TWO SHORT ANSWER PROBLEMS
SUPPORTING CALCULATIONS MUST BE PROVIDED
PROBLEM 1
Assume that XYZ Company has no opening inventory. The following purchases of inventory occurred during the year:
Date Purchases (units) Purchase price per unit
Jan. 2 2 $3
Feb. 15 3 $4
March 30 4 $5
July 29 6 $6
Oct. 30 5 $7
Assume XYZ Company sells 8 items on October 31 and uses the FIFO method of inventory valuation. What amount would appear as cost of goods sold on the income statement?
a. $33
b. $53
c. $76
d. $56
e. None of the above. The correct calculation is shown below.
PROBLEM 2
Paul is a day trader. He is interested in the common stock of XYZ Limited. The following data are available for the company:
2012 2013 2014
Dividends paid per share* $4 $3 $2.50
Dividend yield ratio 5.5% 5.5% 5.5%
Dividend payout ratio 40% 40% 40%
Return on total assets 10% 12% 8%
Return on common stockholders’ equity 8% 14.5% 9%
*There were no changes in common stock outstanding over the three year period.
Paul would like answers to the following questions:
1. Is the market price of the company’s stock going up or down?
2. Is the company employing financial leverage to the advantage of the common stockholders?
TWO SHORT ANSWER PROBLEMS SUPPORTING CALCULATIONS MUST BE PROVIDED PROBLEM 1 Assume that XYZ Company has no opening inventory. The following purchases of inventory occurred during the year: Date Purchases (units) Purchase price per unit Jan. 2 2 $3 Feb. 15 3 $4 March 30 4 $5 July 29 6 $6 Oct. 30 5 $7 Assume XYZ Company sells 8 items on October 31 and uses the FIFO method of inventory valuation. What amount would appear as cost of goods sold on the income statement? a. $33 b. $53 c. $76 d. $56 e. None of the above. The correct calculation is shown below. PROBLEM 2 Paul is a day trader. He is interested in the common stock of XYZ Limited. The following data are available for the company: 2012 2013 2014 Dividends paid per share* $4 $3 $2.50 Dividend yield ratio 5.5% 5.5% 5.5% Dividend payout ratio 40% 40% 40% Return on total assets 10% 12% 8% Return on common stockholders’ equity 8% 14.5% 9% *There were no changes in common stock outstanding over the three year period. Paul would like answers to the following questions: Is the market price of the company’s stock going up or down? Is the company employing financial leverage to the advantage of the common stockholders?
Attachments:
PROBLEM 3.0 4….docx