Lakers Company

1) For the year ended December 31, 2015, the following information is available for the Lakers Company:

Sales        $891,000
Cost of goods sold    662,000
Depreciation expense    16,000
Amortization expense    3,000
Wage expense    91,000
Rent expense    4,000
Loss on sale of fixed assets    2,000
Interest expense    13,000
Income tax expense    38,000
Total expenses        829,000
Net income        $62,000

December 31, 2014    December 31, 2015
Cash    $10,000    $12,800
Accounts receivable    $10,000    $19,200
Inventory    $20,000    $14,100
Prepaid rent    $2,000    $1,700
Accounts payable    $22,000    $24,400
Wages payable    $12,000    $11,300
Taxes payable    $2,000    $3,100

Required:
Prepare the operating activities section of the statement of cash flows for the year ending December 31, 2015.  Use the indirect method.

2) The following information is available for Guess Company:

Sales    $189,400
Gross profit    $106,400
Net income    $25,800
Total current assets    $32,400
Total current liabilities    $34,400
Total stockholders’ equity, last year    $19,200
Total stockholders’ equity, current year    $26,800

Required:
Compute the following ratios:
A) Current ratio
B) Gross profit rate
C) Return on sales
D) Return on stockholders’

3) The following data is available for Donald Company:

Credit Sales    $1,702
Net Income    $112
Total Current Assets    $366
Total Current Liabilities    $226
Accounts Receivable, current year    $160
Accounts Receivable, prior year    $156
Total Stockholders’ Equity, current year    $550
Total Stockholders’ Equity, prior year    $500
Retained Earnings, current year    $366
Retained Earnings, prior year    346
Market price per share    $50
Number of Common Shares Outstanding    46

Required:
Compute the following ratios:
A) current ratio
B) average collection period in days
C) return on stockholders’ equity
D) price-earnings rat

4) The Love Company has provided the following information:

Income tax rate    30%
Selling price per unit    $6.60
Variable cost per unit    $5.28
Total fixed costs    $46,200.00

Required:
A) Compute the break-even point in units.
B) Compute the sales volume in units necessary to generate an after-tax net income of $10,000.
C) Compute the sales volume in units necessary to generate an after-tax net income of $20,000.

5) Stangle Company manufactures ties.  When 28,000 ties are produced, the costs per unit are:
Direct materials    $0.60
Direct manufacturing labor    3.00
Variable manufacturing overhead    1.20
Fixed manufacturing overhead    1.60
Variable selling    0.80
Fixed selling    1.13

The ties normally sell for $22 each.  The company has received a special order for 2,000 ties at $10.00 per tie.  The company has excess capacity.

Required:
Compute the amount by which the operating income would change if the order were accepted.

6) The sections of the statement of cash flows are listed below:

Sections of Statement of Cash Flows
O = Operating activities
I = Investing activities
F = Financing activities
Required:
For each of the following items, identify the section of the statement of cash flows you would find the item. Assume the direct method is used.

_____ 1. Paid taxes of $15,000.
_____ 2. Borrowed $35,000 from the bank on a long-term note payable.
_____ 3. Collected $690,000 from customers.
_____ 4. Received $40,000 in dividend income.
_____ 5. Paid $12,000 to suppliers for inventory.
_____ 6. Issued common stock for $170,000 cash.
_____ 7. Purchased $120,000 in long-term securities for cash.
_____ 8. Paid $18,000 dividend on common stock.
_____ 9. Purchased land for $345,000 cash.
_____ 10. Sold long-term securities for cash. No gain or loss on sale.
_____ 11. Paid $210,000 on long-term debt.
_____ 12. Received $31,000 cash on sale of equipment. No gain or loss on sale.

7) Wehr Corporation produces one product. Total fixed costs are $600,000.
The unit selling price is $60.00 and the unit variable cost is $45.00.

Required:
A) Compute the contribution margin per unit.
B) Compute the contribution-margin ratio.
C) Compute the break-even point in units.
D) Compute the break-even point in dollars.

8) Stefanko Manufacturing has prepared the following income statement:

Sales    $450,000
Cost of goods sold    200,000
Gross margin    250,000
Operating expenses    196,000
Operating income    $54,000

According to company records, $100,000 of Cost of Goods Sold and $100,000 of Operating Expenses are fixed.

Required:
A) Compute the contribution margin.
B) Compute the contribution margin ratio.
C) Compute the break-even point in sales dollars.

9) Whitney Company has just completed its first year of operations. The company’s accountant has prepared an absorption costing income statement for the year as seen

below:

Sales (35,000 units at $25)    $875,000
Beginning Inventory    0
Cost of Goods Manufactured (35,000 × $12) + $160,000 =    580,000
Cost of Goods Available    580,000
Ending Inventory    0
Cost of Goods Sold    580,000
Gross Margin    295,000
Selling and Administrative Expenses    280,000
Net Income    $15,000

The variable production costs per unit are determined as follows:
Direct materials    $5
Direct labor    6
Variable production    1
Total variable production costs    $12

The company’s fixed production costs are $160,000 per year. The company’s selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per

unit in variable expenses.

Required:
Prepare the company’s income statement in the contribution format.

10) Texas Company produces and sells 22,000 units of a single product. Costs associated with this level of production are as follows:

Direct materials    $15 per unit
Direct manufacturing labor    $45 per unit
Variable manufacturing overhead    $25 per unit
Fixed manufacturing overhead    $40 per unit
Variable selling costs    $10 per unit

The product normally sells for $160 per unit. Texas Company has received a special order to sell 2,000 units at $120 per unit. With the special order, variable selling

costs will increase by $5 per unit to $15 per unit. Texas Company has excess production capacity.

Required:
Compute the amount by which the operating income of Texas Company would change if the special order was accepted.