Question: You are evaluating two companies as possible
You are evaluating two companies as possible investments. The two companies, which are similar in size, are commuter airlines that fl y passengers up and down the West Coast. All other available information has been analyzed, and your investment decision depends on the statements of cash flows.
Requirement
Discuss the relative strengths and weaknesses of Smooth and Mountain. Conclude your discussion by recommending one of the companies’ stocks as an investment.
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Smooth Airlines Statements of Cash Flows Years Ended May 31, 2013 and 2012 2013 2012 Operating activities: Net income (net loss) $(105,000) $214,000 Adjustments for non-cash items: Total 118,000 13,000 (44,000) 170,000 Net cash provided by operating activities Investing activities: Purchase of property, plant, and equipment Sale of long-term investments Net cash provided by (used for) $ (94,000) 98,000 $(147,000) 29,000 investing activities 4,000 (118,000) Financing activities: Issuance of short-term notes payable Payment of short-term notes payable Payment of cash dividends Net cash used for financing activities Increase (decrease) in cash Cash balance at beginning of year Cash balance at end of year $ 149,000 $ 185,000 (256,000) (134,000) (67,000) (106,000) (55,000) $ (3,000) 171,000 $168,000 (174,000) $(157,000) 168,000 $11,000 Mountain, Inc. Statements of Cash Flows Years Ended May 31, 2013 and 2012 2013 2012 Operating activities: $ 201,000 $ 147,000 Net income Adjustments for non-cash items Total 92,000 66,000 213,000 Net cash provided by operating activities 293,000 Investing activities: Purchase of property, plant, and equipment S(448,000) Sales of property, plat, and equipment Net cash used for investing activities S(630,000) 87,000 113,000 (361,000) (517,000) Financing activities: Issuance of long-term notes payable Payment of short-term notes payable Net cash provided by financing activities $ 244,000 (107,000) $ 168,000 (16,000) 137,000 152,000 $ 69,000 Increase (decrease) in cash Cash balance at beginning of year Cash balance at end of year $(152,000) 135,000 $ 204,000 287,000 $ 135,000
> Which of the following items is most closely related to prior-period adjustments? a. Retained earnings b. Earnings per share c. Preferred stock dividends d. Accounting changes
> Use the Copycat Corporation data in question 43. At the end of its first year of operations, Copycat’s deferred tax liability is a. $27,000. b. $11,000. c. $3,000. d. $19,000.
> Copycat Corporation in the preceding question must immediately pay income tax of a. $77,000. b. $30,000. c. $33,000. d. $70,000.
> Copycat Corporation has income before income tax of $110,000 and taxable income of $100,000. The income tax rate is 30%. Copycat’s income statement will report net income of a. $30,000. b. $33,000. c. $77,000. d. $107,000.
> Earnings per share is not reported for a. Discontinued operations. b. Extraordinary items. c. Comprehensive income. d. Continuing operations.
> Foreign-currency transaction gains and losses are reported on the a. Balance sheet. b. Income statement. c. Statement of cash flows. d. Consolidation work sheet.
> One way to hedge a foreign-currency transaction loss is to a. Pay debts as late as possible. b. Pay in the foreign currency. c. Off set foreign-currency inventory and plant assets. d. Collect in your own currency.
> Buffalo Bell’s current ratio at year end 2012 is closest to a. $1,420. b. 0.9. c. 22.1. d. 1.2. Buffalo Bell Corporation Consolidatcd Statements of Financial Position (In millions) December 31, 2012 2011 Assets: Current Assets $ 4
> Graham Corporation is conducting a special meeting of its board of directors to address some concerns raised by the stockholders. Stockholders have submitted the following questions. Answer each question. 1. Why are common stock and retained earnings sho
> Boston Systems purchased inventory on account from Megaplex. The price was ¥140,000, and a yen was quoted at $0.0091. Boston paid the debt in yen a month later when the price of a yen was $0.0092. Boston a. Recorded a Foreign-Currency Transaction Gain of
> Return to the preceding question. Suppose you are evaluating Leslie’s Lotion Company stock as an investment. You require an 8% rate of return on investments, so you capitalize Leslie’s earnings at 8%. How much are you willing to pay for all of Leslie’s s
> Leslie’s Lotion Company reports several earnings numbers on its current-year income statement (parentheses indicate a loss): How much net income would most investment analysts predict for Leslie’s to earn next year?
