Canada Project accounts

Canada  Project accounts   Question 1 2 3 4 5 Total   Mark 4 9 5 9 13 40   Student mark

Note: This Project accounts for 40 % of the Student Final Grade.

 

 

 

 

Question 1: (Total 4 marks)

Alhekma’s financial analyst gathered the following information for its competitors so that it can assess and evaluate its own performance against that of the competitors.

 

Ratios	Alhekma	Competitors
Average collection period	33.5 days	27.9 days
Total assets turnover	2.3	3.7
Inventory turnover	1.8	2.8
Quick ratio	0.6	1.3

 

Required

Illustrate how Alhekmais doing relative to its competitors. (1+1+1+1= 4 marks)

 

Ratios	Alhekma		Competitors	Evaluation
Average collection period	33.5 days	>	27.9 days	Bad, Performance of its competitors is better it collects payment faster than Alhekma.
Total assets turnover	2.3	<	3.7	Bad, Alhekmaassets are generating less revenue per $ as compared to its competitor
Inventory turnover	1.8	<	2.8	Bad, Alhekma inventory is sitting in racks more than its competitor
Quick ratio	0.6	<	1.3	Bad, Alhekmahas less liquid assets to honor its current liabilities

 

 

Conclusion;Alhekma's competitor's performance is better than Alhekma company.

Question 2: (Total 9 marks)

The following are the comparative financial statements for Eagle Company

 

Eagle Company Balance Sheet December 31
	2017	2016	2015
Cash	$ 30,000	$ 20,000	18,000
Accounts receivable (net)	50,000	45,000	48,000
Other current assets	90,000	95,000	64,000
Investments	55,000	70,000	45,000
Plant and equipment (net)	500,000	370,000	358,000
	$725,000	$600,000	$533,000
Current liabilities	$ 85,000	$ 80,000	$ 70,000
Long-term debt	145,000	85,000	50,000
Total Liabilities	230,000	165,000	120,000
Common stock, $10 par	320,000	310,000	300,000
Retained earnings	175,000	125,000	113,000
	$725,000	$600,000	$533,000

 

Eagle Company Income Statements For the Years Ended December 31
	2017	2016
Sales revenue	$740,000	$600,000
Less: Sales returns and allowances	40,000	30,000
Net sales	700,000	570,000
Cost of goods sold	425,000	350,000
Gross profit	275,000	220,000
Operating expenses (including income taxes)	180,000	150,000
Net income	$ 95,000	$ 70,000

 

Further information:

·       Hint: you must compute dividends paid.

·       The market price of Eagle’s common stock was as follows:

Year	Market price
2015	$7.00
2016	$7.50
2017	$8.50

Required

a.     Determine the following financial ratios for 2016 and 2017.

1.     Profit margin. (1 mark)

 

Profit margin = Net income/Net sales
2016	2017
70,000/570,000 = 12.28%	95,000/700,000 = 13.57%

 

2.     Asset turnover. (1 mark)

 

Asset turnover = Net sales/ Average total assets
2016	2017
570,000/(600,000+533,000)/2 = 1.01 times	700,000/(725,000+600,000)/2 = 1.06 times

 

3.     Earnings per share.(1 mark)

 

Earnings per share = Net income/Weighted average common shares outstanding
2016	2017
70,000/(30,000+31,000)/2) = $2.30	95,000/(31,000+32,000)/2 = $3.02

 

4.     Price-earnings ratio.(1 mark)

 

Price-earnings ratio = Market price per share of stock/earning per share
2016	2017
7.50/2.30 = 3.26 times	8.50/3.02 = 2.81 times

 

5.     Payout ratio.(1 mark)

 

Ø  Difference in Retained earnings = 125,000 – 113,000 = $12,000

dividends paid for 2016 = 70,000 – 12,000 = $58,000

Ø  Difference in Retained earnings = 175,000 – 125,000 = $50,000

dividends paid for 2017 = 95,000 – 50,000 = $45,000

Payout ratio =Cash dividends declared on common stock/ Net income
2016	2017
58,000/70,000 = 82.86%	45,000/95,000 = 47.37%

 

6.     Debt to assets ratio.(1 mark)

 

Debt to assets ratio = Total liabilities/ Total Assets
2016	2017
165,000/600,000 = 27.5%	230,000/725,000 = 31.72%

b.    After determining the above financial ratios, explain briefly whether or notthe company experiences improvement in the financial position and operating for the period from 2016 to 2017 (3 marks)

 

Eagle company's financial position has improved from 2016 to 2017, at profit margin, assets turnover ratio and EPS from 2016 to 2017 are increasing, but the price earing ratio, payout ratio are decreasing and suggest that in PER that investors may be looking less favourably at the corporation and in PR which help its overall solvency and the debt to assets ratio to reduce its debt burden as its debt to total assets ratio has decreased.

 

Question 3: (Total 5 marks: each point one mark)

 

Ibrahim is studying for his accounting finalproject, summarize for Ibrahim the differences between financial accounting and managerial accounting. (Use narrative arguments). (5 marks)

 

 

1. In case of financial accounting, the companies have to adhere to accounting standards depending on the country. These standards could be in relation to the presentation, frequency of reporting etc. But in case of managerial accounting, no such standards need to be followed.

 

2. Financial accounting is to be used by both internal and external parties including regulators, creditors, shareholders. Managerial accounting is to be used by internal users (management) and not for external parties.

