Question 1 Comparative financial statements for Weaver Company follow: Weaver Company Comparative Balance Sheet December 31, 2014 and 2013 2014 2013   Assets Cash $ 5 $ 12 Accounts receivable 307 230 Inventory 156 195 Prepaid expenses 8 6   Total current assets 476 443 Property, plant, and equipment 508 429 Less accumulated depreciation (86) (71)   Net property, plant, and equipment 422 358 Long-term investments 27 33 Total assets $ 925     $ 834       Liabilities and Stockholders' Equity Accounts payable $ 304 $ 226 Accrued liabilities 72 79   Income taxes payable 72 64   Total current liabilities 448 369 Bonds payable 198 170   Total liabilities 646 539 Common stock 162 202 Retained earnings 117 93 Total stockholders’ equity 279     295       Total liabilities and stockholders' equity $ 925     $ 834     Weaver Company Income Statement For the Year Ended December 31, 2014   Sales $ 751     Cost of goods sold 446     Gross margin 305     Selling and administrative expenses 221     Net operating income 84     Nonoperating items: Gain on sale of investments $ 6      Loss on sale of equipment (3)   3     Income before taxes 87     Income taxes   23     Net income $ 64        During 2014, Weaver sold some equipment for $18 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $12 that had cost $6 when purchased several years ago. A cash dividend was paid during 2014 and the company repurchased $40 of its own stock. Weaver did not retire any bonds during 2014. rev: 09_17_2014_QC_54316 a Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2014. (List any deduction in cash and cash outflows as negative amounts.) b Using the indirect method, determine the net cash for operating activities for 2014. (Negative amount should be entered with a minus sign.) c Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2014. (List any deduction in cash and cash outflows as negative amounts.) Question 2 You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company’s financial statements, including comparing Lydex’s performance to its major competitors. The company’s financial statements for the last two years are as follows: Lydex Company Comparative Balance Sheet This Year Last Year   Assets Current assets:      Cash $ 1,040,000     $ 1,280,000          Marketable securities 0     300,000          Accounts receivable, net 3,020,000     2,120,000          Inventory 3,680,000     2,300,000          Prepaid expenses 27 ...

1. Question 1 Comparative financial statements for Weaver
Company follow:
Weaver Company
Comparative Balance Sheet
December 31, 2014 and 2013
2014
2013
Assets
Cash
$
5
$
12
Accounts receivable
307
230
Inventory
156
195
Prepaid expenses
8
6

2. Total current assets
476
443
Property, plant, and equipment
508
429
Less accumulated depreciation
(86)
(71)
Net property, plant, and equipment
422
358

3. Long-term investments
27
33
Total assets
$
925
$
834
Liabilities and Stockholders' Equity
Accounts payable
$
304

4. $
226
Accrued liabilities
72
79
Income taxes payable
72
64
Total current liabilities
448
369
Bonds payable
198
170
Total liabilities
646

5. 539
Common stock
162
202
Retained earnings
117
93
Total stockholders’ equity
279
295
Total liabilities and stockholders' equity
$
925
$
834

6. Weaver Company
Income Statement
For the Year Ended December 31, 2014
Sales
$
751
Cost of goods sold
446
Gross margin
305
Selling and administrative expenses

7. 221
Net operating income
84
Nonoperating items:
Gain on sale of investments
$
6
Loss on sale of equipment
(3)
3

8. Income before taxes
87
Income taxes
23
Net income
$
64
During 2014, Weaver sold some equipment for $18 that had
cost $31 and on which there was accumulated depreciation of
$10. In addition, the company sold long-term investments for

9. $12 that had cost $6 when purchased several years ago. A cash
dividend was paid during 2014 and the company repurchased
$40 of its own stock. Weaver did not retire any bonds during
2014.
rev: 09_17_2014_QC_54316
a
Using the information in (1) above, along with an analysis of
the remaining balance sheet accounts, prepare a statement of
cash flows for 2014. (List any deduction in cash and cash
outflows as negative amounts.)
b
Using the indirect method, determine the net cash for operating
activities for 2014. (Negative amount should be entered with a
minus sign.)
c
Using the information in (1) above, along with an analysis of
the remaining balance sheet accounts, prepare a statement of
cash flows for 2014. (List any deduction in cash and cash
outflows as negative amounts.)
Question 2 You have just been hired as a financial analyst for
Lydex Company, a manufacturer of safety helmets. Your boss
has asked you to perform a comprehensive analysis of the
company’s financial statements, including comparing Lydex’s
performance to its major competitors. The company’s financial
statements for the last two years are as follows:
Lydex Company
Comparative Balance Sheet
This Year
Last Year
Assets

