Account question

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Problem 1.

Here are comparative balance sheets and an income statement:

December 31

2023 2022

Cash 730 450

Accounts Receivable 1700 1600

Inventory 800 750 Income Statement
for 2023 Equipment (net) 2000 2100

Total Assets 5230 4900 Sales 7100

COGS 2800

Wages 1700

Accounts Payable 740 710 Depreciation 1100

Long Term Debt 1900 1900 Selling and Admin 881

Interest 190

Capital Stock 1200 1200 Pretax Income 429

Retained Earning 1390 1090 Taxes 30% 129

SE 2590 2290 Income 300

Requirements:

1. Compute the following figures

a. Accounts Receivable Turnover

b. Days in Accounts Receivable

c. Inventory Turnover

d. Days in Inventory

e. Purchases

f. Accounts Payable Turnover

g. Days in Accounts Payable

h. Operating Cycle

i. Cash conversion days

j. Earnings Before Interest and Taxes

k. Return on Assets

l. Profit Margin

m. Asset Turnover

n. Return on Common Equity

2. Use the valuation model of Equation 7.6 to value the company above as of December 31, 2023. You’ll

need the (1) discount rate, (2) the forecasted earnings, and (3) a convenient method of finding the

present value of an annuity that stretches permanently into the future. The discount rate is 10 percent.

The forecasted earnings for 2024 is $320.

The Abnormal Earnings, Equation 7.7, that you identify for 2024 is the Abnormal Earnings that the

company will experience each year, permanently, in the future. The company does not pay dividends.

Suppose the Abnormal Earnings you arrive at for 2024 is $100. It’s not, but suppose it is. (3) The present

value of the permanent annuity of $100 of Abnormal Earnings is easily computed at the discount rate of

10 percent as $100/0.10 = $1,000. The present value of a permanent annuity of $100 at 10% is $1,000.

Problem 2.

Here is ROKU’s report of how they account for revenue.

ROKU

The Company sells the majority of its devices in the U.S. through retailers and distributors as well as through the

Company’s website. Devices revenue primarily consists of hardware, embedded software, and unspecified upgrades

and updates on a when and if-available basis. The hardware and embedded software are considered as one

performance obligation and revenue is recognized at a point in time when the control transfers to the customer.

Unspecified upgrades and updates are available to customers on a when-and-if available basis. The Company

records the allocated value of the unspecified upgrades and updates as deferred revenue and recognizes it

Problem 1. Here are comparative balance sheets and an income statement: December 31 2023 2022 Cash 730 450 Accounts Receivable 1700 1600 Inventory 800 750 Income Statement for 2023 Equipment (net) 2000 2100 Total Assets 5230 4900 Sales 7100 COGS 2800 Wages 1700 Accounts Payable 740 710 Depreciation 1100 Long Term Debt 1900 1900 Selling and Admin 881 Interest 190 Capital Stock 1200 1200 Pretax Income 429 Retained Earning 1390 1090 Taxes 30% 129 SE 2590 2290 Income 300 Requirements: 1. Compute the following figures a. Accounts Receivable Turnover b. Days in Accounts Receivable c. Inventory Turnover d. Days in Inventory e. Purchases f. Accounts Payable Turnover g. Days in Accounts Payable h. Operating Cycle i. Cash conversion days j. Earnings Before Interest and Taxes k. Return on Assets l. Profit Margin m. Asset Turnover n. Return on Common Equity 2. Use the valuation model of Equation 7.6 to value the company above as of December 31, 2023. You’ll need the (1) discount rate, (2) the forecasted earnings, and (3) a convenient method of finding the present value of an annuity that stretches permanently into the future. The discount rate is 10 percent. The forecasted earnings for 2024 is $320. The Abnormal Earnings, Equation 7.7, that you identify for 2024 is the Abnormal Earnings that the company will experience each year, permanently, in the future. The company does not pay dividends. Suppose the Abnormal Earnings you arrive at for 2024 is $100. It’s not, but suppose it is. (3) The present value of the permanent annuity of $100 of Abnormal Earnings is easily computed at the discount rate of 10 percent as $100/0.10 = $1,000. The present value of a permanent annuity of $100 at 10% is $1,000. Problem 2. Here is ROKU’s report of how they account for revenue. ROKU The Company sells the majority of its devices in the U.S. through retailers and distributors as well as through the Company’s website. Devices revenue primarily consists of hardware, embedded software, and unspecified upgrades and updates on a when and if-available basis. The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to the customer. Unspecified upgrades and updates are available to customers on a when-and-if available basis. The Company records the allocated value of the unspecified upgrades and updates as deferred revenue and recognizes it

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