculty of Engineering...

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1 McGill Faculty of Engineering MIME 310 Engineering Economy Tutorials Chapter 2. Principles of Accounting
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2 McGill Faculty of Engineering MIME 310 Engineering Economy Tutorials 2.1 LOM Inc. has 200 000 common shares outstanding, valued at $25/unit on the market. DEF wishes to acquire all of LOM's stock and believes that it can do so by making an offer to LOM shareholders midway between the market price and LOM's book value per share. LOM's balance sheet contains the entries shown here, in which the Capital Stock (CS) account has been omitted. LOM’s book value must be determined. .. CS: 6 300 000 - 2 300 000 = 4 000 000 4 000 SE: 10 600 000 - 4 300 000 = 6 300 000 6 300 Total Liabilities + SE = Total Assets = 10 600 000 LOM’s book value: Total SE = 6 300 000 Book value per share: 6 300 000 = 31.50 200 000 DEF’s offer: 25.00 + 31.50 = $28.25 per share 2 What should be DEF's bid to LOM shareholders? 300 OA ASSETS (‘000 $) 10 600 TOTAL ASSETS 4 100 NFA 6 200 CA LIABILITIES (‘000 $) 4 300 TOTAL LIABILITIES 1 150 LTL 3 150 CL SHAREHOLDERS’ EQUITY TOTAL SHAR. EQUITY 2 300 ARE CS Current assets (CA) $6 200 000 Net fixed assets (NFA) 4 100 000 Other assets (OA) 300 000 Current liabilities (CL) 3 150 000 Long-term liabilities (LTL) 1 150 000 Accumulated retained earnings (ARE) 2 300 000
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3 McGill Faculty of Engineering MIME 310 Engineering Economy Tutorials 2.2 Minnie Mechanic purchased a small engine shop. Accordingly, she invested $8000 of her personal savings in acquiring the following assets: Over the first month of operation, sales and expenses for the shop were as follows: In addition, the following information is available: Of the inventory purchases, an amount of $6000 was paid cash, while the rest is still owed (i.e. $1000). The inventory now holds $2600 of merchandise. i) Prepare a balance sheet on opening day. ii) Prepare an income statement for the period (ignore any depreciation expense). iii) If by the end of the period, the shareholder's equity account has a balance of $9850, determine the balance in the cash account. Cash
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This note was uploaded on 10/06/2009 for the course MIME 310 taught by Professor Bilido during the Summer '08 term at McGill.

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Summer Tut CH2 Solutions - McGill Faculty of Engineering...

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