Port Folio Number - 2007-MAS

8/7/2019 Port Folio Number - 2007-MAS

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Port Folio Number 2. Construction of Financial Statements. 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:

Net Income on Net Sales 5%

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 1.6Ratio 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 Assets 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% premiumb. 8% Preferred stock has a par value of 50 pesos per share and was issued at 10% premiumc. Preference dividends are paid in 1989 , 10 000. The same amount will be p[aid in 1990.d. The companys 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)

Junnie Sales Corporation

Projected Income Statement

For the year ending December 31, 1990

Net Sales P 3 000 000

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


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Junnie Sales Corporation

Projected Statement of Financial Position

For the year ending December 31, 1990

ASSETS

Current assets

Cash P 100 000

Accounts Receivable 600 000

Marketable Equity Securities 300 000

Inventories 390 000

Other Current Assets 110 000

Total Current assets P 1 500 000

Non Current Assets

Fixed Asset P 2 025 000

Less: Acc. Depreciation: 675 000

Book Value 1350 000

Intangible Assets 150 000

Total Non Current Assets 1500 000Total Assets P 3 000 000

LIABILITIESAND SHAREHOLDERSEQUITY

Liabilities

Current Liabilities

Accounts Payable P 400 000

Other Current Liabilities 100 000

Total Current Liabilities P 500 000

Non Current Liabilities

Long term liabilities P 900 000

Total Non Current Liabilities 900 000Total liabilities P1 400 000

Shareholders equity

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

Total ShareholdersEquity P1 600 000

Total liabilities and shareholdersEquity P 3 000 000


3/8

Solution:

Net Income on Net Sales 05.0150000

!!!

NetSalesNetSales

NetIncome

Thus, 300000005.0

150000!!NetSales

Gross Income Rate on Net Sales 35.!!NetSales

eGrossIncom

35.3000000

!!eGrossIncom

Thus, Gross Income = .35( 3000 000) = 1 050 000

Ratio of Selling Expense to Net Sales 15.3000000

!!!nsesSelingExpe

NetSales

ensesSellingExp

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

Accounts receivable Turnover ti esarceivableountsAverageAcc

etSales5

3000000

Re!!!

Thus, Projected Accounts Receivable = 6000005

3000000!

If the composition of Quick assets is:

60% accounts Receivable

10% cash

30 % marketable securities

Thus,

Quick assets= 000,000,160.

600000!

Consequently,

60% Accounts Receivable 600, 000

10% Cash 100, 000

30 % Marketable Securities 300, 000

TOTAL (100%) 1, 000, 000

Acid-Test Ratio 2!!bilitiesCurrentLia

sQuick

sset


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2000,000,1

!!

bilitiesCurrentLia

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

Current Ratio 3!!bilitiesCurrentLiaetsCurrent

ss

3000,500

!!ets urrentAss

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

Since the asset turnover is 1 then

Asset Turnover = 1000,000,3

.!!!ets

verage

ss ssetsave

NetSales

Thus, Average Assets is equal to 3,000,000 divided by 1 or 3,000,000

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 1,500,000

Non Current Asset = 1,500,000

Given that

Ratio of Total Asset to Intangible Assets thenTotal 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 000 150 000 or 1 350 00

It follows that,

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

Fixed Asset xxx 3

Less: Accumulated depreciation (xxx) 1

Book Value 1,350,000

Or 3x - 1x = 1,350,000 or 2x= 1,350,000 which is equal to x=675,000 thus

Fixed Asset xxx 3 2 025 000

Less: Accumulated depreciation (xxx) 1 675 000

Book Value 1,350,000 1 350 000


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

Accounts Receivable = 1.5 or 600,000 = 1.5 or AP = 600,000 = 400,000

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 theres OTHER CURRENT LIABILITIES which is to be valued at

100,000.

Working Capital bilities urrent

iaets urrentAss !

000,500000,500,1 !

000,000,1!

And since the Ratio of Working Capital To SHE is 1 is to 1.6 then

WC:SHE=1:1.6

1,000,000 : SHE = 1 : 1.6

Thus, SHE = 000,600,11

6.1*000,000,1!

In Addition since According to the Given,

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 10gOutstandinSharesCommon

DividendPreferenceNetIncome!

!

10gOutstandinSharesCommon

10,000150,000 !!

10gutstandinharesommon

140,000!!

gutstandinharesommon10

140,000!

gutstandinharesommon14,000 !

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 000which 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.


6/8

Trying to complete the shareholders equity then,

Shareholders equity

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

Total ShareholdersEquity 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 : 1.6Thus,

Total Liabilities 000,400,16.1

)4.1(000,600,1!!

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

Given the formula

Times Interest Earned Ratio Interest

InterestNetIncome!

And since

Times Interest Earned Ratio 2!

!

Interest

InterestNetIncomethen,

2000,150

!

!

Interest

Interest

interest150,000

(interest))2(interest150,000

then,

)2(InterestInterest150,000

!

!

!

Cost of Sales = Net Sales Gross Profit

= 3,000,000 1,050,000

= 1,950,000

Inventory Turnover 51950000

!!!

xentoryAverageInv

s ostofsale

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


7/8

Financial Statement Ratios

Acid-Test RatiobilitiesCurrentLia

sQuick

sset!

2000,500000,000,1 !!

Current RatiobilitiesCurrentLia

etsCurrent

ss!

3000,500

000,500,1!!

Net Income on Net Sales 05.0

3000000

150000!!!

NetSales

NetInco e

Gross Income Rate on Net Sales 35.3000000

1050000!!

NetSales

eGrossIncom

Ratio of Selling Expense to Net Sales 15.3000000

450000!!!

NetSales

ensesSelling

xp

Accounts receivable Turnover ti esceivableountsAverageAcc

NetSales5

600000

3000000

Re!!!

Inventory Turnover 5390000

1950000!!!

entoryAverageInv

s ostofsaletimes

Composition of Quick Assets

Accounts Receivable 600, 000 60%

Cash 100, 000 10%

Marketable Securities 300, 000 30 %

TOTAL 1, 000, 000 100%

Asset Turnover = 1000,000,3

000,000,3

.!!!

AssetsAve

NetSales

Ratio of Total Asset to Intangible Assets

Total Assets/ Intangible Asset = 3,000,000/150,000 = 20 is to 1


8/8

Ratio of Working Capital to Shareholders Equity

Working Capital : Shareholders Equity = 1 : 1.6

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

Ratio of Accounts Receivable to Accounts Payable is

Accounts Receivable = 600,000 = 1.5 is to 1

Accounts Payable 400,000

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

Total liabilities : Stockholders Equity = 1.4 : 1.6

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

The ratio of accumulated depreciation and Fixed Assets Cost is

Accumulated Depreciation = 750 000 = 1 is to 3

Cost of the Fixed Asset 2 250 000

Times Interest Earned RatioInterest

InterestNetIncome! 2

000,150

000,150000,150!

!

Earnings Per Share 10000,14

000,10000,150

gOutstandinSharesCommon

DividendPreferenceIncomeNet !

!

Documents

Port Folio Number - 2007-MAS