 

3. Financial accounting statements need to be prepared at the end of the accounting period- every quarter and every year-end. Managerial accounting has no definite time frame of preparation- this is done according to the requirements of the management.

 

4. Financial accounting statement are required to be published and are audited by auditors. There is no such requirement in the case of managerial accounting.

 

5. Financial accounting is meant to look at the historical performance and is hence backward looking. Managerial accounting is forward looking- it focuses on creating and implementing strategic plans

 

 

 

 

 

 

Question 4: (Total 9 marks)

 

The following information is available for Tomlin Company.

 

	January 1, 2020	2020	December 31, 2020
Raw materials inventory	$21,000		$30,000
Work in process inventory	13,500		17,200
Finished goods inventory	27,000		21,000
Materials purchased		$150,000
Direct labor		220,000
Manufacturing overhead		180,000
Sales revenue		910,000
Selling expenses		50,000
Administrative expenses		80,000

 

Required

a.     Determine cost of goods manufactured. (3 marks)

b.     Prepare an income statement (3 marks)

c.      Describe the differences betweenmerchandising and manufacturing companies with respect to income statement and balance sheet. (3 marks)

 

a.

Tomlin Company
Statement of Cost of Goods Manufactured
Direct Materials Used
Raw materials beginning	21,000
Add: Purchases during the year	150,000
Raw materials available for use	171,000
Less: Closing Inventory of Raw Materials	30,000
Raw Materials used in Production		141,000
Add: Direct Labour Hours		220,000
Manufacturing Overheads	180,000
Add: WIP Beginning	13,500
Less: Closing WIP	17,200	176,300
Cost of Goods Manufactured		537,300

 

 

 

 

b.

 

Tomlin Company
Income Statement (Partial) For the year ended December 31,2020
Sales		910,000
Cost of goods sold:
Finished goodsinventory, Jan 1	27,000
Add: Cost of Goods Manufactured	537,300
Cost of Goods available for sales	564,300
Less: Finished goods inventory, Dec31	(21,000)
Less: Selling expenses	(50,000)
Less: Administrative expenses	(80,000)
		(413,300)
Net Income		$ 496,700

 

 

c.

 

Differentiation of	Income Statement	Balance Sheet
Merchandising & Manufacturing	merchandising company computation of cost of goods solder placed by purchases. Bet manufacturing cost of goods soldreplaced by Manufactured.	merchandising company shows just one category of inventory. But manufacturingshows three (finished goods inventory, work in process inventory, and raw material inventory).

 

 

 

 Question 5: (Total 13 marks)

The controller of Rather Production has collected the following information

Sales (100,000 Units)	$1,600,000
Selling expenses	$250,000 (40% variable and 60% fixed).
Direct materials	$490,000
Direct labor	$290,000
Administrative expenses	$270,000 (20% variable and 80% fixed)
Manufacturing overhead	$380,000 (70% variable and 30% fixed).

 

Required

a.     Determine (1) the contribution margin and (2) the fixed costs. (2+2=4 marks)

b.    Determine the break-even point in (1) units and (2) dollars. (2+2=4 marks)

c.      Determine the sales required in dollars to earn net income of $200,000. (2 marks)

d.    Assume that Rather Production meets its target net income, what is the margin of safety ratio. (3 marks)

 

Selling expense variable (250000*40%)	100,000
Selling expense fixed(250000*60%)	150,000
Administrative expense variable (270000*20%)	54,000
Administrative expense fixed (270000*80%)	216,000
Manufacturing overhead variable (380000*70%)	266,000
Manufacturing overhead fixed (380000*30%)	114,000

 

a) Contribution margin = Sales - Selling expense variable - Direct materials - Direct materials - Administrative expense variable - Manufacturing overhead variable

Contribution margin = 1,600,000 – 100,000 – 490,000 – 290,000 – 54,000 – 266,000 = $ 400,000

Fixed cost = Total Cost-Variable cost = 1,680,000-1,200,000 = $ 480,000

b) Break-even Point (in units)= Fixed cost/CM per unit = 480,000/(400,000/100,000) = 120,000 Units

Break-even Point (in dollars)=Fixed cost/CM = 480,000/(400,000/1,600,000) = $1,920,000

 

c) Required sales in Dollars    = (Fixed costs + target net income)/CM ratio

=(480,000+200,000)/(400,000/1,600,000) = $ 2,720,000

d) Margin of safety ratio         = (Current Sales - Break-even Point (in dollars))/ Current Sales

= (2,720,000-1,920,000)/2,720,000 = 29.41% 

1.     Project Assessment Criteria

      The assessment of the project will be undertaken by the instructor.

       Marks distribution will be as follows:

 Report Body                               40 marks

2.     Project Submission Date:

This project is due on week 16; and it is an Individual project.  The report should be uploaded using the (Moodle) ONLY before the due date.

 

Ø Project due date is January 25^th 2021.

 

3.     Late Submission Instructions:

 

All students must comply with the submission deadlines.

Students are required to submit the report in soft copy also through the Turnitin system which is available online at https://lms.ectmoodle.ae

High “Similarity Index” will result in low marks for the project.

 

4.     Format:

ü The cover page is important; please keep it in your submission.

ü High similarity in the answers will affect your marks negatively.

ü Follow the instructions that will be explained to you in class by the instructors

Good Luck