Question

Assumptions:

At the beginning of 2009, CanGo purchased the online gaming company. This purchase was for cash, paid for through the proceeds of the IPO and results in goodwill.

90% of the online book sales comes from JIT, the other 10% through the inventory which CanGo possesses. 100% of the CD/DVD/MP3 come through CanGo inventory. The result is that 80% of ALL sales is JIT and 20% is inventory.

Student Name:
Instructions:
Go to the CanGo intranet found in the Report Guide tab under Course Home
Use the financial statements from the most recent year to fill in the table below.
You may find some formulae calling for an average, e.g., average inventory, average receivables.
Because we only have the Balance sheet for one year, you can only use the one year number not an average.
Assume interest expense is $0.00
Be careful of the Debt equity ratio. The review covers debt asset ratio as an example of how to calculate ratios and that is different from debt equity ratio,
and that is different from the debt equity ratio so think about how you calculate the debt equity ratio using the debt asset ratio as an example.
Be sure to cite your references
Green boxes to be filled in by instructor
Ratio	Formula (express the ratio in words)	Detailed calculation (actual numbers from financial statements used for the calculation)	Final number (final result of the detailed calculation)	Explanation of why ratio is important	Earned points (up to 3 points per "box"/cell)	Instructor feedback
Example:	Term A/Term B (Term A divided by Term B)	1000/2000	.50	This is the explanation of the role of this ratio and why it is important	3
Efficiency Ratio: Receivables Turnover
Grade for above					0.0
Efficiency Ratio: Inventory Turnover
Grade for above					0.0
Financial Leverage Ratio: Debt/Equity Ratio
Grade for above					0.0
Liquidity Ratio: Current Ratio
Grade for above					0.0
Liquidity Ratio: Quick Ratio
Grade for above					0.0
Liquidity: Working Capital
Grade for above					0.0
Profitability Ratio: Return on Assets
Grade for above					0.0
Profitability Ratio: Return on Sales
Grade for above					0.0
Total Earned Points					0.0

There is one warehouse for shipping of books and one plant for manufacturing.

There are three divisions: a CD/DVD/MP3 division, an online gaming division and a books division. All manufacturing takes place in the CD/DVD/MP3 division.

The IPO took place at the beginning of 2009.

The CD/DVDs were customized beginning in 2008. The MP3 players were built beginning in the start of 2009.

The online gaming company was purchased for $30,000,000 and both Elizabeth and Andrew initiated the process.

The company began in 2006, has a VC infusion in 2007 and 2008. It showed a profit in 2008 and 2009. Its only profitable division is the online book sales division.

It has some type of international operations, hence the need for a "translation gain or loss" in owner's equity.

It has an extraordinary loss from fire and a sale of a segment of its business in 2009.

Balance Sheet

ASSETS December 31, 2009

Cash $20,900,000

Marketable Securities $117,000,000

Accounts Receivable $33,000,000

Less: Allowance for Bad Debts $(880,000)

Net Accounts Receivable $32,120,000

Inventory

Raw Materials $2,000,000

Work-in-process $1,000,000

Finished Goods $5,000,000

Inventory Purchased for Resale $24,000,000

Total Inventory $32,000,000

Plant, Property and Equipment $6,700,000

Less: Accumulated Depreciation $(320,000)

Net Plant, Property and Equipment $6,380,000

Prepaid Expenses $200,000

Goodwill and Other Purchased Intangibles $28,000,000

Less: Amortization $(700,000)

Net Goodwill and Other Purchased Intangibles $27,300,000

Total Assets $235,900,000

LIABILITIES AND OWNERS' EQUITY

Accounts Payable $22,000,000

Accrued Advertising $11,800,000

Other Liabilities and Accrued Expense $1,400,000

Current Portion of Long-Term Debt $2,300,000

Long Term Debt $57,400,000

Preferred Stock, $100 par value per share,

100,000 authorized, 0 shares issued and outstanding $0

Common Stock, $1 par value per share,

250,000,000 shares authorized, 13,000,000 shares

issued, 12,900,000 outstanding $13,000,000

Additional Paid-in-Capital in excess of par value, Common Stock $117,000,000

Treasury Stock $(1,000,000)

Retained Earnings (less Cash Dividends Paid) $12,000,000 $11,000,000

Total Liabilities and Owner's Equity $235,900,000

Income Statement

December 31, 2009 December 31, 2008

Sales Revenues $51,000,000 $10,300,000

Less: Sales Returns $(1,000,000) $(300,000)

Net Sales Revenues $50,000,000 $10,000,000

Less: Cost of Goods Sold $(9,000,000) $(4,000,000)

Gross Profit $41,000,000 $6,000,000

Operating Expenses:

Advertising and Sales $(26,000,000) $(3,000,000)

Depreciation $(160,000)

Salaries and Wages $(1,700,000) $(1,400,000)

Product Development $(4,000,000) $(1,200,000)

Merger and Acquisition Related Costs, including

Amortization of Goodwill and Other Intangibles $(700,000) $0

Total Operating Expenses $(32,560,000)

Income from Continuing Operations Before Income Taxes $8,440,000

Less: Income Taxes at 35% $(2,954,000)

Income from Continuing Operations $5,486,000

Discontinued Operations:

Income from Operations of Discontinued Division

(less applicable income taxes) $350,000

Loss on Disposal of Discontinued Division

(less applicable income taxes) $(150,000)

Total Gain from Discontinued Operations $200,000

Extraordinary Items:

Loss from fire (less applicable income taxes) $(200,000)

Net Income $5,486,000

Divisional Revenues

Books $15,000,000 $7,000,000

Online gaming $25,000,000

Customized MP3/CD/DVD $10,000,000 $3,000,000

Customized MP3/CD/DVD Inventory at end of 2009 $8,000,000

Answer 1