Brief Exercises

Week 2-Financial Statement Analysis

ACC C 204

1. Romaine Corporation's total current assets are Php300,000, its noncurrent assets are
Php570,000, its total current liabilities are Php270,000, its long-term liabilities are Php360,000,
and its stockholders' equity is Php240,000.

Required:
Compute the company's working capital. Show your work!

2. Wayment Corporation's total current assets are Php310,000, its noncurrent assets are
Php680,000, its total current liabilities are Php270,000, its long-term liabilities are Php460,000,
and its stockholders' equity is Php260,000.

Required:
Compute the company's current ratio. Show your work!

3. Data from Furnia Corporation's most recent balance sheet appear below:

Cash.................................... Php13,000
Marketable securities........ Php21,000
Accounts receivables......... Php32,000
Inventory............................ Php52,000
Prepaid expenses............... Php16,000
Current liabilities................ Php118,000

Required:
Compute the company's acid-test ratio. Show your work!

4.Cozzolino Corporation has provided the following data:

This Year Last Year

Accounts receivable........... Php118,000 Php123,000
Inventory............................ Php141,000 Php165,000
Sales on account................ Php687,000
Cost of goods sold.............. Php455,000

Required:
Compute the accounts receivable turnover for this year. Show your work!

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5. Data from Ringwald Corporation's most recent balance sheet and income statement appear
below:
This Year Last Year
Accounts receivable........... Php118,000 Php103,000
Inventory............................ Php164,000 Php173,000
Sales on account................ Php727,000
Cost of goods sold.............. Php481,000

Required:
Compute the average collection period for this year:

6. Hsieh Corporation has provided the following data:

This Year Last Year

Accounts receivable........... Php104,000 Php115,000
Inventory............................ Php150,000 Php157,000
Sales on account................ Php879,000
Cost of goods sold.............. Php575,000

Required:
Compute the inventory turnover for this year:

7. Data from Buttler Corporation's most recent balance sheet and income statement appear below:

This Year Last Year

Accounts receivable........... Php134,000 Php138,000
Inventory............................ Php151,000 Php171,000
Sales on account................ Php864,000
Cost of goods sold.............. Php675,000

Required:
Compute the average sale period for this year:

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8.Financial statements for Rarick Company appear below:

Rarick Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities.......................... Php   120 Php   120
Accounts receivable, net..................................... 180 150
Inventory............................................................. 100 100
Prepaid expenses................................................        10        20
Total current assets................................................ 410 390
Noncurrent assets:
Plant & equipment, net......................................   1,830   1,780
Total assets............................................................. Php2,240 Php2,170

Current liabilities:
Accounts payable................................................ Php   130 Php   150
Accrued liabilities................................................ 30 50
Notes payable, short term..................................      270      270
Total current liabilities........................................... 430 470
Noncurrent liabilities:
Bonds payable.....................................................      310      300
Total liabilities........................................................      740      770
Stockholders’ equity:
Preferred stock, Php10 par, 10%........................ 100 100
Common stock, Php5 par.................................... 240 240
Additional paid-in capital–common stock.......... 250 250
Retained earnings...............................................      910      810
Total stockholders’ equity......................................   1,500   1,400
Total liabilities & stockholders’ equity................... Php2,240 Php2,170

Rarick Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)............................................. Php2,400
Cost of goods sold..................................................   1,680
Gross margin.......................................................... 720
Selling and administrative expense.......................      280
Net operating income............................................ 440
Interest expense....................................................        30
Net income before taxes........................................ 410
Income taxes (30%)................................................      123
Net income............................................................. Php   287
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 Required:

Compute the following for Year 2:

a. Current ratio.
b. Acid-test ratio.
c. Average collection period.
d. Inventory turnover.
e. Times interest earned.
f. Debt-to-equity ratio.