> Refer to the Amazon.com, Inc. , consolidated financial statements in Appendix A at the end of this book. 1. Amazon.com, Inc.’s consolidated statements of operations do not mention income from continuing operations. Why not? Focus your attention on the co
> This case is based on the RadioShack Corporation consolidated financial statements in Appendix B at the end of this book. 1. Focus on the company’s Consolidated Statements of Income for the three years ended December 31, 2010, as well as Note 2 summarizi
> The December 31, 2011, Balance Sheet and the 2012 Statement of Cash Flows for Snow, Inc., follow: Requirement Prepare the December 31, 2012, balance sheet for Snow, Inc. Snow, Inc. Balance Sheet December 31, 2011 Assets: Cash $ 11,000 Accounts rec
> Craftsman Specialties reported the following at December 31, 2012 (in thousands): Requirement Determine the following items for Craftsman Specialties during 2012: a. Gain or loss on the sale of property and equipment b. Amount of long-term debt issued
> Rodeo Drive, Inc., reported the following in its financial statements for the year ended May 31, 2012 (in thousands): Requirement 1. Determine the following cash receipts and payments for Rodeo Drive, Inc., during 2012: (Enter all amounts in thousands.
> The comparative balance sheets of Lesley Leary Design Studio, Inc., at June 30, 2012 and 2011, and transaction data for fiscal 2012, are as follows: Transaction data for the year ended June 30, 2012, follows: a. Net income, $60,500 b. Depreciation expe
> To prepare the statement of cash flows, accountants for Rosie Electric Company have summarized 2012 activity in two accounts as follows: Rosie’s 2012 income statement and balance sheet data follow: Requirements 1. Prepare the statem
> POLA Corporation’s 2012 financial statements reported the following items, with 2011 figures given for comparison (adapted and in millions). Use the DuPont model to compute POLA’s return on assets and return on commo
> During 2012, Buffalo Bell’s total assets a. Increased by 28.3%. b. Increased by $1,420 million. c. Both a and b. d. Increased by 22.1%. Buffalo Bell Corporation Consolidatcd Statements of Financial Position (In millions) December
> Fashion Furniture Gallery, Inc., provided the following data from the company’s records for the year ended December 31, 2012: a. Credit sales, $522,000 b. Loan to another company, $8,900 c. Cash payments to purchase plant assets, $77,000 d. Cost of goods
> Use the Perfect Supply Corp. data from Problem P12-71B. Data in Problem P12-71B The 2012 and 2011 comparative balance sheets and 2012 income statement of Perfect Supply Corp. follow: Requirements 1. Prepare the 2012 statement of cash fl ows by using
> The 2012 and 2011 comparative balance sheets and 2012 income statement of Perfect Supply Corp. follow: Perfect Supply had no non-cash investing and fi nancing transactions during 2012. During the year, there were no sales of land or equipment, no paym
> The comparative balance sheets of Moynihan Movie Theater Company at September 30, 2012 and 2011, reported the following: Moynihan’s transactions during the year ended September 30, 2012, included the following: Requirements 1. Prepa
> Galvin Software Corp. has assembled the following data for the year ended December 31, 2012: Requirement Prepare Galvin Software Corp.’s statement of cash flows using the indirect method to report operating activities. Include an acco
> Use the Classic Automobiles of Cedar Grove, Inc., data from Problem 12-67B. Data in Problem 12-67B Classic Automobiles of Cedar Grove, Inc., was formed on January 1, 2012. The following transactions occurred during 2012: On January 1, 2012, Classic issu
> Classic Automobiles of Cedar Grove, Inc., was formed on January 1, 2012. The following transactions occurred during 2012: On January 1, 2012, Classic issued its common stock for $430,000. Early in January, Classic made the following cash payments: a. $16
> The comparative balance sheets of Susan Saboda Design Studio, Inc., at June 30, 2012 and 2011, and transaction data for fiscal 2012, are as follows: Transaction data for the year ended June 30, 2012, follows: a. Net income, $70,600 b. Depreciation expe
> To prepare the statement of cash flows, accountants for Dora Electric Company have summarized 2012 activity in two accounts as follows: Dora’s 2012 income statement and balance sheet data follow: Requirements 1. Prepare the statemen
> Give the DuPont model formula for computing (a) Rate of return on total assets (ROA) and (b) Rate of return on common stockholders’ equity (ROE). Then answer these questions about the rate-of-return computations. 1. Explain the meaning of the component d
> Landry Furniture Gallery, Inc., provided the following data from the company’s records for the year ended March 31, 2012: a. Credit sales, $600,000 b. Loan to another company, $12,300 c. Cash payments to purchase plant assets, $82,100 d. Cost of goods so
