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Original Title: Port Folio Number - 2007-MAS

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Financial Analysis may be used to test the

fairness of the relationships among current financial data against prior financial information. Given

established financial relationships and few key amounts, a CPA could also prepare projected financial

statements. Junnie Sales Corporation has in recent Prior year maintained the following relationships

among the data on its financial statements:

Gross Income Rate on Net Sales 35%

Ratio of Selling Expense to Net Sales 15%

Acid-Test Ratio 2 is to 1

Current Ratio 3 is to 1

Accounts receivable Turnover 5 times

Inventory Turnover 5 times

Composition of Quick Assets

Accounts Receivable 60%, Cash 10%, and Marketable Securities 30 %

Asset Turnover 1 per year

Ratio of Total Asset to Intangible Assets 20 is to 1

Ratio of Working Capital to Shareholders Equity 1 is to 1.6

Ratio of Accounts Receivable to Accounts Payable is 1.5 is to 1

The ratio of total liabilities to Stockholders Equity is 1.4 is to 1.6

The ratio of accumulated depreciation and Fixed Asset͛s Cost is 1 is to 3

Times Interest Earned Ratio 2 is to 1

For 1990, the company projects to have a net income of 150 000 which will result in an earnings

of 10 per share of common stock. Additional Information includes the following;

a. Common stock has a par value of 50 per share and was issued at 20% premium

b. 8% Preferred stock has a par value of 50 pesos per share and was issued at 10% premium

c. Preference dividends are paid in 1989 , 10 000. The same amount will be p[aid in 1990.

d. The company͛s purchases and sales are all on account. For projection purposes, it is assumed

that the above relationships among the data on the financial statements of junnie Sales

Corporation shall also hold true for 1990.

Required: Prepare a projected Balance sheet and Income Statement (Ignore Income Tax)

Projected Income Statement

For the year ending December 31, 1990

Cost of Sales (1950 000)

Gross Profit 1050 000

Selling Expenses (450 000)

Other Expenses (300 000)

Interest expense (150 000) 900 000

Net Income 150 000 php

Junnie Sales Corporation

Projected Statement of Financial Position

For the year ending December 31, 1990

Cash P 100 000

Accounts Receivable 600 000

Marketable Equity Securities 300 000

Inventories 390 000

Other Current Assets 110 000

0 P 1 500 000

?

Fixed Asset P 2 025 000

Less: Acc. Depreciation: 675 000

Book Value 1350 000

Intangible Assets 150 000

0

1500 000

P 3 000 000

Accounts Payable P 400 000

Other Current Liabilities 100 000

0 P 500 000

?

Long term liabilities P 900 000

0

900 000

P1 400 000

`

Ordinary shares,50 par. Issued 14 000 shares P 700 000

Share Premium ordinary shares 140 000

8% Preference shares, par 50, 2500shares issued 125 000

Share Premium Preference shares 12 500

Retained earnings 622 500

P1 600 000

P 3 000 000

Solution:

?

uuuu

Net Income on Net Sales ´ ´ ´ uu

? ?

Thus, ? ´ uuuu ´ ½uuuuuu

uu

?

´ ´ ½

½uuuuuu

Ratio of Selling Expense to Net Sales ´ ´ ´

? ½uuuuuu

Thus, Selling Expense = 3 000 000 (.15) = 450 000

½uuuuuu

Accounts receivable Turnover ´ ´ ´

½uuuuuu

Thus, Projected Accounts Receivable = ´ ^uuuuu

10% cash

30 % marketable securities

Thus,

^uuuuu

Quick assets= ´ uuuuuu

^u

Consequently,

10% Cash 100, 000

30 % Marketable Securities 300, 000

TOTAL (100%) 1, 000, 000

Acid-Test Ratio ´ ´à

uuuuuu

´ ´à

Thus, Current Liabilities will be equal to 1,000,000 divided by 2 or 500,000

Current Ratio ´ ´½

´

´½

uuuuu

Thus, Current Assets will be three(3) times of current liabilities or an amount equal to 1,500,000

? ½uuuuuu ´

Asset Turnover = ´

´

And so it means that the Total Assets is 3, 000, 000 and the total Liabilities plus SHE is also 3,000,000