9. Carleton Corporation's most recent balance sheet and income statement appear below:

Statement of Financial Position

December 31, Year 2 and Year 1
(in thousands of dollars)
Year 2 Year 1
Assets
Current assets:
Cash..................................................................... Php     30 Php   110
Accounts receivable............................................ 210 260
Inventory............................................................. 190 170
Prepaid expenses................................................        70        70
Total current assets................................................ 500 610
Plant and equipment, net......................................      810      740
Total assets............................................................. Php1,310 Php1,350

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable................................................ Php   140 Php   150
Accrued liabilities................................................ 30 30
Notes payable, short term..................................        40        40
Total current liabilities........................................... 210 220
Bonds payable........................................................      190      240
Total liabilities........................................................      400      460
Stockholders’ equity:
Preferred stock, Php100 par value, 5%.............. 100 100
Common stock, Php2 par value.......................... 400 400
Additional paid-in capital–common stock.......... 130 130
Retained earnings...............................................      280      260
Total stockholders’ equity......................................      910      890
Total liabilities & stockholders’ equity................... Php1,310 Php1,350

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 Sales (all on account)............................................. Php1,260
Cost of goods sold..................................................      770
Gross margin.......................................................... 490
Selling and administrative expense.......................      400
Net operating income............................................ 90
Interest expense....................................................        26
Net income before taxes........................................ 64
Income taxes (30%)................................................        19
Net income............................................................. Php     45

Required:

Compute the following for Year 2:

a. Working capital.
b. Current ratio.
c. Acid-test ratio.
d. Accounts receivable turnover.
e. Average collection period.
f. Inventory turnover.
g. Average sale period.

10. Excerpts from Beaty Corporation's most recent balance sheet (in thousands of dollars)
appear below:
Year 2 Year 1
Current assets:
Cash............................................. Php 70 Php140
Accounts receivable.................... 250 280
Inventory..................................... 150 140
Prepaid expenses........................    20    20
Total current assets........................ Php490 Php580
Current liabilities:
Accounts payable........................ Php150 Php170
Accrued liabilities........................ 90 90
Notes payable, short term..........    80    80
Total current liabilities................... Php320 Php340

Sales on account during the year totaled Php1,320 thousand. Cost of goods sold was
Php730 thousand.

Required:
Compute the following for Year 2:
a. Working capital.
b. Current ratio.
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 c. Acid-test ratio.
d. Accounts receivable turnover.
e. Average collection period.
f. Inventory turnover.
g. Average sale period.

11. Philo Corporation's most recent income statement appears below:

Sales (all on account)................................. Php561,000

Cost of goods sold......................................  325,000
Gross margin.............................................. 236,000
Selling and administrative expense...........  106,000
Net operating income................................ 130,000
Interest expense........................................    35,000
Net income before taxes............................ 95,000
Income taxes..............................................    30,000
Net income................................................. Php 65,000

Required:
Compute the gross margin percentage.

12. Financial statements for Pratt Company appear below:

Pratt Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities.......................... Php   140 Php   140
Accounts receivable, net..................................... 190 180
Inventory............................................................. 150 150
Prepaid expenses................................................       70       70
Total current assets................................................ 550 540
Noncurrent assets:
Plant & equipment, net......................................   1,490   1,420
Total assets............................................................. Php2,040 Php1,960

Current liabilities:
Accounts payable................................................ Php   160 Php   160
Accrued liabilities................................................ 50 60
Notes payable, short term..................................      230      250
Total current liabilities........................................... 440 470
Noncurrent liabilities:
Bonds payable.....................................................      300      300
Total liabilities........................................................      740      770
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 Stockholders’ equity:
Preferred stock, Php5 par, 10%.......................... 120 120
Common stock, Php5 par.................................... 180 180
Additional paid-in capital–common stock.......... 210 210
Retained earnings...............................................      790      680
Total stockholders’ equity......................................   1,300   1,190
Total liabilities & stockholders’ equity................... Php2,040 Php1,960

Pratt Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)............................................. Php2,000
Cost of goods sold..................................................  1,400
Gross margin.......................................................... 600
Selling and administrative expense.......................     240
Net operating income............................................ 360
Interest expense....................................................       30
Net income before taxes........................................ 330
Income taxes (30%)................................................       99
Net income............................................................. Php  231

Dividends during Year 2 totaled Php121 thousand, of which Php12 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was
Php80.

Required:
Compute the following for Year 2:
a. Earnings per share of common stock.
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders' equity.
g. Book value per share.
h. Working capital.
i. Current ratio.
j. Acid-test ratio.
k. Accounts receivable turnover.
l. Average collection period.
m. Inventory turnover.
n. Average sale period.
o. Times interest earned.
p. Debt-to-equity ratio.

