Embassy Company prepared the following income statement for 2011:

Question
Problem 1 Selected account balances of Fleming Manufacturing Company appear below for 2011:

Beginning of Year End of Year

Finished Goods Inventory 25,000 32,000

Work In Process Inventory 30,000 35,000

Raw Materials Inventory 46,000 26,000

Sales 360,000

Direct Labor 45,000

Factory Supervisory Salaries 18,000

Income Tax Expense 25,000

Factory Insurance 12,000

Raw Material Purchases 75,000

Administrative Expenses 17,000

Sales Returns and Allowances 15,000

Factory Depreciation 22,000

Indirect Labor 11,000

Selling Expenses 35,000

Instructions :

Using the above information for Fleming Manufacturing Company, answer the following questions. Support your answers with clearly identified computations.

  1. What were the total overhead costs incurred?

  2. What was the amount of direct materials used in production?

  3. What was the cost of goods manufactured?

  4. What was the cost of goods sold?

  5. What was the amount of net income?

Problem 2 Embassy Company prepared the following income statement for 2011:

FINNEY COMPANY

Income Statement

For the Year Ended December 31, 2011

Sales (20,000 units) 500,000

Variable expenses 300,000

Fixed expenses 120,000

Net income 80,000

Instructions:

Answer the following independent questions and show computations to support your answers.

  1. What is the company’s Contribution Margin in total dollars?

  2. What is the company’s CM per unit?

  3. What is the company’s CM in %?

  4. What is the company’s break-even point in units?

  5. How many more units would the company have had to sell to earn net income of $120,000 in 2011?

  6. If the company expects a 25% increase in sales volume in 2011, what would be the expected net income in 2012?

  7. How much sales dollars would the company have to generate in order to earn a target net income of $160,000 in 2012?

Problem 3 The Financial Statements of Gaines Company appear below:

Gaines Company

Comparative Balance Sheet

December 31,

2013

Assets

Cash $25,000

Short-term Investments 15,000

Accounts Receivable (net) 50,000

Inventory 50,000

Property, Plant and Equipment (net) 260,000

Total Assets $400,000

Liabilities and Stockholders’ Equity

Accounts Payable $20,000

Short-term Notes Payable 30,000

Bonds Payable 90,000

Common Stock 150,000

Retained Earnings 110,000

Total Liabilities and Stockholders’ Equity $400,000

Gaines Company

Income Statement

For the Year Ended December 31, 2013

Net Sales $400,000

Cost of Goods Sold 240,000

Gross Profit 160,000

Expenses

Operating Expenses 42,000

Interest Expense 18,000

Total Expenses 60,000

Income before Tax 100,000

Income tax expense 30,000

Net Income $70,000

Additional Information

a. Cash dividends of $23,000 were declared and paid in 2013.

b. Weighted average number of shares of common stock outstanding during 2013 was 30,000 shares.

c. Market value of common stock on December 31, 2013 was $21 per share.

Instructions:

Using the financial statements and additional information, compute the following ratios for Gaines Company for 2013. Show all computations.

  1. Current Ratio

  2. Return on Common Stockholders’ equity

  3. Price-earnings ratio

  4. Acid-test ratio

  5. Receivables turnover

  6. Times Interest Earned

  7. Profit Margin

  8. Days in Inventory

  9. Payout Ratio

  10. Return on Assets

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