10. Current assets:
Cash
$
1,040,000
$
1,280,000
Marketable securities
0
300,000
Accounts receivable, net
3,020,000
2,120,000
Inventory
3,680,000
2,300,000
Prepaid expenses
270,000
210,000

11. Total current assets
8,010,000
6,210,000
Plant and equipment, net
9,680,000
9,130,000
Total assets
$
17,690,000
$
15,340,000

12. Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
$
4,090,000
$
3,140,000
Note payable, 10%
3,720,000
3,120,000
Total liabilities

13. 7,810,000
6,260,000
Stockholders' equity:
Common stock, $75 par value
7,500,000
7,500,000
Retained earnings
2,380,000
1,580,000

14. Total stockholders' equity
9,880,000
9,080,000
Total liabilities and stockholders' equity
$
17,690,000
$
15,340,000

15. Lydex Company
Comparative Income Statement and Reconciliation
This Year
Last Year
Sales (all on account)
$
15,940,000
$
14,380,000
Cost of goods sold
12,752,000
10,785,000
Gross margin
3,188,000
3,595,000
Selling and administrative expenses
1,216,000
1,636,000

16. Net operating income
1,972,000
1,959,000
Interest expense
372,000
312,000
Net income before taxes
1,600,000
1,647,000
Income taxes (30%)
480,000
494,100

17. Net income
1,120,000
1,152,900
Common dividends
320,000
576,450
Net income retained
800,000
576,450
Beginning retained earnings
1,580,000

18. 1,003,550
Ending retained earnings
$
2,380,000
$
1,580,000
To begin your assigment you gather the following financial
data and ratios that are typical of companies in Lydex
Company’s industry:

19. Current ratio
2.3
Acid-test ratio
1.2
Average collection period
32
days
Average sale period
60
days
Return on assets
8.6
%
Debt-to-equity ratio
.69
Times interest earned ratio
5.8
Price-earnings ratio
10
rev: 09_17_2014_QC_54324, 12_11_2014_QC_CS-386
Garrison 15e Recheck 2015-1-19
Required:
1.
You decide first to assess the company’s performance in terms

20. of debt management and profitability. Compute the following
for both this year and last year: (Round your intermediate
calculations and final percentage answers to 1 decimal place.
i.e., 0.123 should be considered as 12.3%. Round the rest of the
intermediate calculations and final answers to 2 decimal
places.)
a.
The times interest earned ratio.
b.
The debt-to-equity ratio.
c.
The gross margin percentage.
d.
The return on total assets. (Total assets at the beginning of last
year were $13,150,000.)
e.
The return on equity. (Stockholders’ equity at the beginning of
last year totaled $8,503,550. There has been no change in
common stock over the last two years.)
f.
Is the company’s financial leverage positive or negative?
2.
You decide next to assess the company’s stock market
performance. Assume that Lydex’s stock price at the end of this
year is $110 per share and that at the end of last year it was
$78. For both this year and last year, compute: (Round your
intermediate calculations and final percentage answers to 1
decimal place. i.e., 0.123 should be considered as 12.3%. Round
the rest of the intermediate calculations and final answers to 2
decimal places.)
a.
The earnings per share.
b.

21. The dividend yield ratio.
c.
The dividend payout ratio.
d.
The price-earnings ratio.
e.
The book value per share of common stock.
3.
You decide, finally, to assess the company’s liquidity and asset
management. For both this year and last year, compute: (Use
365 days in a year. Round your intermediate calculations and
final answer to 2 decimal places.)
a.
Working capital.
b.
The current ratio.
c.
The acid-test ratio.
d.
The average collection period. (The accounts receivable at the
beginning of last year totaled $1,750,000.)
e.
The average sale period. (The inventory at the beginning of last
year totaled $2,110,000.)
f.
The operating cycle.
g.
The total asset turnover. (The total assets at the beginning of
last year totaled $14,690,000.)
Question 3 Wesco Incorporated’s only product is a combination
fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold
nationwide to retail nurseries and garden stores.
Zwinger Nursery plans to sell a similar fertilizer/weedkiller

