FI 3300 - CORPORATION FINANCE

Take-Home Problem Set One (THPS-1)

Spring 2011
Directions: This problem set covers chapter 2 (Accounting Review) in the textbook and basic math skills
that you will use throughout this course. Determine or compute an answer for each question/problem. After
you have computed an answer for every question, enter your answers online via the “quiz” function entitled
“THPS 1 ANSWER SUBMISSION FORM.” The answer submission form will open at noon on Firday,
January 28 and will close at 11:59 pm on Monday, January 31. I will post a detailed solution key to the
problem set right after the Answer Submission Form closes. I will answer questions about the problem set
during the chat sessions on January 24 and January 26.
This is a take-home, open book, open notes financial statement analysis problem set. Work on this
Assignment is to be yours alone - any discussion of either the questions on the assignment or your
answers with anyone other than your instructor will be considered as cheating and, thus, as a violation
of the GSU honor code.
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Financial statement data for Daryl’s Dog Houses, Inc. are given below. All figures are in dollars. Use this
data to construct an Income Statement for the year ending December 31, 2010 and use your constructed
statement to answer the following 4 questions.
General and administrative expenses 741,580
Beginning of year inventory 1,248,790
Research and development 541,250
Taxes 754,610
Depreciation 218,730
Purchases 1,457,880
Lease payments 698,650
Interest expense 876,420
End of year inventory 1,178,960
Advertising 456,320
Management salaries 1,487,560
Gross sales 8,456,210
Returns and allowances 18,410
1. What was gross profit from Daryl’s Dog Houses, Inc.’s income statement for the year ending December
31, 2010?
2. What was operating profit (i.e., EBIT) from Daryl’s Dog Houses, Inc.’s income statement for the year
ending December 31, 2010?
3. What was profit before taxes (i.e., EBT) from Daryl’s Dog Houses, Inc.’s income statement for the year
ending December 31, 2010?
4. What was net income from Daryl’s Dog Houses, Inc.’s income statement for the year ending December
31, 2010?

5. Jennings, Inc. paid out total dividends equal to $11,421,200 in 2010. If Jennings reported Retained
earnings of $320,868,600 for 2009 and Retained earnings of $350,290,000 for 2010, what was Jennings
reported net income in 2010?
6. In 2010, Variman, Incorporated had Gross Accounts receivable of $2,663,420 and management
estimated the Allowance for Doubtful accounts to be $244,920. Compute the ratio of Allowance of
Doubtful accounts to Net Accounts receivable for Variman, Inc. for 2010 (that is, compute
Allowance/Net Accounts receivable).
7. In 2010, the Whaddock Company purchased 754,000 units from its supplier at a cost of $144.50 per unit.
Whaddock sold 625,000 units of its product in 2010 at a price of $188.00 per unit. Whaddock began
2010 with 125,000 units in inventory (inventory is carried at a cost of $144.50 per unit). Using this
information, compute Whaddock’s gross profit for 2010.
8. Referring back to the previous question, compute Whaddock’s 2010 ending inventory balance (in
dollars, valued at cost per unit of $144.50).
9. In 2010, Himmat’s, Inc. (a retail clothing company) sold 57,200 units of its product at an average price
of $268.00 per unit. The company reported estimated returns and allowances in 2010 of 1.75 percent of
gross revenue. Himmat’s actually purchased 59,500 units of its product from its manufacturer in 2010 at
an average cost of $183.00 per unit. Himmat’s began 2010 with 8,250 units of its product in inventory
(carried at an average cost of $183.00 per unit). Operating expenses (excluding depreciation) for
Himmat’s, Inc. in 2010 were $718,600 and depreciation expense was $310,000. Himmat’s had
$3,000,000 in debt outstanding throughout all of 2010. This debt carried an average interest rate of 6.5
percent. Finally, Himmat’s’s tax rate was 40 percent. Himmat’s’s fiscal year runs from January 1 through
December 31. Given this information, compute net income for Himmat for 2010.
10. Referring back to the previous problem, compute Himmat’s ending inventory balance for 2010 (that is,
what did Himmat’s report as inventory on its December 31, 2010 balance sheet).

Financial data for Sarah’s Construction Company are given below. All figures are in dollars. Use this data to
construct a Balance Sheet for the company for the year ending December 31, 2010 and use your constructed
statement to answer the following 5 questions (i.e., 11 through 15). NOTE: Not every item in the list below
belongs on the balance sheet – you have to use some given data to determine needed accounts for the balance
sheet. However, other than what is listed and/or can be derived, there are no other accounts on Sarah’s
balance sheet - use cash as a plug figure to balance the balance sheet.
Additional paid in capital 186,500
Gross fixed assets 2,658,000
Current portion of Long-term debt 33,500
Accumulated depreciation 248,500
Returns and allowances 8,500
Common stock ($1.25 par value) 607,750
Long-term debt (excluding current portion) 1,584,200
Accruals 24,500
Gross accounts receivable 212,500
Cost of goods sold 505,200
Accounts payable 196,500
Purchases 487,600
Beginning of year inventory 489,500
Short-term bank loan 48,100
Retained earnings 586,900
Cash ???