> Suppose you manage Outward Bound, Inc., a Vermont sporting goods store that lost money during the past year. To turn the business around, you must analyze the company and industry data for the current year to learn what is wrong. The companyâ€
> Use the Summer Time Supply Corp. data from Problem 12-62A. Data in Problem 12-62A The 2012 and 2011 comparative balance sheets and 2012 income statement of Summer Time Supply Corp. follow: Requirements 1. Prepare the 2012 statement of cash flows by us
> The 2012 and 2011 comparative balance sheets and 2012 income statement of Summer Time Supply Corp. follow: Summer Time Supply had no non-cash investing and financing transactions during 2012. During the year, there were no sales of land or equipment, n
> The comparative balance sheets of Mystic Movie Theater Company at June 30, 2012, and 2011, reported the following: Mystic Movie Theater’s transactions during the year ended June 30, 2012, included the following: Requirements 1. Prep
> Stellar Software Corp. has assembled the following data for the years ending December 31, 2012 and 2011. Requirement Prepare Stellar Software Corp.’s statement of cash flows using the indirect method to report operating activities. In
> Use the Modern Automobiles of Denver, Inc., data from Problem 12-58A. Data in Problem 12-58A Modern Automobiles of Denver, Inc., was formed on January 1, 2012. The following transactions occurred during 2012: On January 1, 2012, Modern issued its common
> Modern Automobiles of Denver, Inc., was formed on January 1, 2012. The following transactions occurred during 2012: On January 1, 2012, Modern issued its common stock for $280,000. Early in January, Modern made the following cash payments: a. $120,000 fo
> Income Tax Payable was $5,000 at the end of the year and $2,600 at the beginning. Income tax expense for the year totaled $58,900. What amount of cash did the company pay for income tax during the year? a. $56,500 b. $58,900 c. $61,300 d. $61,500
> Credit sales totaled $750,000, accounts receivable increased by $60,000, and accounts payable decreased by $40,000. How much cash did the company collect from customers? a. $690,000 b. $810,000 c. $730,000 d. $750,000
> Compute the following items for the statement of cash flows: a. Beginning and ending Accounts Receivable are $23,000 and $27,000, respectively. Credit sales for the period total $67,000. How much are cash collections from customers? b. Cost of goods sold
> Turnberry Golf Corporation’s long-term debt agreements make certain demands on the business. For example, Turnberry may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders’ equity, a
> The following data (dollar amounts in millions) are from the financial statements of Valley Corporation: Average stockholders’ equity............................... $5,400 Interest expense................................................
> The following data (dollar amounts in millions) are taken from the financial statements of Number 1 Industries, Inc.: Total liabilities.................................... $12,500 Total current assets........................... $13,500 Accumulated deprec
> Assume that you are considering purchasing stock as an investment. You have narrowed the choice to Topline.com and E-shop Stores and have assembled the following data. Selected income statement data for current year: Selected balance sheet and market p
> Comparative financial statement data of Panfield Optical Mart follow: Other information: 1. Market price of Panfield common stock: $94.38 at December 31, 2012, and $85.67 at December 31, 2011 2. Common shares outstanding: 15,000 during 2012 and 10,000
> Financial statement data of Eastland Engineering include the following items: Requirements 1. Compute Eastland’s current ratio, debt ratio, and earnings per share. (Round all ratios to two decimal places.) 2. Compute the three ratios
> Solomon’s net cash flow from financing activities for 2012 was (Assume no stock dividends were distributed.) a. Net cash used of $25,500. b. Net cash provided of $12,000. c. Net cash provided of $42,000. d. Net cash used of $14,500. So
> Top managers of Gilligan Products, Inc., have asked for your help in comparing the company’s profit performance and financial position with the average for the industry. The accountant has given you the company’s incom
> Net sales, net income, and total assets for Azbell Shipping, Inc., for a five-year period follow: Requirements 1. Compute trend percentages for each item for 2009 through 2012. Use 2008 as the base year and round to the nearest percent. 2. Compute the
> Copperhead, Inc., has the following stockholders’ equity: Preferred stock, 1%, $12 par, 35,000 shares authorized and issued............................... $ 420,000 Common stock, $8 par, 100,000 shares authorized, 67,000 shares issued....................
