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EXERCISE n.1 (14 points)

At the end of year 2008 the balance sheet of Access Co. is the following

ASSE!S "

Cash and Cash E#$i%alents &2'000

Acco$nt Recei%ables 1'&000

In%entories '11000

Short)ter* in%est*ents 121000

+re),aid E-,enses '0&/

Total current assets 1'22&/

ote Recei%ables &0

Intangible assets 182'

3i-t$re and E#$i,*ent 8820

4and 220000

5$ildings '1/000

Total long-term assets 0'

Total assets 1&2'8

4IA5I4I!IES A6 S!7C9746ERS E:;I! inco*e ta- rate.

Create the !)acco$nts and ,re,are the classified balance sheet and the inco*e state*ent for yearend 200.

S74;!I7

!)acco$nts balance sheet

Cash Accounts Receivable Inventory

Beg. 723,000

(3) 187,165

(4) 43,500(5) 327,000(9) 8,000

46,000 (1)

16,000 (3)

5,040 (8)

Beg. 137,000

(2) 350,000(5) 123,000

Beg. 311,000

250,000 (2)

1,221,625 610,000 61,000

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Fixture and Equipment Land Lease Liability

Beg. 89,820

(1) 553,912.8

Beg. 220,000

(7) 20,000(1) 12,765.23

553,912.8 (1)

643,732.8 240,000 541,147.57

Unearned rent (L) onds !ayable "iscount on bondspayable (#L)

8,000 (9)Beg. 256,783

(3) 200,000

(3) 12,835

1,284 (3)

8,000 456,783 11,551

Allo$ance %or doubt%ulaccounts (#A)

!re&!aid Expense Accumulated "epreciaiton

50,000 (6)Beg. 30,745

(8) 5,040

1,680 (8) 22,156.51 (1)

50,000 34,105 22,156.51

!aid&in capital Common 'toc

13,600 (7)

6,400 (7)

13,600 6,400

Income ax !ayable "e%erred ax Asset

152,686.31 (9)(9) 2,560

152,686.31 2,560

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T-accounts: income statement

ad debt expense Insurance Expense Interest Expense

(6) 50,000 (8)1,680 (1) 33,234.77 (3) 17,284

50,000 1,680 50,518.77

Revenues Cost o% *oods sold "epreciation Expense

350,000 (2)43,500 (4)450,000 (5)

(2) 250,000 (1) 22,156.51

843,500 250,000 22,156.51

Income ax Expense

(9) 150,126.31

150,126.31

4ease calc$lation

Debit Credit

3i-t$re (DA= //'12.8

4ease liability (D4= //'12.8

At year end (t1=

6e,reciation e-,ense (DE)SE= 22,156.51

Acc$*$lated de,reciation (XA)A= 22,156.51

Interest e-,ense (DE)SE= 33,234.77

4ease liability ()4= 12,765.23

Cash ()A= 46,000

+B of the fi-t$re

+=

22=0.01(0.0

1

0.0

1000PV

//'12.8"

!he ad$st*ents at year end (t1=6e,reciation e-,ensecost)resid$al %al$eF1G$sef$l life6e,reciation e-,ense//'12.8G2/221/./1"

Interest e-,ense//'12.8F0.0''2'.&&"4ease liability000)''2'.&&12&/.2'" (the ,ortion of the e#$i,*ent that is nowowned=

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!ransaction '+resent Bal$e of the ,rinci,al

882"

Ann$al Interest +ay*ents 200000 - 0.081000"

+B Interest +ay*ents

Iss$e (sale= ,rice882D1028'18&1/"6isco$nt on bonds ,ayable 200000)18&1/128'/"128'/ "G10128" (straight)line a*ortiHation of bond disco$nt=5ond Interest e-,ense1000D1281& 28"

!ransaction Sales re%en$es)Credit card disco$nts)Sales Ret$rns and Allowancesnet sales re%en$es/0000)(/0000F0.0'=)(1G10F/0000='/00"

!ransaction &

800 shares F 2/"20000" (land=+$rchased land by iss$ing ca,ital stoc? recorded at *ar?et %al$e of the stoc?800 shares F8"00" (co**on stoc?=+aid)in ca,ital20000")00"1'00"

!ransaction 8/00F1G'180"

!ransaction (to record this transaction yo$ *$st co*,$te the ,re)ta- inco*e=8000" are recogniHed as rent e-,enses in 2010 financial inco*e b$t are ta-ed in 200.

