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MT-Exam-MSci261-W09-Solutions

# MT-Exam-MSci261-W09-Solutions - UW email userid_SOLUTION...

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UW email userid__________SOLUTION _________ Problem 1. The ȱ balance ȱ sheet ȱ of ȱ the ȱ First ȱ Chemical ȱ Plant ȱ contains ȱ the ȱ following ȱ information: ȱ A SSETS ȱ L IABILITIES ȱ Current ȱ assets ȱ ȱȱ x ȱ Cash ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$5,000 ȱ ȱȱ x ȱ Accounts ȱ receivable ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$5,000 ȱ ȱȱ x ȱ Inventories ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$25,000 Total ȱ current ȱ assets ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$35,000 ȱ ȱ Fixed ȱ assets ȱ ȱȱ x ȱ Land ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ **** ȱȱȱ d ȱȱ \$100,000 ȱ ȱȱ x ȱ Plant ȱ and ȱ equipment ȱȱȱȱȱȱȱȱȱȱȱ \$100,000 Total ȱ fixed ȱ assets ȱȱȱȱȱȱȱȱ **** ȱȱȱ c ȱȱ \$200,000 ȱ ȱ Other ȱ assets ȱ ȱȱ x ȱ Deferred ȱ charges ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$10,000 ȱ ȱȱ x ȱ Intangibles ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$10,000 Total ȱ other ȱ assets ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$20,000 ȱ ȱ Total ȱ assets ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$255,000 ȱ Current ȱ liabilities ȱ ȱȱ x ȱ Accounts ȱ payable ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$1,500 ȱȱ x ȱ Notes ȱ payable ȱȱȱȱȱȱȱȱ **** ȱȱȱ h ȱȱȱȱȱȱ \$1,500 ȱȱ x ȱ Accrued ȱ expenses ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$5,000 Total ȱ current ȱ liabilities ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$8,000 ȱ Long - term ȱ liabilities ȱ ȱȱ x ȱ Mortgage ȱ bonds ȱȱȱȱȱ **** ȱȱ g ȱȱȱȱ \$50,000 ȱȱ x ȱ Debentures ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ \$50,000 Total ȱ long - term ȱ liabilities ȱȱȱȱȱȱȱȱ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ **** ȱȱȱ f ȱȱ \$100,000 ȱ ȱ ȱ ȱ ȱ Total ȱ Liabilities ȱȱȱȱȱȱȱȱȱ **** ȱȱȱ e ȱȱ \$108,000 (a) (3 marks) Total Owners’ Equity is \$147,000. Fill in the blanks above (beside the **** symbols) for "Land," "Total fixed assets," "Mortgage bonds," "Notes payable , " "Total Liabilities," and "Total long-term liabilities." (1/2 mark for each answer) c Total Fixed Assets = Total Assets – Total Other Assets – Total Current Assets = \$255,000 - \$20,000 - \$35,000 = \$200,000 d Land = Total Fixed Assets – Plant&Equipment = \$200,000 - \$100,000 = \$100,000 e Total Liabilities = Total Assets – Total Owner’s Equity = \$255,000 - \$147,000 = \$108,000 f Total Long-term Liabilities = Total Liabilities – Total Current Liabilities = \$108,000 - \$8,000 = \$100,000 g Mortgage bonds = Total Long-term Liabilities – Debentures = \$100,000 - \$50,000 = \$50,000 h Notes Payable = Total Current Liabilities – Accounts Payable – Accrued Expenses = \$8,000 - \$1,500 - \$5,000 = \$1,500 (b) (2 marks) If the annual sales value was \$400,000, profit after income tax was \$32,000, and interest paid on all liabilities was \$6000, then calculate: (i) the inventory turnover ratio; and (ii) the acid test ratio. Comment on how well this company is performing compared with the industry average, if the industry averages for these measures are 6.2 (inventory turnover ratio), and 1.6 (acid test ratio).

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MT-Exam-MSci261-W09-Solutions - UW email userid_SOLUTION...

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