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Introduction

This mid-term exam has the following:
Question Score
1 2
2.1 2
2.2 2
3 3
4.1 3
4.2 3
5 5
6 5
25

Question 1

1 What opportunities and threats are created for financial managers by increased international competition?

Raw Data for Problem 2

Raw Data for Problem 2.1 and 2.2
$
Line Item Million
Accounts payable 2,298
Acounts receivable, net 2,380
Additions to property 948
Cash and cash equivalents 888
Cost of goods sold 14,216
Current maturities of Long term debts 1,904
Deferred income tax 1,394
Dividends 1,168
Equity 4,308
General administrative expenses (G&A) 6,598
Goodwill 7,256
Income taxes 1,004
Interest expense 496
Inventories 2,112
Issuance of long term debts 1,974
Long term debts 9,816
Net loss to non-controllign interest (14)
Notes payable 88
Other assets 1,440
Other current assets 450
Other current liabilities 2,078
Other intangible, net 2,912
Other long term liabilities 1,278
Pension liabilities 530
Property, net 6,256
Sales 24,794
End

Problem 2.1

Income Statement Preparation:
Use raw data from tab 2
In million dollars
Sales ?
Costs of goods sold ?
Gross income ?
General administrative expense ?
Operating income ?
Interest expense ?
Pre-tax income ?
Income tax ?
Net income ?
Net loss to noncontrolling interest ?
Net income attribute to Kellog's ?

Problem 2.2

Balance Sheet Preparation
Use raw data from tab 2
Dr. Cr.
In million dollars In million dollars
Cash and cash equivalents ? Current long term debts ?
Accounts receivable, net ? Notes payable ?
Inventories ? Account payable ?
Other current assets ? Other current liabilities ?
Total current assets Total current liabilities ?
Property, net ? Long term debts ?
Goodwill ? Deferred income tax ?
Other intangible, net ? Other long term liabilities ?
Other assets ? Pension liabilites ?
Total long term assets ? Total long term liabilities ?
Equity ?
Total assets ? Total liabilities and equity ?

Problem 3

Chapter 3 Comprehensive Do It! Problem, Legal Services Inc. was incorporated on July 1, 2014. During the first month of operations, the following transactions occurred:
1. Stockholders invested cash in exchange for shares of stock, $20,000 6. Performed legal services for client on account, $4,000
2. Paid for July rent on office space, $1,600 7. Paid monthly expense: Salaries and Wages $1,000
3. Purchased office equipment on account, $3,000 Utilities $600
4. Provided legal services to clients for cash, $3,000 (Use Svc Rev.) Advertising $200
5. Borrowed cash from a bank on a note payable, $1,400
Instructions:
(a) Prepare a tabular summary of the transactions.
Assets = Liabilities + Stockholders' Equity
Common Stock Retained Earnings
Transaction: Cash + Accounts Receivable + Equipment = Notes Payable + Accounts Payable + + Revenues - Expenses - Div. Explainations:
1 + + =
2 + + =
Subtotal 0 0 0 0 0 0 0 0
3 + + =
Subtotal 0 0 0 0 0 0 0 0 0
4 + + =
Subtotal 0 0 0 0 0 0 0 0
5 + + =
Subtotal 0 0 0 0 0 0 0 0
6 + + =
Subtotal 0 0 0 0 0 0 0 0
7 + + =
+ + =
+ + =
Balance 0 0 0 - -
(b) Prepare the income statement, retained earnings statement, and balance sheet at July 31 for Legal Services, Inc.
LEGAL SERVICES INC. LEGAL SERVICES INC.
Income Statement Balance Sheet
For the Month Ended July 31, 2014 July 31, 2014
Revenues Title
Services $0 Account Amount
Expenses Account Amount
Account Amount Account Amount
Account Amount Title Formula
Account Amount
Account Amount Title
Title Formula Account
Title Formula Account Amount
Account Amount
LEGAL SERVICES INC. Title Formula
Retained Earnings Statement Title
For the Month Ended July 31, 2014 Account Amount
Title Amount Account Formula Formula
Title Amount Title Formula
Title Formula

Problem 4-1

Prepare horizontal analysis.
Financial information for Gallup Inc. is presented below.
Instructions:
Prepare a schedule showing a horizontal analysis for 2014 using 2013 as the base year.
GALLUP INC.
Condensed Balance Sheet
December 31
December 31, 2014 December 31, 2013 Amount Percentage
Assets
Current assets $256,000 $200,000 Formula Formula
Plant assets (net) 792,000 660,000 Formula Formula
Title Formula Formula Formula Formula
Liabilities
Current liabilities $ 182,000 $ 140,000 Formula Formula
Long-term liabilities 277,400 190,000 Formula Formula
Title Formula Formula Formula Formula
Stockholders' Equity
Common stock, $1 par 318,000 230,000 Formula Formula
Retained earnings 270,600 300,000 Formula Formula
Title Formula Formula Formula Formula
Total lia and stockholders' equity Formula Formula Formula Formula