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13. Espinola Corporation's most recent balance sheet and income statement appear below:

Statement of Financial Position

December 31, Year 2 and Year 1
(in thousands of dollars)
Year 2 Year 1
Assets
Current assets:
Cash................................................................... Php   320 Php   180
Accounts receivable.......................................... 220 240
Inventory........................................................... 140 130
Prepaid expenses...............................................        20       20
Total current assets.............................................. 700 570
Plant and equipment, net.....................................      860      920
Total assets........................................................... Php1,560 Php1,490

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable.............................................. Php   200 Php   170
Accrued liabilities.............................................. 80 80
Notes payable, short term................................       40       40
Total current liabilities.......................................... 320 290
Bonds payable......................................................     210     220
Total liabilities.......................................................     530     510
Stockholders’ equity:
Preferred stock, Php100 par value, 5%............. 100 100
Common stock, Php1 par value......................... 100 100
Additional paid-in capital–common stock......... 150 150
Retained earnings..............................................      680      630
Total stockholders’ equity....................................  1,030      980
Total liabilities & stockholders’ equity................. Php1,560 Php1,490

Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
Sales (all on account)............................................ Php1,220
Cost of goods sold................................................     790
Gross margin......................................................... 430
Selling and administrative expense......................     268
Net operating income........................................... 162
Interest expense...................................................       26
Net income before taxes...................................... 136
Income taxes (30%)..............................................       41
Net income........................................................... Php    95

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 Dividends on common stock during Year 2 totaled Php40 thousand. Dividends on preferred
stock totaled Php5 thousand. The market price of common stock at the end of Year 2 was
Php12.87 per share.

Required:

Compute the following for Year 2:

a. Gross margin percentage.
b. Earnings per share (of common stock).
c. Price-earnings ratio.
d. Dividend payout ratio.
e. Dividend yield ratio.
f. Return on total assets.
g. Return on common stockholders' equity.
h. Book value per share.
i. Working capital.
j. Current ratio.
k. Acid-test ratio.
l. Accounts receivable turnover.
m. Average collection period.
n. Inventory turnover.
o. Average sale period.
p. Times interest earned.
q. Debt-to-equity ratio.

14. laubaugh Corporation's most recent balance sheet and income statement appear below:
Statement of Financial Position
December 31, Year 2 and Year 1
(in thousands of dollars)
Year 2 Year 1
Assets
Current assets:
Cash..................................................................... Php   100 Php   140
Accounts receivable............................................ 160 180
Inventory............................................................. 210 190
Prepaid expenses................................................        40        50
Total current assets................................................ 510 560
Plant and equipment, net......................................      860      820
Total assets............................................................. Php1,370 Php1,380

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable................................................ Php   160 Php   180
Accrued liabilities................................................ 80 80
Notes payable, short term..................................       80        80
Total current liabilities........................................... 320 340
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 Bonds payable........................................................       70      100
Total liabilities........................................................     390      440
Stockholders’ equity:
Preferred stock, Php100 par value, 10%............ 200 200
Common stock, Php1 par value.......................... 200 200
Additional paid-in capital–common stock.......... 130 130
Retained earnings...............................................     450     410
Total stockholders’ equity......................................     980     940
Total liabilities & stockholders’ equity................... Php1,370 Php1,380

Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
Sales (all on account)............................................. Php1,350
Cost of goods sold..................................................     820
Gross margin.......................................................... 530
Selling and administrative expense.......................     399
Net operating income............................................ 131
Interest expense....................................................       17
Net income before taxes........................................ 114
Income taxes (30%)................................................       34
Net income............................................................. Php     80

Dividends on common stock during Year 2 totaled Php20 thousand. Dividends on preferred
stock totaled Php20 thousand. The market price of common stock at the end of Year 2 was
Php2.88 per share.
Required:

Compute the following for Year 2:

a. Gross margin percentage.
b. Earnings per share (of common stock).
c. Price-earnings ratio.
d. Dividend payout ratio.
e. Dividend yield ratio.
f. Return on total assets.
g. Return on common stockholders' equity.
h. Book value per share.

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15. Financial statements for Qadri Company appear below:

Qadri Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities.......................... Php   120 Php   100
Accounts receivable, net..................................... 130 120
Inventory............................................................. 160 180
Prepaid expenses................................................       50        50
Total current assets................................................ 460 450
Noncurrent assets:
Plant & equipment, net......................................   1,730   1,730
Total assets............................................................. Php2,190 Php2,180

