Cocoa Company * 2016 2017 Cash 100 75 Cost of Goods Sold 1000 1100 Debt (LT) 100
ID: 2337180 • Letter: C
Question
Cocoa Company *
2016 2017
Cash 100 75
Cost of Goods Sold 1000 1100
Debt (LT) 10000 12000
Depreciation 2000 2200
Equity (total) 5300 5125
Interest Expense 600 720
Inventories 400 400
Payables 1200 1350
Property, Plant, Equipment 16000 18000
Revenues 6500 7500
Salaries 2200 2100
Share Capital 4964 4491
* All values given are in 1000s of dollars.
1. Construct a statement of comprehensive income for Cocoa Co. up through Earnings-Before- Taxes (EBT) for both 2016 and 2017. Use three columns: The left column should list the relevant accounts, the middle column should show the appropriate values for each account in 2016, and the right column should show the appropriate values for 2017.
2. Compute full (combined federal and provincial) corporate taxes for Cocoa Co. for both 2016 and 2017. Cocoa is a small corporation based in New Brunswick. As such it pays only 15.5% (i.e., 11% federal and 4.5% provincial tax) on the first $425,000 it earns, and then pays 27.0% (i.e., 15% federal and 12% provincial tax) on the remainder.
3. What was net income for both years?
4. If Cocoa’s payout ratio is always 40%, what was the addition to retained earnings for both years?
5. Construct a statement of financial position for Cocoa Co. for both 2016 and 2017. (In constructing the SFP, please use three columns: The left column should list the relevant accounts that appear on the SFP, the middle column should show the appropriate values for each account in 2016, and the right column should show the appropriate values for each account in 2017.)
6. Calculate Cocoa’s current ratio for 2017. Explain what it means, and state whether you think it’s good news or bad news for Cocoa’s managers.
7. If the value of Cocoa’s assets are to remain unchanged for the foreseeable future, and its profits are expected to increase, what do you expect will happen to its ROA.
Explanation / Answer
income statement
2016
2017
revenue
6500000
7500000
less cost of goods sold
1000000
1100000
gross profit
5500000
6400000
salaries expense
2200000
2100000
depreciation expense
2000000
2200000
interest expense
600000
720000
EBT
700000
1380000
less taxes
167125
323725
net income
532875
1056275
taxes-2016
(425000*15.5%)+(375000*27%)
167125
taxes-2017
(425000*15.5%)+(955000*27%)
323725
addition to net income = net income*(1-payoutratio)
532875*(1-40%)
319725
addition to net income = net income*(1-payoutratio)
1056275*(1-40%)
633765
statement of financial position
Assets
2016
2017
current assets
cash
100000
75000
inventories
400000
400000
total current assets
500000
475000
plant and equipment
16000000
18000000
total of assets
16500000
18475000
liabilities and shareholders equity
current liabilities
payable
1200000
1350000
total current liabilities
1200000
1350000
debt
10000000
12000000
total of liabilities
11200000
13350000
shareholders equity
equity
5300000
5125000
total of liabilites and shareholders equity
16500000
18475000
current ratio = current assets/current liabilities
0.42
0.35
it measures the short term solvency of the company and it is reducing over the year so it is a bad news for the company as company's short term solvency is decreasing
ITS ROA will increase as value of assets are constant and profits are increasing ROA = net profit/total of assets
income statement
2016
2017
revenue
6500000
7500000
less cost of goods sold
1000000
1100000
gross profit
5500000
6400000
salaries expense
2200000
2100000
depreciation expense
2000000
2200000
interest expense
600000
720000
EBT
700000
1380000
less taxes
167125
323725
net income
532875
1056275
taxes-2016
(425000*15.5%)+(375000*27%)
167125
taxes-2017
(425000*15.5%)+(955000*27%)
323725
addition to net income = net income*(1-payoutratio)
532875*(1-40%)
319725
addition to net income = net income*(1-payoutratio)
1056275*(1-40%)
633765
statement of financial position
Assets
2016
2017
current assets
cash
100000
75000
inventories
400000
400000
total current assets
500000
475000
plant and equipment
16000000
18000000
total of assets
16500000
18475000
liabilities and shareholders equity
current liabilities
payable
1200000
1350000
total current liabilities
1200000
1350000
debt
10000000
12000000
total of liabilities
11200000
13350000
shareholders equity
equity
5300000
5125000
total of liabilites and shareholders equity
16500000
18475000
current ratio = current assets/current liabilities
0.42
0.35
it measures the short term solvency of the company and it is reducing over the year so it is a bad news for the company as company's short term solvency is decreasing
ITS ROA will increase as value of assets are constant and profits are increasing ROA = net profit/total of assets
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