Furthermore, it also mean that,

Current Asset + Non Current Asset = 3, 000,0000

1,500,000 + Non Current Asset = 3, 000,0000

Non Current Asset = 3, 000,0000 ʹ 1,500,000

Non Current Asset = 1,500,000

Given that

Total Assets/ Intangible Asset = 3,000,000/intangible asset = 20

Then, intangible asset is equal to 150,000

And so it means than, the book value of the fixed asset is equal to 1500 000 ʹ 150 000 or 1 350 00

It follows that,

Since, The ratio of accumulated depreciation and Fixed Asset͛s Cost is 1 is to 3 then;

Less: Accumulated depreciation (xxx) 1

Book Value 1,350,000

Less: Accumulated depreciation (xxx) 1 675 000

Book Value 1,350,000 1 350 000

Since the Ratio of Accounts Receivable and Accounts Payable is 1.5 is to 1 then it follows that

Accounts Payable AP 1.5

And Since the Current Liabilities is 500,000 and the only mentioned Current Liability is Accounts Payable

which is worth 400,000 then there͛s OTHER CURRENT LIABILITIES which is to be valued at

100,000.

Working Capital ´

´ uuuuu uuuuu

´ uuuuuu

WC:SHE=1:1.6

1,000,000 : SHE = 1 : 1.6

uuuuuu ^

Thus, SHE = ´ ^uuuuu

If the net income is 150 000 then the EPS will be 10 pesos per share, putting into an equation, then we

have,

Earnings Per Share ´ ´ u

uuuu uuuu

´ ´ u

uuuu

´ ´ u

uuuu

´

u

uuu ´

Thus, 14,000 shares multiply to 50 pesos par vale, then the total par value of issued Ordinary Shares is

700,000. And since these shares are issued at 20% share premium or 700 000(1.2) =840 000

which is break downed into 700 000 @par and 140 000 of which is the share premium.

Since it is assumed that 10 000 pesos is still the worth of the dividend to be received by preference

share holders then

10,000 / .08 = 125 000 is the par value of all the preference share issued

And since the aforementioned shares are issued at 10% share premium, then the issuance resulted to a

share premium on preference shares of 12 ,500 pesos.

Trying to complete the shareholders equity then,

`

Ordinary shares,50 par. Issued 14 000 shares P 700 000

Share Premium ordinary shares 140 000

8% Preference shares, par 50, 2500shares issued 125 000

Share Premium Preference shares 12 500

Retained earnings xxx

P1 600 000

Working back then the Retained Earnings Balance should be 622 500

And since the ratio of total liabilities to Stockholders Equity is 1.4 is to 1.6

Then,

Total liabilities : Stockholders Equity = 1.4 : 1.6

TL : 1, 600, 000 =1.4 : 1.6

Thus,

^uuuuu

Total Liabilities ´ ´ uuuuu

^

And since the Current Liabilities is valued at 500 000 then the Non Current Liabilities is worth 900,000.

?

§

Times Interest Earned Ratio ´

And since

?

§

Times Interest Earned Ratio ´ ´à then,

uuuu §

´ ´à

uuuu §

´ à

uuuu ´ à

uuuu ´

= 3,000,000 ʹ 1,050,000

= 1,950,000

Inventory Turnover ´

´

! uuuu

´

Then The Projected Inventory Should be 1950 000/5 or 390 000

Financial Statement Ratios

Acid-Test Ratio ´

uuuuuu

´ ´à

uuuuu

Current Ratio ´

uuuuu

´ ´½

uuuuu

? uuuu

Net Income on Net Sales ´ ´ ´ uu

? ½uuuuuu

u uuuu

Gross Income Rate on Net Sales ´ ´ ½

? ½uuuuuu

uuuu

Ratio of Selling Expense to Net Sales ´ ´ ´

? ½uuuuuu

´

? ½uuuuuu

Accounts receivable Turnover ´ ´

^uuuuu

Inventory Turnover ´

´

! uuuu

´ times

½!uuuu

Cash 100, 000 10%

Marketable Securities 300, 000 30 %

TOTAL 1, 000, 000 100%

? ½uuuuuu

Asset Turnover = ´ ´ ´

½uuuuuu

Ratio of Working Capital to Shareholders Equity

1,000,000 : 1,600,000 =1 is to 1.6

Accounts Payable 400,000

1,400,000 : 1, 600, 000 = 1.4 : 1.6

Cost of the Fixed Asset 2 250 000

?

§ uuuu uuuu

Times Interest Earned Ratio ´ ´ ´à

uuuu

uuuu uuuu

Earnings Per Share ´ ´ u

uuu

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