BITSoM – Finance for Global companies

THPS-1 Solution Key

Answers to Questions 1, 2, 3 and 4

Delicious Dishes, Inc

Income Statement for the Year Ending December 31, 2016

Gross sales 824,500

Returns and allowances 3,600
Net Sales 820,900

Beginning of year inventory 128,700

Purchases 524,700
End of year inventory 124,600
Cost of goods sold 528,800
Gross profit 292,100
Research and development 12,600
Management salaries 104,600
General and administrative expenses 21,900
Lease payments 12,000
Advertising 16,400
Depreciation 5,200
Operating profit (or, EBIT) 119,400
Interest expense 21,700
Profit before taxes (or, EBT) 97,700
Taxes 35,900
Net income 61,800
1. Gross profit = $292,100
2. Operating profit (EBIT) = $119,400
3. Profit before taxes (EBT) = $97,700
4. Net income = $61,800

5. Net income = change in retained earnings + dividends = ($2,380,000 - $2,168,000) + $550,000 =

$762,000.
6. 12500 / (136,200 – 12500) = .1011 = 10.1%
7. Since inventory is carried at $10.00 per unit, COGS for the accounting period is number of units sold
times cost per unit = (10,525,000)(10.00) = $105,250,000.
Revenue = (10,525,000)(14.50) = $152,612,500. Gross profit = $47,362,500
8. Ending inventory = Beginning inventory + Purchases – COGS
Ending inventory = (1,425,000 + 10,200,000 – 10,525,000)($10.00) = $11,000,000
9.
Timmers, Inc.
Income Statement for the Year Ending December 31, 2016
Notes:
Gross sales 25,000,000 500,000 x $50
Returns and allowances (375,000) .015 x sales
Net Sales 24,625,000

Beginning of year inventory 1,820,000 52,000 x $35

Purchases 17,850,000 510,000 x $35
End of year inventory 2,170,000
Cost of goods sold 17,500,000 500,000 x $35
Gross profit 7,125,000
Operating expenses 2,250,000 given
Depreciation 750,000 given
Operating profit (or, EBIT) 4,125,000
Interest expense 630,000 .075 x 8400000
Profit before taxes (or, EBT) 3,495,000
Taxes 1,398,000 .40 x EBT
Net income 2,097,000

10. Ending inventory = Beginning inventory + purchases – COGS;

Ending inventory = $2,170,000
Answers to Questions 11, 12, 13 and 14

Jordan's Jeans Company

Balance Sheet on December 31, 2016

Cash 1,078,200
Gross accounts receivable 1,995,600
Returns and allowances 12,600
Accounts receivable, net 1,983,000
Beginning of year inventory 9,471,600
Cost of goods sold 71,359,800
Purchases 70,384,700
Inventory 8,496,500
Total Current Assets 11,557,700

Gross fixed assets 64,851,200

Accumulated depreciation 12,975,300
Net fixed assets 51,875,900
Total Assets 63,433,600

Short-term bank loan 866,000

Accounts payable 955,000
Accruals 294,600
Current portion of Long-term debt 1,475,600
Total current liabilities 3,591,200
Long-term debt (excluding current portion) 15,148,600
Common stock ($2.00 par value) 14,200,000
Additional paid in capital 19,476,200
Retained earnings 11,017,600
Total liabilities and equity 63,433,600

Total shareholders equity 44,693,800

11. Total current assets = $11,557,700

12. Total current liabilities = $3,591,200
13. Total assets = $63,433,600
14. Total shareholders’ equity = common stock + additional paid in capital + retained earnings =
$44,693,800
15. (As per the announcement on iCollege, the dividends per share payment should be $0.006 per share,
not $0.60 per share).
Retained earnings (2015) = retained earnings (2016) – addition to retained earnings (2016), where
addition to retained earnings (2016) = net income (2016) – dividends (2016).
Note that number of shares outstanding = common stock / par value per share = 14,200,000 / 2.00 =
7.100,000.
Addition to retained earnings (2016) = 71,800 – (0.006)(7,100,000) = 29,200
 So, Retained earnings (2015) = retained earnings (2016) – addition to retained earnings (2016)
= 11,017,600 – 29,200 = $10,988,400
16. shares = 7626000/1.25 = 6,100,800. Change in retained earnings = 218,546,280 – 214,368,900 =
4,177,380. Dividends paid in 2016 = net income – change in retained earnings = 12,050,120 –
4,177,380 = 7,872,740. Dividends per share = dividends/# shares = 7,872,740/6,100,800 = $1.29
17. Book value of equity = total assets – total liabilities = 21,542,000 – (2,547,000 + 7,410,000) =
11,585,000. Book value per share = 11,585,000/1,280,000 = $9.05
18. EPS = net income/number of shares = 1,600,000/1,280,000 = 1.25. Since P/E = 17.0, price per share
= (17.0)(1.25) = $21.25

Answers to Questions 19, 20, 21 and 22

LIFO
Purchases Sales Ending Inventory in Units
9,000 $ 25 2,000 50,000
10,000 $ 30 10,000 300,000
12,000 $ 35 12,000 420,000 7,000
24,000

