Business Analysis for Investment (FNCE2003) Tutorial 3SQL

Java Python Business Analysis for Investment (FNCE2003)

Tutorial 3

Understanding Income Statements

Question 1

Denali Limited, a manufacturing company, had the following income statement information.

Revenue $4,000,000

Cash discount $50,000

Cost of goods sold $3,000,000

Return of goods sold $100,000

Cash collection   $100,000

Tax expense $120,000

Under accrual basis of accounting, how much net revenue would be reported on income statement?

Question 2

Delta Ltd. had 2,500,000 average shares outstanding during all of 2015. During 2015, Delta also had 150,000 options outstanding with exercise prices of $15 each. The average stock price of Delta during 2015 was $18. For purposes of computing diluted earnings per share, how many shares would be used in the denominator?

Question 3

During 2016, ABC Inc. reported net income of $115,600 and had 200,000 shares of common stock and 1,000 shares of preferred stock outstanding for the entire year. ABC’s 10%, $100 par value preferred shares are each convertible into 40 shares of common stock. The tax rate is 40%. Compute basic and diluted EPS.

Question 4

NBN has a contract to build a network for a customer for a total sales price of $20 million. The network will take an estimated four years to build. The company estimates that the average gross profit is $4.8 million, which is 40% of total building costs. NBN recognizes long-term contract revenue based on input method that is recognising revenue based on expenditure incurred as a percentage of total estimated expenditures.

i. At the end of Year 1, the company had spent $3.6 million. How much revenue will NBN recognize in Year 1?

ii. At the end of Year 2, the company had spent an additional $4.8 million for an accumulated total of $8.4 million. How much revenue will NBN recognize in Year 2?

iii. At the end of Year 3, the company had spent an additional $2.4 million for an accumulated total of $10.8 million. How much revenue will NBN recognize in Year 3?

iv. At the end of Year 4, the contract is complete. The company spent an accumulated total building costs. How much revenue will NBN recognize in Year 4?

Question 5

During the year, a firm’s inventory purchases were as follows:

Quarter	Units Purchased	Cost per Unit	Total Business Analysis for Investment (FNCE2003) Tutorial 3SQL
1	400	$3.30	$1,320
2	100	3.60	360
3	200	3.90	780
4	50	4.20	210
	750		$2,670

· The firm uses a periodic inventory system and calculates inventory and COGS at the end of the year.

· Beginning inventory was 200 units at $3 per unit = $600.

· Sales for the year were 600 units.

Compute COGS for the year under FIFO and LIFO.

Question 6

Consolidated Technology reported net income of $4.2 million for the year ended 31 Dec 2016 and had a weighted average of 900,000 common shares outstanding. At the beginning of the fiscal year, the company has outstanding 50,000 options with an exercise price of $55. No other potentially dilutive financial instruments are outstanding. Over the fiscal year, the company’s market price has averaged $75 per share. The company declared and paid $300,000 of dividends on preferred stock. Calculate the company’s basic and diluted EPS