!a-able inco*e1.&2 "(,re)ta- inco*e=D8000" (rent e-,ense=&&1.&2"Inco*e !a- +ayable&&1.&2"F'2>1/28.'1"6eferred !a- Asset8000"F'2>2/0"Inco*e !a- E-,ense1/28.'1)2/01/012.'1"

10

=0.01(

000200

+

=PV

"8'102

=0.01(0.0

1

0.0

10001

10

=

+=PV

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Inco*e state*ent

Revenues:Net saes !e"enues

Costs and expenses:#ost o$ goo%s so%

&e'!eciation e'ense nsu!ance e'ense

Operating income

Other revenues and gainsnte!est e'enseBa% %e*t e'ense

Pre-tax incomencome ta e'enseNet Income

843,500

(250,000)

(22,156.51)(1,680)

569,663.49

(50,518.77)(50,000)

469,144.72(150,126.31)

319,018.41

5alance Sheet

ASSE!S

Cash and Cash E#$i%alents 12212/

Acco$nt Recei%ables (net of Allowance for do$btf$l acco$nts= /0000

In%entories 1000

Short)ter* in%est*ents 121000

6eferred !a- Asset 2/0

+re),aid E-,enses '10/

Total current assets 200020

ote Recei%ables &0

Intangible assets 182'3i-t$re and E#$i,*et (net of acc$*$lated de,reciation= 21/&

4and 20000

5$ildings '1/000

Total long-term assets 1201'/

Total assets '201

4IA5I4I!IES A6 S!7C9746ERS E:;I!2.

=(

=+=

+=

e

fMife

r

rrrr

>2.

=0

1'0>=(./>=(01(>0/.10

==(=(1(

=

+=

+=

u

uu

ducue

r

rr

E

DrrTrr

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;C31.2/)''.2)1.2/.'

3ro* 2010 to 2011 there is an increase in wor?ing ca,ital of 1.2 that needs to be s$btracted tocalc$late the ;C3.

'. Calc$late the %al$e of 6elta Co*,any with the A+B *ethod (ass$*,tion that cash flows areconstant in ,er,et$ity=

6/F0.'28&.& *ln E$ros

B;C3Gr$ D!a- rateF6ebtB/.'G0.02 D0.F28&.&&0'.&B6DE&0'.&28&.&DE

E1.0

. Calc$late the rKACC

/. Calc$late the +GE and E+S ratios

6E4!A Co*,any!arget ,rice1.0G12.&1et earnings1.//)2.2'.'+GE1.0G'.'11.2E+S'.'G12.'rd&>

Co*,any a**a+GE0G&/.2E+S&/G'2.20rd/.>

E%en if the co*,any 6elta shows a cost of debt higher than co*,any a**a it has a betterrelati%e ,osition in ter*s of *ar?et e-,ectations (+GE= and earnings ,er share (E+S=.

/=0&.1(

0001

=0&.1(

0/

/

1

=+==t

tP

ecdWA rED

ETr

ED

Dr

++

+= =1(

eWArr +=

&.&0'

0.1=.01>(&

&.&0'

&.28&

>&0.10

=0.1

&.28&>=(&>2.>=(01(>2.

==(=(1(

=

+=

+=

e

ducue

r

EDrrTrr

>0.8>&.10&.&0'

0.1=.01>(&

&.&0'

&.28&=+=WAr

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