> Assume that you are considering purchasing stock as an investment. You have narrowed the choice to CDRom.com and Web Stores and have assembled the following data. Selected income statement data for the current year: Selected balance sheet and market pr
> Comparative financial statement data of Hamden Optical Mart follow: Other information: 1. Market price of Hamden common stock: $102.17 at December 31, 2012, and $77.01 at December 31, 2011 2. Common shares outstanding: 18,000 during 2012 and 17,500 dur
> Financial statement data of Shawsworth Engineering include the following items: Requirements 1. Compute Shawsworth’s current ratio, debt ratio, and earnings per share. (Round all ratios to two decimal places.) 2. Compute the three rat
> You are evaluating two companies as possible investments. The two companies, which are similar in size, are commuter airlines that fly passengers up and down the West Coast. All other available information has been analyzed, and your investment decision
> Top managers of O’Hare Products, Inc., have asked for your help in comparing the company’s profit performance and financial position with the average for the industry. The accountant has given you the companyâ
> Net sales, net income, and total assets for Aaron Shipping, Inc., for a five-year period follow: Requirements 1. Compute trend percentages for each item for 2009 through 2012. Use 2008 as the base year and round to the nearest percent. 2. Compute the r
> Witkum, Inc., reported the following sales and net income amounts: Show Witkum’s trend percentages for sales and net income. Use 2009 as the base year. (In thousands) 2012 2011 2010 2009 Sales. $9,960 $9,260 $8,790 $8,590 Net inco
> Solomon’s largest financing cash flow for 2012 resulted from (Assume no stock dividends were distributed.) a. Sale of equipment. b. Purchase of equipment. c. Payment of dividends. d. Issuance of common stock. Solomon Corporation format
> Assume that you are a financial analyst. You are trying to compare the financial statements of Caterpillar, Inc., with those of CNH Global , an international company that uses international financial reporting standards (IFRS). Caterpillar, Inc., uses th
> Verifine Corporation reported the following amounts on its 2012 comparative income statements: Perform a horizontal analysis of revenues and net income—both in dollar amounts and in percentages—for 2012 and 2011.
> Payne Bancshares has 18,000 shares of $4 par common stock outstanding. Suppose Payne distributes an 8% stock dividend when the market value of its stock is $20 per share. 1. Journalize Payne’s distribution of the stock dividend on May 11. An explanation
> Based on the EVA® analysis, Karin Oil Pipeline appears to be the better investment. Requirements 1. Before performing any calculations, which company do you think represents the better investment? Give your reason. 2. Compute the EVAÂ&
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> Evensen Furniture Company has requested that you determine whether the company’s ability to pay its current liabilities and long-term debts improved or deteriorated during 2012. To answer this question, compute the following ratios for
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> Prepare a comparative common-size income statement for McCracken Music Co. using the 2012 and 2011 data of Exercise 13-27B and rounding to four decimal places. Data of Exercise 13-27B McCracken Music Co. Comparative Income Statements Years Ended Dec
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> Compute trend percentages for Maple Valley Sales & Service’s total revenue and net income for the following five-year period, using year 0 as the base year. Round to the nearest full percent. Which grew faster during the period, t
> How many items enter the computation of Solomon’s net cash flow from financing activities for 2012? a. 3 b. 7 c. 2 d. 5 Solomon Corporation formats operating cash flows by the indirect method. *The book value of equipment sold during
> Sterling Garde, Inc., has 90,000 shares of $1.35 preferred stock outstanding in addition to its common stock. The $1.35 designation means that the preferred stockholders receive an annual cash dividend of $1.35 per share. In 2012, Sterling Garde declares
> Modern Brands recently completed a large debt refinancing. A debt refinancing occurs when a company issues new bonds payable to retire old bonds. The company debits the old bonds payable and credits the new bonds payable. Modern Brands had $160 million o
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> Compute return on sales (ROS), asset turnover (AT), return on assets (ROA), leverage (L), return on common stockholders’ equity (ROE), gross profit (GP), operating income percentage (OI), and earnings per share (EPS), to measure the abi
> Branson Furniture Company has requested that you determine whether the company’s ability to pay its current liabilities and long-term debts improved or deteriorated during 2012. To answer this question, compute the following ratios for
> The financial statements of Family News, Inc., include the following items: Requirements 1. Compute the following ratios for 2012 and 2011: a. Current ratio b. Quick (acid test) ratio c. Inventory turnover and days’ inventory outstand
> Identify any weaknesses revealed by the statement of cash flows of New York Apple Farms, Inc. New York Apple Farms, Inc. Statement of Cash Flows For the Current Year Opcrating activitics: Net income 67,100 Add (subtract) noncash items: Depreciation
> Prepare a comparative common-size income statement for McMahon Music Co., using the 2012 and 2011 data of Exercise 13-16A and rounding to four decimal places. Data in Exercise 13-16A McMahon Music Co. Comparative Income Statements Years Ended Decemb
> Putt Golf Company has requested that you perform a vertical analysis of its balance sheet to determine the component percentages of its assets, liabilities, and stockholders’ equity.
