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L7-ch03-HO-Solution

# L7-ch03-HO-Solution - Hand-out Chapter 3 Problem 1 do 10...

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Hand-out Chapter 3 Problem 1: do 10 steps here first, then continue in excel file Construct financial statements for the Jones Co. from the following data. In addition, indicate the EPS and the price of the Co.’s Common Stock. General admin & selling Expenses \$ 1,020,000 Current ratio 2.0 times ACP (1 year = 360 days) 90 days CGS 75% of sales Depreciation expense \$ 100,000 Fixed Assets Turnover 5.0 times N/P (current) \$ 915,000 Interest Expense \$ 130,000 Tax rate 34% CGS to Inventory ratio 5.0 times Total Assets Turnover 1.55 times Average payment Period (APP) 36 days Equity Multiplier 2.0 times Total Shareholder’s Equity \$ 2,000,000 Common Share outstanding 1000,000 shares P/E 10 times 1. Operating Expenses = General admin & selling exp + Depre exp = 1,120,000 2. Equity Multiplier=TA/TE 2 = TA/2,000,000 TA=4,000,000 3. Total Assets Turnover=Sales/TA 1.55=Sales/4,000,000 Sales=6,2000,000 4. Fixed Assets Turnover=Sales/FA 5=6,200,000/FA FA=1,240,000 5. CGS=75%of sales CGS=0.75*6,200,000 CGS=4,650,000 6. CGS/Inventory=5 4,650,000/Inventory=5 Inv=930,000 7. CA+FA=TA CA+1,240,000=4,000,000 CA=2,760,000 8. Current ratio=CA/CL 2=2,760,000/CL CL=1,380,000 9. ACP=AR/[sales/360] 90=AR/[6,200,000/360] AR=1,550,000 10. Fill in the Income Statement & Balance Sheet (look in excel file)

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L7-ch03-HO-Solution - Hand-out Chapter 3 Problem 1 do 10...

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