Brigman Inc.

has the following financial statement information for 2019 and 2018:

2019 2018
Balance Sheet Information:
Assets:
Cash PhP 5,000 PhP 12,000
Accounts receivable PhP 14,000 PhP 10,000
Inventory PhP 35,000 PhP 30,000
Total current assets PhP 54,000 PhP 52,000

Property and Equipment (net) PhP 50,000 PhP 45,000

Total assets PhP 104,000 PhP 97,000

Liabilities:
Accounts payable PhP 9,000 PhP 3,000
Salaries payable PhP 3,000 PhP 1,000
Total current liabilities PhP 12,000 PhP 4,000
Notes payable PhP 20,000 PhP 25,000
Total liabilities PhP 32,000 PhP 29,000

Stockholders' Equity:
Common stock PhP 40,000 PhP 40,000
Retained earnings PhP 32,000 PhP 28,000
Total stockholders' equity PhP 72,000 PhP 68,000
Total liabilities and stockholders' equity PhP 104,000 PhP 97,000

Income Statement Information:

Net sales PhP 650,000 PhP 556,000
Cost of goods sold PhP 380,000 PhP 290,000
Gross profit PhP 270,000 PhP 266,000
Selling and administrative expenses PhP 75,000 PhP 70,000
Interest expense PhP 4,000 PhP 10,000
Income before income taxes PhP 191,000 PhP 186,000
Income tax expense PhP 57,300 PhP 56,300
Net income PhP 133,700 PhP 129,700

Other Information:
Number of common shares outstanding 4000 4000
Dividends paid PhP - PhP -
Market price per share (12/31) PhP 40 PhP 30
Income tax rate 30% 30.27%
Solution:
Current assets
a. Current Ratio= 4.5
Current liabilities

Cash + Accounts receivable

b. Acid Test Ratio= 1.58
Current liabilities

Net sales
c. Accounts Receivable Turnover= 54.17
Average accounts receivable

Total liabilities
d. Debt to Equity Ratio= 0.44
Shareholder's equity

Earnings before interest & tax expense

e. Time Interest Earned Ratio= 48.75
Interest expense

Cost of goods sold

f. Inventory Turnover= 11.69
Average inventory

Net income + [Interest expense(1-Tax rate)]

g. Return on Asset(ROA)= 135.82%
Average Total Asset

Net sales
h. Asset Turnover Ratio= 6.47
Average Total Asset

Net income - Preferred dividends

i. Earnings per Share(EPS)= PhP 33.43
Average Common Stock Outstanding

Market price per share

j. Price Earnings(P/E) Ratio= 1.20
Earnings per share
times Average accounts receivable=

times Average inventory=

times Average Total Assets=

times Average Common Stock Outstanding=

times

times

times

per share

times
Beginning accounts receivable + Ending accounts receivable
PhP 12,000
2

Beginning inventory + Ending inventory

PhP 32,500
2

Beginning total assets + Ending total assets

PhP 100,500
2

Beginning CS outstanding + Ending CS outstanding

4000 shares
2
From the information below, prepare the statement of cash flows for Moester, Inc. using the indirect method.

Moester, Inc.
Income Statement
For the Year Ended December 31, 2017
Sales
Cost of Goods Sold
Gross Margin
Operating Expenses (Includes Depreciation Expense of P7,200)
Income from Operations
Other Revenue and Expenses:
Gain on Sale of Equipment from Investing PhP 6,000
Interest Expense PhP (4,800)
Income before Income Taxes
Income Tax Expense
Net Income
Moester, Inc.
Comparative Balance Sheets
12/31/2017
Assets
Cash PhP 46,800
Accounts Receivable (net) PhP 120,000
Inventory PhP 138,000
Prepaid Expenses PhP -
Land PhP 30,000
Equipment PhP 87,600
Accumulated Depreciation PhP (21,600)
Total Assets PhP 400,800
Liabilities & Stockholders' Equity
Accounts Payable PhP 13,200
Accrued Liabilities PhP -
Notes Payable PhP 12,000
Mortgage Payable PhP 30,000
Common Stock PhP 216,000
Paid-in Capital in Excess of Par PhP 68,400
Retained Earnings PhP 61,200
Total Liabilities/Stockholders' Equity PhP 400,800

Additional Information for Year End Dec. 31, 2017:

