Question

On Jan 1 ’07 SSS buys 100 US Treasury Bonds (face value $1000 each) for the...

On Jan 1 ’07 SSS buys 100 US Treasury Bonds (face value $1000 each) for the Trading Portfolio.   The bonds carry an annual interest coupon of 4% paid semiannually Jan 1 and July 1. Journalize the purchase.

On July 1 the bonds pay interest. Journalize the receipt of the interest payment.

On Aug 1, SSS sells 50 of the bonds at 98

On December 31 SSS makes an adjusting entry for accrual of interest to be received January 1 2008. Show the adjustment for the accrual of interest.

On Dec 31, the bonds are trading at 97.   What fair value adjustment, if any, needs to be made?

How will the bonds be shown on the Balance Sheet?

On January 1, 2008 SSS buys 500 shares of Co common stock for $50/share for the stock portfolio as short-term investment.   SSS’s purchase represents 1% of outstanding Co stock and the company exerts no influence on Co. Journalize the purchase by SSS.

On February 1 Co pays a $1/share dividend. Journalize SSS’s receipt of the dividend.

On Feb 15, Co reports $1mm net income. What JE does the company make, if any, to recognize the income?

On March 1 SSS decides to sell 250 shares of its Co stock for $45/share. Journalize SSS’s sale of Co stock.

Fast forward to December 31, 2008: The price of Co shares is $49/share. What fair market adjustment does SSS make, if any?

How will this stock investment be presented on the balance sheet?

Jan 1, SSS buys 60,000 shares of Inc at $20/share as a long-term investment in the stock portfolio. The purchase represents 25% of all outstanding Inc stock and SSS has representation on Inc’s board of directors. Journalize the purchase.

On June 31, 2008 Inc reports net income of $20,000 for its fiscal year ended June 31. Make the journal entry for SSS.

On October 1, Inc pays a $1/share cash dividend. Journalize SSS’s receipt of this dividend.

On Dec 31, Inc shares are trading $18/share. What fair value adjustment, if any, needs to be made?

How will this stock be represented on the SSS balance sheet?

Assume the following asset and liability values represent the average values over the year. Also assume all sales are on credit.

Account                     

Cash                            $125,000                    

Accounts Receivable $175,000                    

Inventory                    $125,000                    

Property, Plant

   & Equipment           $200,000                    

Current Liabilities      $325,000                    

Long-term Liabilities $275,000                   

Stockholders’ Equity $25,000                                

Total Sales Revenue   $800,000                 

Total Expense             $600,000 (includes $250,000 COGS)    

Outstanding Shares       100,000

Price per Share              $50/shr        

What is the Current Ratio?

What is the Acid Test or Quick Ratio?

When would Acid Test Ratio be a better measure of liquidity compared to Current Ratio?

How is Vertical Analysis calculated and what does it communicate

What is the company’s AR Turnover

Inventory Turnover?

Days in Inventory?

what is the company’s profit margin?

what is the company’s Return on Assets?

Return on EQ?

           

            What is another way to calculate ROE?

            What is the stock’s P/E ratio?

            Why would one company have a higher P/E ratio than another?

What is the company’s Debt Ratio?

What is most important to a Short Term Creditor?

What is most important to Owners?

What the basic types of Financial Analysis?

Homework Answers

Answer #1

I can only answer first 3 questions:

1. Current Ratio

Current Ratio is ratio of current assets to the current liabilities

In this case Current Assets are addition of Cash, Account Receivables and Inventory

Cash $125,000

Accounts Receivables $175,000

Inventory $125,000

Total Current assets $425,000

Current Liabilities $325,000

Current Ratio = 425000/325000 = 1.3076923077 = 1.31

2. Quick Ratio

Quick Ratio is (Current Asset - Inventory & Prepaid Expenses)/ Current Liabilities

= (425000-125000)/325000

=0.9230769231

= 0.92

3. The Acid test ratio would be better when company has inventory which cannot be easily sold or in cases where the company might need to liquidate all its current asset in short time to pay for current liabilities (e.g. liquidation)

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