1. Use the following partial financial statement information below to calculate the liquidity and profitability ratios. This information can be used to correctly solve each of the ratios below.

Average common shares outstanding 35,000 Current liabilities $25,000
Capital expenditures $20,000 Net income $50,000
Cash provided by operations $77,000 Net sales $100,000
Preferred stock dividends paid $30,000 Total liabilities $50,000
Current assets $20,000 Total assets $80,000

Instructions: Compute the following.
a) Current ratio
b) Working capital
c) Earnings per share
d) Debt-to-total-assets ratio
e) Free cash flow

To earn full credit, you must show the formula you are using, show your computations, and explain the meaning of each of your ratio results. (Points : 30)



2. The Oxford Company has budgeted sales revenues as follows

Oct Nov Dec
Credit sales $120,000 $96,000 $72,000
Cash sales 72,000 204,000 156,000
Total sales 192,000 300,000 228,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit, with 60% paid in the month of purchase and 40% in the month following purchase. Budgeted inventory purchases are $260,000 in October, $180,000 in November, and $84,000 in December.

Other budgeted cash receipts include (a) the sale of plant assets for $49,400 in November and (b) the sale of new common stock for $67,400 in December. Other budgeted cash disbursements include (a) operating expenses of $27,000 each month, (b) selling and administrative expenses of $50,000 each month, (c) dividends of $76,000 to be paid in November, and (d) purchase of equipment for $24,000 cash in December.

The company has a cash balance of $40,000 at the beginning of November and wishes to maintain a minimum cash balance of $40,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of November 1.

Requirements: Use this information to prepare a schedule of expected cash collections from customers for the months of November and December only.



3. The following items are taken from the financial statements of Lansing Company for 2010.

Accounts payable $16,500
Accounts receivable 25,500
Accumulated depreciation 12,600
Bonds payable 35,000
Cash 55,000
Common stock 75,000
Cost of goods sold 53,000
Depreciation expense 6,300
Dividends 5,300
Equipment 35,000
Interest expense 4,300
Patents 6,500
Retained earnings, January 1 80,000
Salaries expense 42,000
Sales revenue 115,000
Supplies 3,500

Instructions: Prepare an income statement and a retained earnings statement for Lansing Company.



4. Your friend Cynthia has hired you to evaluate the following internal control procedures.

a) Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls.
b) For the weaknesses, you also need to state a recommendation for improvement.


All checks are printed using indelible ink.
Cash register tapes are used.
The company accountant handles deposits and reconciles the bank account.
All over-the-counter receipts are registered by two clerks who share a cash drawer.
The office manager is in charge of petty cash.



5. Please prepare the following journal entries. Indicate which account should be debited with the abbreviation DR in front of the account name and which account should be credited with the abbreviation CR in front of the account name along with the dollar amount of the debit and credit.

a) Investors invested $1,000,000 in exchange for 100,000 shares of common stock.
b) Company received cash of $75,000 for services not

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