Investing a. Equipment that costs P15,600 with accumulated depreciation of P14,400 was sold at a gain of P6,000.
Investing b. Purchased equipment for P55,200
Financing c. Borrowed funds by issuing notes payable, P36,000.
Financing d. Paid notes payable, P24,000.
Non-cash e. Land was purchased for P30,000 by signing a mortgage note for the entire cost.
Financing f. Issued 3,000 shares of P10 par value common stock for P60,000
Financing g. Paid cash dividend of P10,800
 Solution:
Equipment that costs PhP 15,600
accumulated depreciation PhP 14,400
gain PhP 6,000
PhP 240,000 Purchased equipment for PhP 55,200
PhP 144,000 Issued notes payable PhP 36,000
PhP 96,000 Paid notes payable PhP 24,000
PhP 63,600 Issued shares for PhP 60,000
PhP 32,400 Paid cash dividend of PhP 10,800
Depreciation expense PhP 7,200

PhP 1,200 Moester, Inc.

PhP 33,600 Statement of Cash Flows
PhP 9,600 For the Year Ended December 31, 2017
PhP 24,000 Cash Flows from Operating Activities
Net Income PhP 24,000
Adjustments:
12/31/2016 Gain on sale of equipment PhP (6,000)
Depreciation expense PhP 7,200
PhP 32,400 Increase in Accounts Receivable PhP (30,000)
PhP 90,000 Decrease in Inventory PhP 27,600
PhP 165,600 Decrease in Prepaid Expense PhP 24,000
PhP 24,000 Decrease in Accounts Payable PhP (31,200)
PhP - Decrease in Accrued Liabilities PhP (14,400)
PhP 48,000 Net Cash Provided by Operating Activies:
PhP (28,800)
PhP 331,200 Cash Flows from Investing Activities
Sale of equipment PhP 7,200
PhP 44,400 Purchase of Equipment PhP (55,200)
PhP 14,400 Net Cash Used in Investing Activities:
PhP -
PhP - Cash Flows from Financing Activities
PhP 180,000 Proceeds from Issuance of Notes Payable PhP 36,000
PhP 44,400 Payment of Notes Payable PhP (24,000)
PhP 48,000 Proceeds from Issuance of Common Stock PhP 60,000
PhP 331,200 Payment of Cash Dividends PhP (10,800)
Net Cash Provided by Financing Activities:
Net Increase in Cash
Cash at the Beginning of the year
gain of P6,000. Cash at the end of the year
2017

PhP 1,200

PhP (48,000)

PhP 61,200
PhP 14,400
PhP 32,400
PhP 46,800
Y Company has a small truck that it uses for delivery. The truck is in bad repair and must be either overhauled
or replaced with a new truck. The company has assembled the following information:

Present Truck New Truck

Purchase cost new PhP 21,000 PhP 30,000
Remaining book value PhP 11,500 PhP -
Overhaul needed now PhP 7,000 PhP -
Annual cash operating costs PhP 10,000 PhP 6,500
Salvage value now PhP 9,000 PhP -
Salvage value eight years from now PhP 1,000 PhP 4,000

If the company keeps and overhauls its present delivery truck, then the truck will be usable for eight more
years. If a new truck is purchased, it will be used for eight years, after which it will be traded in on another
truck. The new truck would be diesel operated, resulting in a substantial reduction in annual operating costs
as shown above. The company computes depreciation on a straight-line basis.

Discount rate 16%

Present value of an OA of P1 for 8 years is 4.344
Present value of 1 for 8 years is 0.305
Solution 1:
Purchase new truck
Capital investment
Purchase price PhP (30,000)
Avoided overhaul cost PhP 7,000
Salvage value(old) PhP 9,000
PhP (14,000)
PV of cash flows
Savings from operating costs PhP 15,204
Salvage value in 8 years PhP 1,220
PhP 16,424
NPV(PV of cash flows-Capital investment) PhP 2,424
Since the NPV is positive, it is acceptable to purchase a new truck and since it
has a very high NPV, it is a desirable investment.

Solution 2: using total cost method

Keep the present truck
Overhaul needed now PhP (7,000)
PV of cash operating costs PhP (43,440)
Salvage value eight years from now PhP 305
NPV PhP (50,135)
Purchase new truck
Purchase price PhP (30,000)
Salvage value(old) PhP 9,000
PV of cash operating costs PhP (28,236)
Salvage value eight years from now PhP 1,220
NPV PhP (48,016)

Since the NPV in purchasing a new truck is greater (a lesser negative) than
the NPV of keeping the present truck, it is more preferable to purchase a new
truck.