1.
Introduction: Income statement is a statement showing the incomes and expenses of a firm and arriving at a profit after deducting all the expenses from the income.
To prepare: An income statement.
2.
Introduction: Times interest earned is the measure that calculates how much a company is earning in the ratio of interest expense.
To compute: Company’s Times interest earned under the expansion
3.
Introduction: Income statement of a company is the statement showing all the incomes, expenses and profits/losses of the company and it is prepared to see the operations of the company clearly.
To prepare: Income statement of the company.
4.
Introduction: Income statement shows the
To prepare: Income statement of the company.
5.
Introduction: Interest expense is the consideration paid for the amount borrowed by the firm. It is paid on fixed percentage for the time period of loan.
To comment: On the result calculated above.
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Loose Leaf for Financial Accounting: Information for Decisions
- You are about to buy a business that is worth $200,000, but you do not have enough money to purchase the business entirely. You have a total of $90,000 in savings and you are looking at different financing options. Provide information for the following: Provide an example of debt financing Explain which type of long-term liability financing you would choose to buy the business? Provide a suggestion for future business owners on financingarrow_forwardAlice’s second initiative calls for Fresh & Fruity to obtain a bank loan of a sufficient size to enable the company to take all suppliers’ discounts. What is the minimum size of this loan? (Hint: To take all suppliers’ discounts, the average payment period must be 10 days, and net purchases will be purchases – (Purchases from Figure 1 x .02). Assume that all this happens, and solve the following formula for the new accounts payable balance, using: Accounts payable = Average payment period x Purchase per day* *Based on net purchases/360. Now compare the accounts payable you just solved with the new accounts payable balance you found in question 3. The difference is the size of the loan that is required. Assume that Fresh &Fruity does obtain an 8 percent loan for one year in the amount you solved in question 5, and it reduces its accounts payable balance accordingly. Now the company is taking 2 percent discounts on all purchases and paying 8 percent a year on the loan…arrow_forwardAs a small software developer firm, you have approached the AXZ Bank to obtain a term loan so that the firm can purchase a new server. The AXZ bank provides two (2) offers to your company, as listed below:a) a loan of $100,000 over a five (5) year period at an interest rate of 7.65% per annum (per year) payable at the end of each month.b) a loan of $100, 000 over a three (3) year period at an interest rate of 5.5% per annum (per year) payable at the end of each month. 1. Calculate the monthly loan instalments for each offer listed above – a) and b).2. Calculate the total interest payments for each offer listed above – a) and b). Please kindly provide all the workings and calculations properly to understand. Thank youarrow_forward
- You work for the CEO of a new company that plans to manufacture and sell a new type of laptop computer. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is $810,000. Other data for the firm are shown below. How much higher or lower will the firm's expected EPS be if it uses some debt rather than only equity, i. e., what is EPSL - EPSU? 0% Debt, U 60% Debt, L Oper. income (EBIT) $810,000 $810,000 Required investment $ 2,500,000 $2,500,000 % Debt 0.0% 60.0% $ of Debt $0.00 $1,500,000 $ of Common equity $2,500,000 $ 1,000,000 Shares issued, $10/share 250,000 100, 000 Interest rate NA 10.00% Tax rate 25% 25% a. $0.75 b. $ 2.52 c. $3.36 d. $4.10 e. $2.90arrow_forwardSuppose you had the following propositions of returns from two companies W and Y: Company Returns (OMR) Comments W 475 Company W proposes to give OMR 475 today Y 550 Company Y proposes to give you OMR 550 but after 2 years You also know that the Interest Rate is by 10%. Question: In which company do you choose to invest your money and why? (Use two formulas (ways) and also use Tables to make sure your answers are correct).arrow_forwardYou work for the CEO of a new company that plans to manufacture and sell a new type of laptop computer. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is $690,000. Other data for the firm are shown below. How much higher or lower will the firm's expected EPS be if it uses some debt rather than only equity, i.e., what is EPSL - EPSU? 0% Debt, U 60% Debt, L Oper. income (EBIT) $690,000 $690,000 Required investment $2,500,000 $2,500,000 % Debt 0.0% 60.0% $ of Debt $0.00 $1,500,000 $ of Common equity $2,500,000 $1,000,000 Shares issued, $10/share 250,000 100,000 Interest rate NA 10.00% Tax rate 35% 35% Select one: a. $1.29 b. $1.97 c. $2.23 d. $1.63 e. $1.72arrow_forward
