Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Oct-2001 - Nov-2016

Category > Accounting Posted 04 Aug 2017 My Price 15.00

company’s perspective

          The retail mover

               

 

This case represents an actual retail company. The dates and format have been changed.

 

Required           a.    Compute and comment on the following for 2003, 2004, and 2007:

1.       Working capital

2.       Current ratio

b.     Comment on the difference between net income and net cash outflow from operat- ing activities for the year ended December 31, 2004, and December 31, 2007.

c.      This company reported a loss of $177,340,000 for 2008. Reviewing the balance sheet data, speculate on major reasons for this loss.

d.     Considering (a), (b), and (c), comment on the wisdom of the short-term bank loan in 2008. (Consider the company’s perspective and the bank’s perspective.)

 

a.

 

 

 

December 31,

 

 

December 31,

 

Selected Balance Sheet Data

 

2004

 

2003

 

Total current assets

 

$719,478,441

 

$628,408,895

 

Total current liabilities

 

458,999,682

 

366,718,656

 

The Retail Mover Statement of Cash Flows

Year Ended December 31, 2004

 

Net cash flow from operating activities: Net income

 

$ 39,577,000

Noncash expenses, revenues, losses, and gains included in income: Increase in equity in Zeller’s  Limited

 

(2,777,000)

Depreciation  and amortization

9,619,000

Net increase in reserves

74,000

Increase in deferred federal income taxes

232,000

Net increase in receivables

(51,463,995)

Net increase in inventories

(38,364,709)

Net increase in prepaid taxes, rents,   etc.

(209,043)

Increase in accounts payable

9,828,348

Increase in salaries, wages, and bonuses

470,054

Increase in taxes withheld from employees’ compensation

301,035

Decrease in taxes other than federal income  taxes

(659,021)

Increase in federal income taxes payable Increases in deferred credits, principally income

taxes related to installment sales (short-term)

4,007,022

 

14,045,572

Rounding difference in working  capital

520

Net cash outflow from operating   activities

(15,319,217)

Cash flows from investing  activities:

Investment in properties, fixtures, and improvements

 

(16,141,000)

Investment in Zeller’s Limited

(436,000)

Increase in sundry accounts (net)

(48,000)

Net cash outflow from investing  activities

(16,625,000)

Cash flows from financing activities: Sales of common stock to  employees

 

5,219,000

Dividends to stockholders

(20,821,000)

Purchase of treasury stock

(13,224,000)

Purchase of preferred stock for  cancellation

(948,000)

Retirement of 4 3/4% sinking fund debentures

(1,538,000)

Increase in short-term notes payable

56,323,016

Increase in bank loans

7,965,000

Net cash inflow from financing   activities

32,976,016

Net increase in cash and short-term securities

$   1,031,799

 

(continued)

 

 

 

 

 

 

 

b.

Selected Balance Sheet Data                              December 31, 2007

                                                                                    

Total current assets                                                                              $1,044,689,000 Total current liabilities                                                                              661,058,000

 

The Retail Mover Statement of Cash Flows

Year Ended December 31, 2007

 

Net cash flow from operating activities: Net income

 

$ 10,902,000

Noncash expenses, revenues, losses, and gains included in income: Undistributed equity in net earnings of unconsolidated subsidiaries

 

(3,570,000)

Depreciation and amortization of  properties

13,579,000

Increase in deferred federal income taxes—noncurrent

2,723,000

Decrease in deferred contingent compensation and other liabilities

(498,000)

Net receivables increase

(52,737,000)

Merchandise inventories increase

(51,104,000)

Other current assets increase

(8,935,000)

Accounts payable for merchandise decrease

(2,781,000)

Salaries, wages, and bonuses decrease

(3,349,000)

Other accrued expenses increase

3,932,000

Taxes withheld from employees increase

2,217,000

Sales and other taxes increase

448,000

Federal income taxes payable decrease

(8,480,000)

Increase in deferred income taxes related to installment sales

4,449,000

Net cash flow from operating   activities

(93,204,000)

Cash flows from investing  activities:

Investments on properties, fixtures, and improvements

 

(23,143,000)

Increase in other assets—net

(642,000)

Investment in Granjewel Jewelers & Distributors, Inc.

(5,700,000)

Net cash outflow from investing  activities

(29,485,000)

Cash flows from financing   activities:

Increase in short-term notes payable to banks

 

100,000,000

Receipts from employees under stock purchase contracts

2,584,000

Short-term commercial notes

73,063,000

Cash dividends to  stockholders

(21,122,000)

Decrease in long-term debt

(6,074,000)

Purchase of cumulative preferred stock, for  cancellation

(618,000)

Purchase of treasury common stock

(136,000)

Bank loans decreased

(10,000,000)

Net cash inflow from financing   activities

137,697,000

Net increase in cash

$ 15,008,000

c.

 

Income Statement Data related to 2007 and 2008 (in Part)

 

 

2008

 

2007

Net earnings (loss)

$(177,340,000)

 

$10,902,000

 

Balance Sheet Data related to 2007 and 2008 (in Part)

 

 

December 31,

2008

 

December 31,

2007

Assets

Current assets: Cash notes

 

 

$ 79,642,000

 

 

 

$       45,951,000

Customers’ installment accounts receivable

 

518,387,000

 

 

602,305,000

Less:

Allowance  for  doubtful accounts

 

(79,510,000)

 

 

(16,315,000)

Unearned credit insurance premiums

(1,386,000)

 

(4,923,000)

Deferred finance income

(37,523,000)

 

(59,748,000)

 

399,968,000

 

521,319,000

 

 

 

(continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

2008

 

 

December 31,

2007

 

Merchandise inventories

407,357,000

 

450,637,000

 

Other accounts receivable, refundable taxes, and   claims

31,223,000

 

19,483,000

 

Prepaid  expenses

6,591,000

 

7,299,000

 

Total current assets

$924,781,000

 

$1,044,689,000

 

Liabilities

 

 

 

 

Current liabilities:

 

 

 

 

Bank loans

$600,000,000

 

$                             —

 

Short-term commercial notes

—

 

453,097,000

 

Current portion of long-term  debt

995,000

 

 

 

Accounts payable for merchandise

50,067,000

 

58,192,000

 

Salaries, wages, and bonuses

10,808,000

 

14,678,000

 

Other accrued expenses

49,095,000

 

14,172,000

 

Taxes withheld from employees

1,919,000

 

4,412,000

 

Sales and other taxes

17,322,000

 

13,429,000

 

Federal income taxes payable

17,700,000

 

—

 

Deferred income taxes related to installment sales

2,000,000

 

103,078,000

 

Total current liabilities

749,906,000

 

661,058,000

 

Other liabilities

 

 

 

             

Long-term debt                                                                                                                                            216,341,000                         220,336,000

Deferred federal income taxes                                                                                                                                     —                           14,649,000

Deferred contingent compensation and other  liabilities                                                        2,183,000                               4,196,000

 

                               

Total  other liabilities                                                                                                                       218,524,000                            239,181,000 Total liabilities                                                                                                                                                 $968,430,000                 $   900,239,000

 

Answers

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Status NEW Posted 04 Aug 2017 09:08 PM My Price 15.00

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