Please answer all 4 questions! 1.The following information pertains to Diane Com
ID: 2499118 • Letter: P
Question
Please answer all 4 questions!
1.The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.
Assets
Cash and short-term investments
$ 30,000
Accounts receivable (net)
20,000
Inventory
15,000
Property, plant, and equipment
185,000
Total assets
$250,000
Liabilities and Stockholders’ Equity
Current liabilities
$ 45,000
Long-term liabilities
70,000
Stockholders’ equity—Common
135,000
Total liabilities and stockholders’ equity
$250,000
Income Statement
Sales
$85,000
Cost of goods sold
45,000
Gross margin
$40,000
Operating expenses
(15,000)
Interest expense
(5,000)
Net income
$20,000
Number of shares of common stock outstanding
6,000
Market price of common stock
$20
Total dividends paid
$9,000
Cash provided by operations
$30,000
What is the dividend yield for Diane Company?
a.
13.3%
b.
1.3%
c.
7.5%
d.
0.75%
2. The purpose of an audit is to
a. render an opinion on the fairness of the statements
b. determine whether or not a company is a good investment
c. determine whether or not a company complies with corporate social responsibility
d. determine whether or not a company is a good credit risk
3. The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.
Assets
Cash and short-term investments $ 30,000
Accounts receivable (net) 20,000
Inventory 15,000
Property, plant, and equipment 185,000
Total assets $250,000
Liabilities and Stockholders’ Equity
Current liabilities $ 45,000
Long-term liabilities 70,000
Stockholders’ equity—Common 135,000
Total liabilities and stockholders’ equity $250,000
Income Statement
Sales $85,000
Cost of goods sold 45,000
Gross margin $40,000
Operating expenses (15,000)
Interest expense (5,000)
Net income $20,000
Number of shares of common stock outstanding 6,000
Market price of common stock $20
Total dividends paid $9,000
Cash provided by operations $30,000
What are the dividends per common share for Diane Company?
a. $0.67
b. $3.00
c. $1.50
d. $20.00
4. The balance sheets at the end of each of the first two years of operations indicate the following:
Year 2 Year 1
Total current assets $600,000 $560,000
Total investments 60,000 40,000
Total property, plant, and equipment 900,000 700,000
Total current liabilities 125,000 65,000
Total long-term liabilities 350,000 250,000
Preferred 9% stock, $100 par 100,000 100,000
Common stock, $10 par 600,000 600,000
Paid-in capital in excess of par—Common stock 75,000 75,000
Retained earnings 310,000 210,000
If net income is $150,000 and interest expense is $20,000 for Year 2, what is the rate earned on total assets for the year?
a. 10.4%
b. 10.5%
c. 11.9%
d. 8.4%
Cash and short-term investments
$ 30,000
Accounts receivable (net)
20,000
Inventory
15,000
Property, plant, and equipment
185,000
Total assets
$250,000
Explanation / Answer
1. Dividend yield: DPS/ MPS
Dividend per sahre = 9,000/6,000 = 1.5
Market Price = 20
1.5/20 = 7.5
Answer C. 7.5 %
2. The purpose of Audit
Answer: a) Render an opinion on the fairness of statements
3. Dividend per common share
Dividend paid / Number of shares 9,000/6,000 = 1.5
Answer: C 1.5 per share
4. rate eraned on Total assets
Operating income / Average total assets: 170,000 /(1,560,000 + 1,300,000/2)
150,000/1,430,000 = 11.888
Answer :C 11.9 %
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