BA 620 Managerial Finance

Group Problem Set 1: This problem Set is based on materials covered in modules 1 and 2. It is designed for you to demonstrate your understanding of basic financial statements, financial statement analysis, break-even concepts, financial and operating leverages. Before you start this assignment, please review Modules 1 and 2 links thoroughly at the end of this document.

Finance date of Adams Stores, Inc. for the year ending 2016 and 2017.

Items                                                        2016                                                                  2017

Sales                                                $3,432,000                                                     $5,834,400

Cash                                                          9,000                                                                7,282

Other Expenses                                 340,000                                                          720,000

Retained Earnings                            203,768                                                             97,632

Long-term debt                                 323,432                                                         1,000,000

Cost of goods sold                          2,864,000                                                       4,980,000

Depreciation                                          18,900                                                    116,960

Short-term investments                    48,600                                                             20,000

Fixed Assets                                          491,000                                                     1,202,950

Interest Expenses                                 62,500                                                          176,000

Shares outstanding (par value =

$46.00)                                                   100,000                                                          100,000

Market Price of stock                                 8.50                                                                     6

Accounts Receivable                          351,200                                                         632,160

Accounts payable                                145,600                                                         324,000

Inventory                                             715,200                                                 1,287,360

Notes Payable                                     200,000                                                    720,000

Accumulated Depreciation               146,200                                                    263,160

Accruals                                                136,000                                                    284,960

Tax Rate                                                       40%                                                           40%

Instructions: Complete the following activities using the financial information above:

Part 1: Financial Statements

2017. Prepare the income statement for 2016 and 2017. Include statement of retained earnings for 2017. The company paid $11,000 dividend in 2017.
2018. Prepare the balance sheet for 2016 and 2017
2019. Prepare Common-Size financial statements of income statement and balance sheet.
2020. Prepare Statement of Cash Flows.

Module 1 Links:

• Tax Policy Center – What is the Difference Between Marginal and Average Tax Rates?
• Cash Flow Resources:
  • Pocket Sense – How to Determine a Firm’s Cash Flow From Its Financial Statements

Phil Town – How Do You Read a Cash Flow Statement? [5:17