22. compound through its regional nursery chain under its own
private label. Zwinger does not have manufacturing facilities of
its own, so it has asked Wesco (and several other companies) to
submit a bid for manufacturing and delivering a 35,000-pound
order of the private brand compound to Zwinger. While the
chemical composition of the Zwinger compound differs from
that of GrowNWeed, the manufacturing processes are very
similar.
The Zwinger compound would be produced in 1,000-pound
lots. Each lot would require 38 direct labor-hours and the
following chemicals:
Chemicals
Quantity in Pounds
AG-5
300
KL-2
200
CW-7
180
DF-6
320
The first three chemicals (AG-5, KL-2, and CW-7) are all
used in the production of GrowNWeed. DF-6 was used in
another compound that Wesco discontinued several months ago.
The supply of DF-6 that Wesco had on hand when the other
compound was discontinued was not discarded. Wesco could
sell its supply of DF-6 at the prevailing market price less $0.11
per pound selling and handling expenses.
Wesco also has on hand a chemical called BH-3, which was
manufactured for use in another product that is no longer
produced. BH-3, which cannot be used in GrowNWeed, can be
substituted for AG-5 on a one-for-one basis without affecting
the quality of the Zwinger compound. The BH-3 in inventory

23. has a salvage value of $440.
Inventory and cost data for the chemicals that can be used to
produce the Zwinger compound are shown below:
Raw Material
Pounds in
Inventory
Actual Price
per Pound
When
Purchased
Current
Market
Price per
Pound
AG-5
26,000
$0.68
$0.78
KL-2
5,300
$0.53
$0.58
CW-7
8,500
$1.25
$1.45
DF-6
9,900
$0.41
$0.63
BH-3
4,700
$0.70
(Salvage)

24. The current direct labor wage rate is $16 per hour. The
predetermined overhead rate is based on direct labor-hours
(DLH). The predetermined overhead rate for the current year,
based on a two-shift capacity with no overtime, is as follows:
Variable manufacturing overhead
$
4.80
per DLH
Fixed manufacturing overhead
7.60
per DLH
Combined predetermined overhead rate
$
12.40
per DLH
Wesco’s production manager reports that the present
equipment and facilities are adequate to manufacture the

25. Zwinger compound. Therefore, the order would have no effect
on total fixed manufacturing overhead costs. However, Wesco is
within 490 hours of its two-shift capacity this month. Any
additional hours beyond the 490 hours must be done in
overtime. If need be, the Zwinger compound could be produced
on regular time by shifting a portion of GrowNWeed production
to overtime. Wesco’s direct labor wage rate for overtime is $24
per hour. There is no allowance for any overtime premium in
the predetermined overhead rate.
Required:
1.
Wesco has decided to submit a bid for the 35,000 pound order
of Zwinger’s new compound. The order must be delivered by
the end of the current month. Zwinger has indicated that this is
a one-time order that will not be repeated. Calculate the lowest
price that Wesco could bid for the order without reducing its net
operating income. (Round intermediate calculations and final
answer to 2 decimal places.)
2.
Refer to the original data. Assume that Zwinger Nursery plans
to place regular orders for 35,000-pound lots of the new
compound. Wesco expects the demand for GrowNWeed to
remain strong. Therefore, the recurring orders from Zwinger
would put Wesco over its two-shift capacity. However,
production could be scheduled so that 60% of each Zwinger
order could be completed during regular hours. As another
option, some GrowNWeed production could be shifted
temporarily to overtime so that the Zwinger orders could be
produced on regular time. Current market prices are the best
available estimates of future market prices.
Wesco’s standard markup policy for new products is 40% of

26. the full manufacturing cost, including fixed manufacturing
overhead. Calculate the price that Wesco, Inc., would quote
Zwinger Nursery for each 35,000 pound lot of the new
compound, assuming that it is to be treated as a new product
and this pricing policy is followed. Hint: Calculate the price
considering the possibility of this order being regular.(Round
intermediate calculations and final answer to 2 decimal places.)