> Greenwood Corporation earned net income of $85,000 during the year ended December 31, 2012. On December 15, Greenwood declared the annual cash dividend on its 8% preferred stock (20,000 shares with total par value of $200,000) and a $0.15 per share cash
> The book value of equipment sold during 2012 was $20,000. Solomon’s net cash flow from investing activities for 2012 was a. Net cash used of $38,000. b. Net cash used of $47,000. c. Net cash used of $44,000. d. Net cash used of $25,500.
> Compute trend percentages for Peak Valley Sales & Service’s total revenue and net income for the following five-year period, using year 0 as the base year. Round to the nearest full percent. Which grew faster during the period, to
> Prepare a horizontal analysis of the comparative income statements of McMahon Music Co. Round percentage changes to the nearest one-tenth percent (three decimal places). McMahon Music Co. Comparative Income Statements Years Ended December 31, 2012 a
> What were the dollar amount of change and the percentage of each change in Blueberry Lane Lodge’s working capital during 2012 and 2011? Is this trend favorable or unfavorable? 2012 2011 2010 Total current assets $330,000 $280,000 $
> Compute economic value added (EVA®) for Lazeren Software. The company’s cost of capital is 3%. Net income was $755 thousand, interest expense $401 thousand, beginning long-term debt $620 thousand, and beginning stockholders’ equity was $3,010 thousand. R
> Take the role of an investment analyst at Cole Binder. It is your job to recommend investments for your client. The only information you have is the following ratio values for two companies in the graphics software industry. Write a report to the Cole
> A skeleton of Westview Country Florist’s balance sheet appears as follows (amounts in thousands): Use the following ratio data to complete Westview Country Florist’s balance sheet: a. Debt ratio is 0.57. b. Current r
> A skeleton of Westview Country Florist’s income statement appears as follows (amounts in thousands): Income Statement Net sales …………………………………………………….. $7,300 Cost of goods sold ………………….………………………….. (a) Selling expenses …………………….……………………… 1,520 Administra
> The annual report of Feeney Cars, Inc., for the year ended December 31, 2012, included the following items (in millions): Preferred stock outstanding, 3% ........................................ $700 Net income............................................
> Use the financial statements of Allstott, Inc., in Short Exercises 13-6 and 13-7 to compute these profitability measures for 2012. Show each computation. a. Rate of return on sales b. Asset turnover c. Rate of return on total assets. d. Leverage (equity
> Karen Knox Exports, Inc., is located in Clancy, New Mexico. Knox is the only company with reliable sources for its imported gifts. The company does a brisk business with specialty stores such as Neiman Marcus. Knox’s recent success has made the company a
> Use the financial statements of Allstott, Inc., in Short Exercises 13-6 and 13-7. 1. Compute the company’s debt ratio at December 31, 2012. 2. Compute the company’s times-interest-earned ratio for 2012. For operating i
> How many items enter the computation of Solomon’s net cash flow from investing activities for 2012? a. 5 b. 3 c. 2 d. 7 Solomon Corporation formats operating cash flows by the indirect method. *The book value of equipment sold during
> Use the Allstott 2012 income statement that follows and the balance sheet from Short Exercise 13-6 to compute the following: a. Allstott’s rate of inventory turnover and days inventory outstanding for 2012 b. Days’