- Use the following information to answer the question(s) below. You have a small recycling business. A competitor has promised you to buy your business any time in the next 2 years for the amount of CHF 370,000. (If you do not sell she will probably enter the market and crash you out) On the other hand, you have some ideas for short term investments in your business that could yield to some interesting revenue before you sell. These are your options. Option 1: Sell the business right away. Option 2: Invest CHF 36,000 now, generating $47,880 in profit next year and then sell the business at the end of next year. Option 3: Invest CHF 63,000 now, generating profits of CHF 50,400 at the end of both the first and second years, then after 2 years, sell the business. If the discount rate is 6.2%: Format answers (#####.##) i) What is the present value of option 1? 370000 ii) What is the present value of option 2 ? iii) What is the present value of option 3 ?arrow_forwardThe liabilities and owners’ equity for Campbell Industries is found here. What percentage of the firm’s assets does the firm now finance using debt (liabilities)? If Campbell were to purchase a new warehouse for $1.4 million and finance it entirely with long-term debt, what would be the firm’s new debt ratio?arrow_forwardGandhi sells books, magazines, music, and videos through retail stores and online. For expanding its business Gandhi has taken following long term loans and their maturities are listed below. These are the current debt outstanding as on 2020. Calculate the weighted average Interest rate for Gandhi? Debt Issues and Maturities: 2022 Notes 2023 Notes 2028 Notes 2032 Notes 2041 Notes 2049 Notes Face Value Amounts (in million $) Answer is in % use 2 decimals while writing answers and no % sign. $ 404 $ 307 $147 $87 $ 283 $441 Stated Interest Rates 0.571% 0.949% 2.092% 2.377% 3.146% 3.317%arrow_forward
- Wally has provided the information below – and asked you to create an Income Statement and Balance Sheet for AndrewCo for the year ended December 31, 2019. Sales were $1,200,000 Gross profit margin was 50% Operating margins were 10% The Bank of Toronto provided a loan on Jan 1, 2019 worth $300,000. The annual interest is 8% and is compounded annually. Interest only payments are needed – until the loan is due in 10 years, where a balloon payment for the full balance must be paid. The combined federal and provincial tax rates is 25% Wally knows that the ending cash balance in his company is 200,000. Accounts Receivables is 12% of sales Inventory is 15% of sales Accounts Payable is 5% of sales Accrued expenses payable is 5.5% of sales Capital equipment purchases were made at the start of the year. These total $50,000. These depreciate at 10% per year The owner will provide all other capital in the form of equity financing Wally has asked you to figure out his Selling General and…arrow_forwardAssume that you started a new business last year with RM30,000 of your own money to purchase equipment. You are seeking a RM100,000 loan to finance the inventory needed to reach this year’s sales target. You have agreed to pledge your venture’s delivery truck and your personal car as a security for the loan. Your family member has agreed to become the guarantor. During your initial year of operation, you paid your supplier in 30-day credit. (a) Assume that at the end of next year you will have an accounts receivable balance of RM15,000 and an inventory balance of RM30,000. If a bank lends an amount equal to 80% of accounts receivable and 50% of inventories pledged as collateral, estimate the amount that the bank might consider for a bank loan a year from now.arrow_forwardAssume that you started a new business last year with RM30,000 of your own money to purchase equipment. You are seeking a RM100,000 loan to finance the inventory needed to reach this year’s sales target. You have agreed to pledge your venture’s delivery truck and your personal car as a security for the loan. Your family member has agreed to become the guarantor. During your initial year of operation, you paid your supplier in 30-day credit. (a) Use the five Cs of credit to analyse your loan request from the viewpoint of a lender in deciding whether you should make the loan. (b)Assume that you are currently carrying an accounts receivable balance of RM10,000. Analyze how you might use accounts receivables to obtain an additional bank loan.arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning