Answer/Solve the following four problems. Be sure to answer all parts to each problem.
Problem #1
Using the Balance Sheets and Income Statements on page 2 and 3 of this document, calculate the following ratios for 2015 & 2014:
1. Time
2. Debt Ratio
3. Debt/Equity Ratio
4. Debt to Tangible Net Worth
5. Gross Profit Margin
6. Return on Investment
7. Return on Assets
8. Percentage of Earnings Retained
9. Operating Cash Flow Per Share
Comment on the results of each of these ratio calculations; comparing 2015 to 2014
Problem #2
Again, using the Balance Sheets and Income Statements included with this exam, prepare a Statement of Cash Flows for the years ended December 31, 2015 and 2014. Not any assumptions that you made.
Comment on your findings as a result of the preparation of the Staetments of Cash Flows.
Problem #3
ABC Corporation is contemplating the addition of a new product line (security alarm systems) that they will manufacture. On a monthly basis the company determined that they will have the following fixed expenses related to this product: Rent $20,000; Insurance $3,000; Management Salaries $10,000; Other Fixed Expenses $7,000. The average sales price per system is $1,800. The average variable cost of each system is $1,000.
1. Compute the number of systems, and the amount of sales dollars, the company must sell in order to break even.
2. Compute the number of systems and the amount of sales dollars, the company must sell in order to generate a monthly pre-tax profit of $20,000.
3. Comment on whether the company should manufacture this product based on your analysis.
Problem #4
1. Briefly discuss the differences in the accounting for personal financial statements vs. reproting for business entities. Provide at least two examples.
2. Briefly discuss the differences in accounting for Governmental Entities (using the fund basis of accuonting) vs. the accounting for business entities.