Prolbme 4-2

Prepare vertical analysis.
Operating data for Conard Corporation are presented below.
Instructions:
Prepare a schedule showing a vertical analysis for 2014 and 2013.
CONARD CORPORATION
Condensed Income Statements
For the Years Ended December 31
2014 2013
Amount Percentage Amount Percentage
Net sales $1,500,000 $1,200,000 Formula
Cost of goods sold 960,000 816,000 Formula
Gross Profit 540,000 384,000 Formula
Selling expenses 210,000 168,000 Formula
Administrative expenses 150,000 108,000 Formula
Total expenses 360,000 276,000 Formula
Operating Income before tax 180,000 108,000 Formula
Income tax expense 72,000 36,000 Formula
Net income $108,000 $72,000 Formula

Problem 5

4.2. Income Taxes – Amount and Rates: Determine the amount of taxes as well as the marginal and
average income tax rates for a corporation earning (a) $10,000,000; (b) $100,000,000; (c) $500,000,000; and (d) $1,000,000,000.
a b c d
Taxable Income Tax Base 10,000,000 Tax Base 100,000,000 Tax Base 500,000,000 Tax Base 1,000,000,000
Up to $50,000 15%
$50,001 to $75,000 25%
$75,001 to $100,000 34%
$100,001 to $335,000 39%
$335,001 to $10,000,000 34%
$10,000,001 to $15,000,000 35%
$15,000,001 to $18,333,333 38%
Over $18,333,333 35%
Total Taxes
Marginal Tax Rate tax rate applied to last taxable income
Average Tax Rate Total Tax / Taxable Income

Problem 6

Problem 6 , Selected financial data of Target and Wal-Mart for a recent year are presented here (in millions).
Target Corporation Wal-Mart Stores, Inc.
Income Statement Data for Year
Net sales $67,390 $405,046
Cost of goods sold 45,725 304,657
Selling and administrative expenses 13,469 79,607
Interest expense 757 1,884
Other income (expense) (2,944) 2,576
Income tax expense 1,575 7,139
Net income $2,920 $14,335
Balance Sheet Data (End of Year)
Current assets $17,213 $ 48,331
Noncurrent assets 26,492 122,375
Total assets $43,705 $170,706
Current liabilities $10,070 $ 55,561
Long-term debt 18,148 44,396
Total stockholders' equity 15,487 70,749
Total liabilities and stockholders' equity $43,705 $170,706
Beginning-of-Year Balances
Total assets $44,533 $163,429
Total stockholders' equity 15,347 65,285
Current liabilities 11,327 55,390
Total liabilities 29,186 98,144
Other Data
Average net receivables $6,560 $4,025
Average inventory 7,388 33,836
Net cash provided by operating activities 5,271 26,249
Instructions: (Expect slight differences than printed solutions manual due to significant digits in calcuations.
(a)(1) Compute the current ratio for each company.
Target Current ratio Current Assets = 17,213 = 1.7 to 1
Current Liabilities 10,070
Wal-Mart Current ratio Current Assets = 48,331 = 0.9 to 1
Current Liabilities 55,561
(a)(2) Compute the receivables turnover for each company.
Target Receivables turnover Credit Sales = =
Average net receivable 6,560
Wal-Mart Receivables turnover Credit Sales = =
Average net receivable 4,025
(a)(3) Compute the average collection period for each company.
Target Average collection period 365 = 365 =
Receivable turnover
Wal-Mart Average collection period 365 = =
Receivable turnover
(a)(4) Compute the inventory turnover for each company.
Target Inventory turnover Cost of goods sold = 45,725 = 6.2
Average inventory 7,388
Wal-Mart Inventory turnover Cost of goods sold = 304,657 = 9.0
Average inventory 33,836
(a)(5) Compute the days in inventory for each company.
Target Days in inventory 365 = 365 = 59.0
Inventory Turnover 6.2
Wal-Mart Days in inventory 365 = 365 = 40.5
Inventory Turnover 9.0
(a)(6) Compute the profit margin for each company.
Target Profit margin Net Income 2,920 = 4.3%
Net sales 67,390
Wal-Mart Profit margin Net Income 14,335 = 3.5%
Net sales 405,046
(a)(7) Compute the Debt to total assets ratio for each company.
Target Debt to total assets Total debts = =
Total assets
Wal-Mart Debt to total assets Total debts = =
Total assets
Compare the profitability of the two companies.