Question

1. Use this information for Kellman Company to answer the question that follow. The balance sheets...

1.

Use this information for Kellman Company to answer the question that follow.

The balance sheets at the end of each of the first two years of operations indicate the following:

Kellman Company
Year 2 Year 1
Total current assets $619,100 $587,500
Total investments 61,200 51,000
Total property, plant, and equipment 881,400 694,300
Total current liabilities 111,200 88,100
Total long-term liabilities 304,700 230,800
Preferred 9% stock, $100 par 95,600 95,600
Common stock, $10 par 561,300 561,300
Paid-in capital in excess of par—Common stock 66,200 66,200
Retained earnings 422,700 290,800

Using the balance sheets for Kellman Company, if net income is $108,600 and interest expense is $34,200 for Year 2, and the market price of common shares is $38, what is the price-earnings ratio on common stock for Year 2? (Round intermediate calculation and final answer to two decimal places.)

a.21.35

b.1.78

c.9.87

d.10.06

2. Equipment with an original cost of $77,050 and accumulated depreciation of $20,782 was sold at a loss of $6,814. As a result of this transaction, cash would

a.decrease by $20,782

b.increase by $77,050

c.decrease by $6,814

d.increase by $49,454

3.

A building with a book value of $38,659 is sold for $60,548 cash. Using the indirect method, this transaction should be shown on the statement of cash flows as an increase of

a.$38,659 from investing activities

b.$60,548 from investing activities and a deduction from net income of $21,889

c.$38,659 from investing activities and an addition to net income of $21,889

d.$60,548 from investing activities

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Homework Answers

Answer #1

1) Price earning ratio = MPS/EPS

EPS = (108600-8604)/5630 = 1.78

Price earning ratio = 38/1.78 = 21.35

So answer is a) 21.35

2) Book value of equipment = 77050-20782 = 56268

Sale value of equipment = 56268-6814 = 49454

So answer is d) Increase by 49454

3) Gain on sale of equipment = 60548-38659 = 21889 operating activities

Investing activities sale of building = 60548

so answer is b) $60,548 from investing activities and a deduction from net income of $21,889

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