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Chapter 16 (2)

Chapter 16 (2) - 1 Kings of Leon Inc has a book value of...

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1.
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Kings of Leon, Inc., has a book value of equity of $64,500. Long-term debt is $57,500. Net working capital, other than cash, is $22,300. Fixed assets are $92,100 and current liabilities are $7,300. Requirement 1: How much cash does the company have? (Do not include the dollar sign ($).) Cash $ Requirement 2: What is the value of the current assets? (Do not include the dollar sign ($).) Current assets $ Explanation: 1: The total liabilities and equity of the company are the net book worth, or value of equity, plus current liabilities and long-term debt, so: Total liabilities and equity = $64,500 + 7,300 + 57,500 Total liabilities and equity = $129,300 This is also equal to the total assets of the company. Since total assets are the sum of all assets, and cash is an asset, the cash account must be equal to total assets minus all other assets, so: Cash = $129,300 – 92,100 – 22,300 – 7,300 Cash = $7,600 2: We have NWC other than cash, so the total NWC is: NWC = $7,600 + 22,300 NWC = $29,900 We can find total current assets by using the NWC equation. NWC is equal to: NWC = CA – CL $29,900 = CA – $7,300 CA = $37,200
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2. The Maynard Company has projected the following quarterly sales amounts for the coming year: Q1 Q2 Q3 Q4 Sales $240 $300 $360 $510 Required: (a) Accounts receivable at the beginning of the year are $450. Maynard has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign) : Q1 Q2 Q3 Q4 Beginning receivables $ $ $ $ Sales 240 300 360 510 Cash collections Ending receivables $ $ $ $ (b) Accounts receivable at the beginning of the year are $450. Maynard has a 60-day collection period. Calculate cash collections in each of the four quarters by completing the following (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to the nearest dollar amount (e.g., 32)) : Q1 Q2 Q3 Q4 Beginning receivables $ $ $ $ Sales 240 300 360 510 Cash collections Ending receivables $ $ $ $ (c) Accounts receivable at the beginning of the year are $450. Maynard has a 30-day collection period. Calculate cash collections in each of the four quarters by completing the following (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to the nearest dollar amount (e.g., 32)) :
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Q1 Q2 Q3 Q4 Beginning receivables $ $ $ $ Sales 240 300 360 510 Cash collections Ending receivables $ $ $ $ Explanation: (a) 45-day collection period implies all receivables outstanding from previous quarter are collected in the current quarter, and (90-45)/90 = 1/2 of current sales are collected. (b) 60-day collection period implies all receivables outstanding from previous quarter are collected in the current quarter, and (90-60)/90 = 1/3 of current sales are collected. (c) 30-day collection period implies all receivables outstanding from previous quarter are collected in the current quarter, and (90-30)/90 = 2/3 of current sales are collected.
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