11. What did Sarah’s Construction Company record as Total Current Assets on December 31, 2010
balance sheet?
12. What did Sarah’s Construction Company record as Total Current Liabilities on December 31, 2010
balance sheet?
13. What did Sarah’s Construction Company record as Total Assets on December 31, 2010 balance sheet?
14. What was Total Shareholder’s Equity on Sarah’s Construction Company’ December 31, 2010 balance
sheet?
15. Sarah’s Construction Company reported net income for 2010 of $271,886 and the company paid
dividends of $0.34 per share in 2010. Given this information (along with the data provided above),
compute what Sarah’s Construction Company reported as retained earnings on its December 31, 2009
balance sheet. (Assume that no additional shares of stock were issued between December 31, 2009 and
December 31, 2010).

16. The year-end 2010 balance sheet for Brad’s Copy, Inc. lists common stock ($1.25 par value) at
$7,626,000 capital surplus at $86,543,126 and retained earnings at $218,546,280. On the 2009 year-end
balance sheet, retained earnings are listed as $214,368,950. The firm’s net income in 2010 was
$12,659,120. No stock was issued or repurchased in 2010. What were dividends per share paid by the
firm in 2010?

17. The Lunder Company has total assets of $21,542,600, current liabilities of $2,547,000, and long-term
liabilities of $7,410,000. The firm has 370,000 shares of common stock outstanding. Compute the firm’s
book value per share.

18. Referring back to the previous question, if Lunder’s net income equals $1,055,700 and Lunder has a P/E
ratio of 12.5 times earnings per share, what is the current price of the stock?

USE THE FOLLOWING INFORMATION TO ANSWER QUESTIONS 19 - 22

The Devlin Corporation, a diversified distribution company, purchases cartons of canned tennis balls from
the Questor Company and markets the balls under the Devlin brand name.

Purchases and sales data for Devlin's first two quarters of business are shown below:
Quarter 1
Sales 20,000 cartons at $55 per carton
Purchases January 6,400 cartons at $26
February 10,100 cartons at $30
March 8,400 cartons at $34
Quarter 2
Sales 30,000 cartons at $56 per carton
Purchases April 9,000 cartons at $36
May 10,400 cartons at $39
June 6,800 cartons at $42
19. Calculate the Quarter 2 ending inventories (in dollars) using the LIFO inventory valuation method.
20. Calculate Quarter 2 COGS using the LIFO inventory valuation method.
21. Calculate the Quarter 2 ending inventories (in dollars) using the FIFO inventory valuation method.
22. Calculate Quarter 2 COGS using the FIFO inventory valuation method.
For each of the algebra problems below, round your answer to 2 decimal places and record your answer on
WebCT without (if applicable) a comma. Thus, enter 3.24765 as 3.25 or .18763 as 0.19 or 3,214.842876 as
3214.85.

23. Suppose that A = D + E and that D/A = 0.30. Solve for A/E.
24. Suppose that A = D + E and that D/A = 0.70. Solve for D/E.
25. Suppose that D + E = A, that N/A = .25 and that D/A = 0.16. Solve for N/E.
26. Suppose that S/A = 7.50 and N/S = .12. Solve for N/A.
27. Suppose A – D = E, that N = 16,000, E/A = .30 and N/E = .25. Compute D/A.
28. Assume that S/A = 4.5, D/A = .45, N/E = .80 and A = D + E. Solve for N/S.
29. Given that: 4x – y + 9 = 0 and 3y – 2x = 7, solve for x.
30. Solve for y in the problem above (i.e., in #29).
31. Given that: 4(2g + 104) - 96 = 504 + 6(g - 14), solve for g.
32. Today, Suzy is twelve years older than Billy, and next year she will be twice as old as Billy. How old is
Suzy now?
33. How old is Billy in the problem above (i.e., in #32)?
34. Bill can mow his mother's lawn in 12 minutes. His brother Jim can mow it in 18 minutes. How long will
it take them to do it together, if each has his own lawnmower? (Record your answer in minutes rounded
to one decimal place. For example, if the answer you find is 14.2835 minutes, record 14.3).
35. Marisa’s age is 16 years plus half her age. How old is she?