Problems 3.1 through 3.

8 are based on the following information:

The Ruffy Stuffed Toy Company’s balance sheet at the end of 19x7 was as follows:
Assets
Cash 27,300
Accounts Receivable 35,000
Inventory 57,000
Total Current Assets 119,300
Property, Plant, and Equipment
Equipment 25,000
Less Accumulated Depreciation <2,500>
Net Equipment 22,500
Furniture 16,000
Less Accumulated Depreciation <2,000>
Net Furniture 14,000
Total Prop, Plant, Equip 36,500
Total Assets 155,800
Liabilities and Shareholders’ Equity
Payables
Accounts Payable 65,000
Salary Payable 3,000
Utilities Payable 1,500
Loans (Long-term debt) 25,000
Total Liabilities 94,500
Common Stock 45,000
Retained Earnings 16,300
Total Shareholders’ Equity 61,300
Total Liabilities & Shareholders’ Equity 155,800

During 20x2, the Ruffy Stuffed Toy Company recorded the following transactions:
a. Early in the year, purchased a new toy stuffing machine for $9,000 cash and signed a 3-year note for
the balance of $12,000.
b. Had cash sales of $115,000 and sales on credit of $316,000.
c. Purchased raw materials from suppliers for $207,000.
d. Made payments of $225,000 to its raw materials suppliers.
e. Paid rent expenses totaling $43,000.
f. Paid insurance expenses totaling $23,000.
g. Paid utility bills totaling $7,500; $1,500 of this amount reversed the existing payable from 20x1
h. Paid wages and salaries totaling $79,000; $3,000 of this amount reversed the payable from 20x1
i. Paid other miscellaneous operating expenses totaling $4,000.
j. Collected $270,000 from its customers who made purchases on credit.
k. The interest rate on the Loan Payable is 10% per year. Interest was paid on 12/31/20x2
Other information:
1. The equipment has been estimated to have a useful life of 20 years, with no salvage value. Two years
have been depreciated through 20x1
2. The existing furniture has been estimated to have a useful life of 8 years (no salvage value), of which
one year has been depreciated through 20x1
3. The new stuffing machine has been estimated to have a useful life of 7 years, and will probably have
no salvage value.
4. The tax rate is 35%, and assume that taxes are paid on 12/31/20x2
5. Dividend payout, if possible, will be 10% of net income.
6. Cost of Goods Sold for the year’s sales were $250,000.
7. Ending Balance in accounts receivable = Beginning Balance − cash received from credit customers +
sales on credit
8. Ending Balance in accounts payable =Beginning Balance + purchases – cash payments to suppliers
9. Ending Balance in Inventory =Beginning Balance + purchases of raw material – cost of goods sold
10. The company’s stock price at market close on 12/31/20x2 was 4 5/8. It has 20,000 shares outstanding.
Sales Revenue 431,000
COGS 250,000
Gross Margin 181,000
Expenses
Wages and Salaries Expense 76,000
Rent Expense 43,000
Insurance Expense 23,000
Utility Expense 6,000
Miscellaneous Operating Expense 4,000
Depreciation Expense 6,250
181,000 158,250
Income Before Interest and Tax 22,750
Interest Expense 2,500
Taxable Income 20,250
Taxes (0.35) 7,087.50
Net Income 13,162.50
Dividends (0.1) 1,316.25
Income after Dividends 11,846.25

CASH FLOW STATEMENT

Net Income 13162.5
+Dep 6,250
- A/R increase 35000 81000 (46,000)
+ Inventory decrease 57000 14000 43,000
- A/P decrease 69500 47000 (22,500)
Total Cash Flow from Operations −6087.5
- Investment in PPE −21000
Total cash from investing −21000
activities
- Dividends −1316.25
+ Increase in Notes Payable +12000
Total cash from financing +10683.75
activities
Change in Cash Flow −16403.75

RATIOS:
ROS 22750 431000 0.0528
ROA 22750 156473.13 0.1454
ROE 13162.5 67223.13 0.1958
Receivables 431000 58000 7.4310
Turnover
Inventory Turnover 250000 35500 7.0423
Asset Turnover 431000 156473.13 2.7545
Debt 84000 157146.25 0.5345
Times Interest Earned 22750 2500 9.1000
Current 105896.25 47000 2.2531
Quick 91,896.25 47000 1.9552
P/E 4.625 0.6581 7.0278
Mkt to Book 4.625 3.6573 1.2646