Reference no: EM13922390

Problem 1. List and describe any shortcomings of this statement.

Problem 2. Each of the following three columns is an independent case. For each case, compute the amounts ($in thousands) for the items indicated by letters and show your supporting computations:

Problem 3. The Bekele Company was incorporated on April 1,20X0. Bekele had 10 holders of common stock. Rosa Bekele, the president and chief executive officer, held 51% of the shares. The company rented space in chain discount stores and specialized in selling ladies' accessories. Bekele's first location was in a store that was part of The Old Market in Omaha.

The following events occurred during April:

a. The company was incorporated. Common stockholders invested $200,000 cash.

b. Purchased merchandise inventory for cash, $45,000.

c. Purchased merchandise inventory on open account, $35,000.

d. Merchandise carried in inventory at a cost of $37,000 was sold for cash for $25,000 and on open account for $75,000, for a grand total of $100,000. Bekele (not The Old Market) carries and collects these accounts receivable.

e. Collection of accounts receivable, $18,000. See transaction (d).

f. Payments of accounts payable, $30,000. See transaction (c).

g. Special display equipment and fixtures were acquired on April 1 for $36,000. Their expected useful life was 36 months. This equipment was removable. Bekele paid $12,000 as a down payment and signed a promissory note for $24,000. Also see transaction (k).

h. On April 1, Bekele signed a rental agreement with The Old Market. The agreement called for a flat $2,000 per month, payable quarterly in advance. Therefore, Bekele paid $6,000 cash on April 1.

i. The rental agreement also called for a payment of 10% of all sales. This payment was in addition to the flat $2,000 per month. In this way, The Old Market would share in any success of the venture and be compensated for general services such as cleaning and utilities.
This payment was to be made in cash on the last day of each month as soon as the sales for the month had been tabulated. Therefore, Bekele made the payment on April 30.

j. Employee wages and sales commissions were all paid for in cash. The amount was $34,000.

k. Depreciation expense of $1,000 was recognized ($36,000,36 months). See transaction (g).

l. The expiration of an appropriate amount of prepaid rental services was recognized.

Required

1. Prepare an analysis of Bekele Company's transactions, employing the balance sheet equation approach demonstrated in Exhibit 2-3 (p. 49 ) . Show all amounts in thousands.

2. Prepare a balance sheet as of April 30, 20X0, and an income statement for the month of April. Ignore income taxes.

3. Given these sparse facts, analyze Bekele's performance for April and its financial position as of April 30, 20X0.

Problem 4. H.J. Heinz Company 's actual condensed balance sheet data for April 27, 2011, follow ($ in millions):

The following summarizes a few transactions during May 2011 ($ in millions):

a. Ketchup carried in inventory at a cost of $4 was sold for cash of $3 and on open account of $8, for a grand total of $11.

b. Acquired inventory on account, $6.

c. Collected receivables, $5.

d. On May 2, used $12 cash to prepay some rent and insurance for 12 months. Heinz classifies prepaid expenses as Other Assets.

e. Payments on accounts payable (for inventories), $4.

f. Paid selling and administrative expenses in cash, $1.

g. Prepaid expenses of $1 for rent and insurance expired in May.

h. Depreciation expense of $2 was recognized for May.

Required:

1. Prepare an analysis of Heinz's transactions, employing the balance sheet equation approach demonstrated in Exhibit 2-3 (p. 49 ) . Show all amounts in millions.

2. Prepare a statement of earnings for the month ended May 31 and a balance sheet as of May 31. Ignore income taxes.

Problem 5: Consider the following balance sheet of a wholesaler of children's toys: the following is a summary of transactions that occurred during 20X1:

Problem 6: Following is a list of three well-known package delivery companies (UPS and FedEx from the United States and Deutsche Post World Net , owner of DHL, in Germany) and selected financial data of the sort typically included in letters sent by stock brokerage firms to clients. Note that € is the symbol for the euro, the European currency.

The missing figures for this schedule can be computed from the data given.

1. Compute the missing figures and identify the company with the following:

a. The highest dividend-yield
b. The highest dividend-payout percentage
c. The lowest market price relative to earnings

2. Assume you know nothing about any of these companies other than the data given and the computations you have made from the data. Which company would you choose as

a. the most attractive investment? Why?
b. the least attractive investment? Why?