Current liabilities:
Accounts payable................................................ Php     50 Php   100
Accrued liabilities................................................ 60 50
Notes payable, short term..................................      160      200
Total current liabilities........................................... 270 350
Noncurrent liabilities:
Bonds payable.....................................................      280      300
Total liabilities........................................................      550      650
Stockholders’ equity:
Preferred stock, Php10 par, 5%.......................... 120 120
Common stock, Php10 par.................................. 220 220
Additional paid-in capital–common stock.......... 110 110
Retained earnings...............................................   1,190   1,080
Total stockholders’ equity......................................   1,640   1,530
Total liabilities & stockholders’ equity................... Php2,190 Php2,180

Qadri Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)............................................. Php2,300
Cost of goods sold..................................................   1,610
Gross margin.......................................................... 690
Selling and administrative expense.......................      270
Net operating income............................................ 420
Interest expense....................................................        30
Net income before taxes........................................ 390
Income taxes (30%)................................................      117
Net income............................................................. Php   273
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 Dividends during Year 2 totaled Php163 thousand, of which Php6 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was
Php150.

Required:

Compute the following for Year 2:

a. Earnings per share of common stock.
b. Price-earnings ratio.
c. Dividend yield ratio.
d. Return on total assets.
e. Return on common stockholders' equity.
f. Book value per share.

16.Maranville Corporation's most recent balance sheet and income statement appear below:
Statement of Financial Position
December 31, Year 2 and Year 1
(in thousands of dollars)
Year 2 Year 1
Assets
Current assets:
Cash..................................................................... Php   170 Php   180
Accounts receivable............................................ 160 180
Inventory............................................................. 170 160
Prepaid expenses................................................        70       60
Total current assets................................................ 570 580
Plant and equipment, net......................................      840      830
Total assets............................................................. Php1,410 Php1,410

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable................................................ Php   150 Php   160
Accrued liabilities................................................ 40 40
Notes payable, short term..................................        50        50
Total current liabilities........................................... 240 250
Bonds payable........................................................ 90 100
Total liabilities........................................................ 330 350
Stockholders’ equity:
Preferred stock, Php100 par value, 10%............ 200 200
Common stock, Php2 par value.......................... 400 400
Additional paid-in capital–common stock.......... 140 140
Retained earnings...............................................      340      320
Total stockholders’ equity......................................   1,080   1,060
Total liabilities & stockholders’ equity................... Php1,410 Php1,410

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 Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
Sales (all on account)............................................. Php1,410
Cost of goods sold..................................................     860
Gross margin.......................................................... 550
Selling and administrative expense.......................     449
Net operating income............................................ 101
Interest expense....................................................       15
Net income before taxes........................................ 86
Income taxes (30%)................................................       26
Net income............................................................. Php    60

Dividends on common stock during Year 2 totaled Php20 thousand. Dividends on preferred
stock totaled Php20 thousand. The market price of common stock at the end of Year 2 was
Php2.36 per share.

Required:

Compute the following for Year 2:

a. Earnings per share (of common stock).
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders' equity.
g. Book value per share.

17. Isidro Corporation has provided the following financial data (in thousands of dollars):

Year 2 Year 1
Total assets............................................................. Php1,520 Php1,490
Stockholders’ equity:
Preferred stock, Php100 par value, 5%.............. Php200 Php200
Common stock, Php2 par value.......................... Php400 Php400
Additional paid-in capital–common stock.......... Php160 Php160
Retained earnings............................................... Php380 Php320

Net income for Year 2 was Php110 thousand. Interest expense was Php21 thousand. The tax
rate was 30%. Dividends on common stock during Year 2 totaled Php40 thousand. Dividends
on preferred stock totaled Php10 thousand. The market price of common stock at the end
of Year 2 was Php9.15 per share.

Required:

Compute the following for Year 2:

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 a. Earnings per share (of common stock).
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders' equity.
g. Book value per share.

18. Mikolai Corporation's net income for the most recent year was Php1,379,000. A total of
100,000 shares of common stock and 200,000 shares of preferred stock were outstanding
throughout the year. Dividends on common stock were Php1.15 per share and dividends on
preferred stock were Php1.30 per share.

Required:
Compute the earnings per share of common stock. Show your work!

19. Hoya Corporation's net income last year was Php7,460,000. The dividend on common stock was
Php8.40 per share and the dividend on preferred stock was Php4.30 per share. The market
price of common stock at the end of the year was Php78.90 per share. Throughout the year,
500,000 shares of common stock and 100,000 shares of preferred stock were outstanding.

Required:
Compute the price-earnings ratio. Show your work!