COGS 770,000
End Inv 175,000

14,000 $ 40 14,000 560,000

16,000 $ 45 16,000 720,000
20,000 $ 50 20,000 1,000,000
6,000 150,000 1,000
56,000

COGS 2,430,000
End Inv 25,000
Gross profit 1,210,000

FIFO
9,000 $ 25 9,000 225,000
10,000 $ 30 10,000 300,000
12,000 $ 35 5,000 175,000 7,000
24,000
COGS 700,000
End Inv 245,000

7,000 245,000
14,000 $ 40 14,000 560,000
16,000 $ 45 16,000 720,000
20,000 $ 50 19,000 950,000 1,000
56,000
COGS 2,475,000
End Inv 50,000
Gross profit 1,165,000

19. Quarter 2 LIFO ending inventory = $25,000

20. Quarter 2 Gross profit (LIFO) = $1,210,000
21. Quarter 2 FIFO ending inventory = $50,000
22. Quarter 2 Gross profit (FIFO) = $1,165,000
23. Assume A = 100; then D = 55 and E = 45; thus A/E = 100/45 = 2.22
24. Assume A = 100; then D = 40 and E = 60; thus D/E = 40/60 = 0.67
25. Assume A = 100; then N = 15, D = 75 and E = 25. Thus, N/E = 15/25 = 0.60
26. Assume A = 100; then S = 500 and from N/S=.08, N = 40. Thus N/A = 40/100 = 0.40
27. Since N = 20000, from N/E = .40, E = 50,000 and from E/A = .75, A = 66,666.67. Thus, D =
66,666.67 – 50,000 = 16,666.67. So, D/A = 16,666.67/66,666.67 = 0.25 (also note that since E/A =
.75 and D + E = A, then by definition, D/A = .25 since E/A + D/A must equal 1).
28. Assume A = 100, then S = 650, D = 40, E = 60, and N = 45. Thus, N/S = 45/650 = 0.07
29. First, convert 2y + 10x + 18 = 4 into 10x + 2y = -14 and convert 4x - y + 11 = 0 into 8x - 2y = -22
10x + 2y = -14
8x - 2y = -22
18x + 0y = -36
Thus, x= -2
30. Plug in x = -2 into either equation and solve for y. Thus, 2y + 10(-2) + 18 = 4 or 2y = 6.
So, y = 3
31. 4(3g + 104) - 90 = 504 + 6(g – 14)
12g + 416 – 90 = 504 + 6g - 84
6g = 94
g = 15.67
32. Every minute, Bill mows 1/45 of the lawn, and Jim mows 1/75 of the lawn. Thus, M/45 + M/75 = 1
(the whole lawn). Solve for M: 75M/3375 + 45M/3375 = 1; 120M/3375 = 1; 0.035556M = 1; M =
28.12 minutes
33. Create 2 equations to correspond with the word problem (let W = number of white shirts and let Y =
number of yellow shirts):
W + Y = 30 and 9.95W + 10.50Y = 310.60. Now just solve for W and then you can solve for Y.
Substitute Y = 30 – W into equation 2 and solve for W to get W = 8
34. From W + Y = 30, if W = 8 then Y = 22
35. If Marcus can paint the entire room in 3.15 hours, then he paints at a rate of H/3.15 (where H is the
number of hours). So, if H = 3.15, then Marcus completes the entire room (i.e., 1). If he paints for half
of this amount of time, he completes ½ of the room. We want to find the rate at which Claudia paints
the room. We know that together they can complete the room in 2.09 hours.
In the 2.09 hours, Marcus will complete 2.09/3.15 = .6635 of the room. So, Claudia needs to complete
1 - .6635 = .3365 of the room in 2.09 hours. Thus, she must paint at a rate of 2.09/X = .3365; X =
6.21. So, if Claudia painted the room by herself, it would take her 6.21 hours to finish.

36. Let W = weight of bag of bricks in pounds. Then, W + .20W = 30; 1.20W = 30; W = 25
37. Let the total number of coins = x + y. According to the word problem, 25(x – y) = x2 – y2. From
algebra class, we know that (x – y)(x + y) = x2 – xy + xy – y2 = x2 – y2. So, rewrite the equation as:
25(x – y) = (x – y)(x + y). Then you can cancel out (x – y) on both sides to get 25 = x + y. So, the
number of coins is 25.
38. As many of you probably discovered, the answer to this problem can be found online at:
http://www.mesacc.edu/~marfv02121/readings/applications/mixtures.htm
Scroll down to Example 3.
The counterintuitive answer is: After evaporation, the cucumbers only weigh 50 lbs.
39. Assume Ed will deposit X into an account that pays 3% interest. After one year, he will have
(X)(1.03) in that account. And after one year, Ed will have (57000)(1.08) = 61,560.00 in his stock
account. Combined, he wants to earn a return of 4%. So the equation to solve is:
(57000)(1.08) + (X)(1.03) = (57000 + X)(1.04)
61,560.00 + 1.03X = 59,280.00 + 1.04X
2280 = .01X
X = 228,000.00
40. The patch would reach half the size of the lake on day 47.
If the pad DOUBLES every day, then on the 47th day the pad must cover half of the lake and when it
doubles, it will cover the entire lake.