PROBLEM 1
Assume that XYZ Company has no opening inventory. The following purchases of inventory occurred during the year:
Date Purchases (units) Purchase price per unit
Jan. 2 2 $3
Feb. 15 3 $4
March 30 4 $5
July 29 6 $6
Oct. 30 5 $7
Assume XYZ Company sells 8 items on October 31 and uses the FIFO method of inventory valuation. What amount would appear as cost of goods sold on the income statement?
a. $33
b. $53
c. $76
d. $56
e. None of the above. The correct calculation is shown below
PROBLEM 2
Paul is a day trader. He is interested in the common stock of XYZ Limited. The following data are available for the company:
|
|
2012
|
2013
|
2014
|
|
Dividends paid per share*
|
$4
|
$3
|
$2.50
|
|
Dividend yield ratio
|
5.5%
|
5.5%
|
5.5%
|
|
Dividend payout ratio
|
40%
|
40%
|
40%
|
|
Return on total assets
|
10%
|
12%
|
8%
|
|
Return on common stockholders' equity
|
8%
|
14.5%
|
9%
|
*There were no changes in common stock outstanding over the three-year period.
Paul would like answers to the following questions:
1. Is the market price of the company's stock going up or down?
2. Is the company employing financial leverage to the advantage of the common stockholders?