20. Dupas Corporation's net income last year was Php7,330,000. The dividend on common stock
was Php12.70 per share and the dividend on preferred stock was Php1.70 per share. The
market price of common stock at the end of the year was Php47.20 per share. Throughout the
year, 500,000 shares of common stock and 200,000 shares of preferred stock were outstanding.

Required:
Compute the dividend payout ratio. Show your work!

21. Last year, Sheline Corporation's dividend on common stock was Php13.00 per share and the
dividend on preferred stock was Php2.10 per share. The market price of common stock at
the end of the year was Php68.60 per share.

Required:
Compute the dividend yield ratio. Show your work!

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22. Allaman Corporation's most recent income statement appears below:

Sales (all on account)................................. Php760,000

Cost of goods sold......................................  450,000
Gross margin.............................................. 310,000
Selling and administrative expense...........  100,000
Net operating income................................ 210,000
Interest expense........................................    40,000
Net income before taxes............................ 170,000
Income taxes (30%)....................................    51,000
Net income................................................. Php119,000

The beginning balance of total assets was Php930,000 and the ending balance was
Php970,000.

Required:
Compute the return on total assets. Show your work!

23. Excerpts from Orr Corporation's most recent balance sheet appear below:

Year 2 Year 1
Preferred stock....................................................... Php  200,000 Php  200,000
Common stock....................................................... 400,000 400,000
Additional paid-in capital–common stock............. 390,000 390,000
Retained earnings..................................................     420,000     350,000
Total stockholders’ equity......................................Php1,410,000 Php1,340,000

Net income for Year 2 was Php147,000. Dividends on common stock were Php50,000 in
total and dividends on preferred stock were Php27,000 in total.

Required:
Compute the return on common stockholders' equity. Show your work!

24. Data from Speir Corporation's most recent balance sheet appear below:

Preferred stock....................................................... Php   200,000

Common stock....................................................... 300,000
Additional paid-in capital–common stock............. 380,000
Retained earnings..................................................      490,000
Total stockholders’ equity...................................... Php1,370,000

A total of 150,000 shares of common stock and 20,000 shares of preferred stock were
outstanding at the end of the year.

Required:
Compute the book value per share. Show your work!

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25. Erke Corporation's most recent balance sheet and income statement appear below:

Statement of Financial Position

December 31, Year 2 and Year 1
(in thousands of dollars)
Year 2 Year 1
Assets
Current assets:
Cash..................................................................... Php   130 Php   160
Accounts receivable............................................ 120 110
Inventory............................................................. 90 100
Prepaid expenses................................................       20       20
Total current assets................................................ 360 390
Plant and equipment, net......................................      890      840
Total assets............................................................. Php1,250 Php1,230

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable................................................ Php   190 Php   180
Accrued liabilities................................................ 70 60
Notes payable, short term..................................        40       40
Total current liabilities........................................... 300 280
Bonds payable........................................................      130     150
Total liabilities........................................................      430     430
Stockholders’ equity:
Preferred stock, Php100 par value, 5%.............. 100 100
Common stock, Php2 par value.......................... 200 200
Additional paid-in capital–common stock.......... 130 130
Retained earnings...............................................      390      370
Total stockholders’ equity......................................      820      800
Total liabilities & stockholders’ equity................... Php1,250 Php1,230

Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
Sales (all on account)............................................. Php1,150
Cost of goods sold..................................................     710
Gross margin.......................................................... 440
Selling and administrative expense.......................     358
Net operating income............................................ 82
Interest expense....................................................       18
Net income before taxes........................................ 64
Income taxes (30%)................................................       19
Net income............................................................. Php    45

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 Required:
Compute the following for Year 2:
a. Times interest earned.
b. Debt-to-equity ratio.

26. Fromming Corporation's net operating income last year was Php193,000; its interest expense
was Php22,000; its total stockholders' equity was Php950,000; and its total liabilities were
Php400,000.

Required:
Compute the following for Year 2:
a. Times interest earned.
b. Debt-to-equity ratio.

27. Brandy Corporation has provided the following data from its most recent income statement:

Net operating income.................... Php51,000

Interest expense............................ Php37,000
Net income before taxes................ Php14,000
Income taxes.................................. Php4,000
Net income..................................... Php10,000

Required:
Compute the times interest earned ratio. Show your work!

28. Molony Corporation has provided the following data from its most recent balance sheet:

Total assets..................................... Php740,000

Total liabilities................................ Php610,000
Total stockholders’ equity.............. Php130,000

Required:
Compute the debt-to-equity ratio. Show your work!

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