1) Depreciation for 2007: Cost of Building: Residual Value: Life of Builidng: (Years) $364,000.00 $14,000.

00 25

Depreciation = (Cost - Residual Value)/ Life Depreciaion = ($364,000 - $14,000)/25 Depreicaion = $14,000.00

Depreciation for 2008 Cost of Building: (2007) Accumuated Depreciation (2007) Book Value, 2008 Plus: Capital Expenditure Less: Residual Value Remaining depreciable amount Remaining asset life (years) Depreciation 2) a) The reason that the cost of pollution control equpment was not expensed in 2008 was because it extended the life of the building. When an expenditure extendeds the life of an asset it is to be considered a capital expenditure. b) In order for Morton to expense the equipment it must not increase the life of the asset. It simply must be accounted for as an expense. c) If Merton had a choice on weather to expense or capitilize on the equipment he has to decide if the equipment is going to increase the life of the asset. If it does then he must capitilize on the equipment. If not then he can consider it an expense. $ $ $ $ $ $ 364,000.00 (14,000.00) 350,000.00 42,000.00 (14,000.00) 378,000.00 30 $ 12,600.00

3) Capital Expenditure

Asset Cost Plus: Capital Expenditure Less: Accumulated Depreciation Book Value, April 1, 2009 Sale Price Gain on Sale Of Asset

$ 364,000.00 $ 42,000.00 $ 29,750.00 <-----$14,000 + $12,600 + ($12,600 *3/1 $ 376,250.00 $ 392,000.00 $ 15,750.00

Revenue Expenditure Asset Cost Less: accumulated Depreciation Book Value, April 1, 2009 Sale Price Gain on Sale Of Asset $ 364,000.00 $ 31,500.00 <----$14,000 * 2.25 Years $ 332,500.00 $ 392,000.00 $ 59,500.00

$12,600 + ($12,600 *3/12) = $29,750

1) PV: I: N: $ 9,750.00 11% 17

FV=PV(1+I)^n FV= $ 57,477.15 2) PV: FV: N: $21,600 $42,487 10

I=((FV/PV)^(1/N))-1 I= 3) FV: I: N:

7.0%

$15,000 8% 7

PV=FV(1+I)^-n PV= $ 8,752.36 4) FV: PV: I: $15,026 $5,800 10%

Using Table 9-1: $15,026/$5,800 = 2.591. N= 10 Years

1) Column 1 Date Column 2 Inteerst Cash Interest Expense 10% 8% Column 3 Premium Amortized Col 1 - Col 2 Column 4 Carrying Value

1/1/2008 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012

$ $ $ $ $

1,000.00 1,000.00 1,000.00 1,000.00 1,000.00

$ $ $ $ $

864.24 853.38 841.65 828.98 809.00

$ $ $ $ $

135.76 146.62 158.35 171.02 191.00

$ $ $ $ $ $

10,803.00 10,667 10,521 10,362 10,191 10,000

2) Total Interest Expense = Total Cash Interest = Total Premium Amortization = 3) Activity Operating Interest Expense Increase, Premium on Bonds Pay. Decrease, Cash Decrease Accounts Statements(s) Balance Sheet & Income Statement $ $ $ 4,197.25 <---Sum of Column 2 5,000.00 <---Sum of Column 1 802.75 <---Sum of Column 3

Balance Sheet Liabilities + Assets = Stockholders' Equity + Cash Prem. Bonds Pay. ($1,000.00) ($158.00)

Income Statement Revenue -

Balance Sheet Presentation of Bonds Long-Term Liabilites: Bonds Payable Plus: Premium on Bonds Payable

$ $ $

10,000.00 362.00 <--- $803 - $136 - $147 - $158 = $ 10,362.00

ease, Cash Decrease

me Statement Expenses Interest Expense ($842.00)

803 - $136 - $147 - $158 = $362

1) A) Declaring a Cash Dividend of $16,800 makes the Retained Earnings decrease, which in turn makes the Stockholders' Equity decrease by $16,800.Paying the Dividend has no effect on the Stockholders' Equity. B) June 1, 2008: Common Stock, 15,000 shares issued and outstanding, $10 Par Common Stock dividend distributable, 750 shares Additional Paid-In Capital - Common Stock Retained Earnings Total Stockholders' Equity July 1, 2008: Common Stock, 15,000 shares issued and outstanding, $10 Par Common Stock dividend distributable, 750 shares Total Stockholders' Equity C) Declaring a Cash Dividend of $7,875 (15,000 + 750 x .50) makes the Retained Earnings decrease, which in turn makes the Stockholders' Equity decrease by $7,875. Paying the Dividend has no effect on the Stockholders' Equity. D) Having a 2-for-1 stock split has no effect on Stockholders' Equity.

$ 150,000.00 no effect $ 7,500.00 increase $ 6,000.00 increase $ (13,500.00) decrease $ 150,000.00 no effect

$ 157,500.00 increase $ (7,500.00) decrease $ 150,000.00 no effect

2) Frederiksen's Inc. Balance Sheet 31-Dec-08 Stockholders Equity Preferred Stock, 3,000 Shares issued and outstanding, $80 par, 7% Common Stock, 31,500 Shares issued and outstanding, $5 Par Additional paid-in capital - preferred stock Additional paid-in capital - common stock Total contributed capital Retained Earnings Total Stockholders' Equity $ 240,000.00 $ 157,500.00 $ 60,000.00 $ 231,000.00 $ 688,500.00 $ 2,711,825.00 $ 3,400,325.00

3)

The best explanation of the difference between a stock dividend and stock split is found in our textbook by Porter and Norton on pages 524 - 527. "A stock dividend occurs when a corporation declares and issues additional shares of its own stock to exisiting stockholers. A stock split is similar to a stock dividend in that it results in additional shares of stock outstanding and is nontaxable."

<--- 15000*.05*10 <--- 15000*.05*8

1) Current Ratio = Current Assets/ Current Liabilites $31,100/$33,945 0.92 (.92 to 1) Acid-test (quick) Ratio = (Cash + Marketable Securities + Acc. Rec.)/Current Liabilities ($1,135 + $1,250 +$15,650)/$33,945 0.53 (.53 to 1) Accounts Receivable Turnover = Sales Revenue/Average Accounts Receivable $542,750/(($15,650 + $12,380)/2) 38.7 Times Inventory turnover = Cost of Goods Sold/Average Inventory $435,650/(($12,680 + $15,870)/2) 30.52 Times Debt-to-equity ratio = Total Liabilities/Total Stockholders Equity ($33,945 + $80,000)/$165,580 0.69 (.69 to 1) Times interest earned = (Net Income + Income Tax Expense + Interest Expense)/Interest Expense ($19,095 + $12,730 + $9,275)/$9,275 4.43 Times Return on sales = (Net Income + Interest Expense, Net of Tax)/Net Sales Tax rate = Income taxes/Income before taxes = $12,730/$31,825 = 40% ($19,095 + ($9,275 (1 40%)))/$542,750 0.0454 4.54% Asset turnover = Net Sales/Average Total Assets $542,750/(($279,525 + $270,095)/2) 1.98 Times Return on assets = (Net Income + Interest Expense, Net of Tax)/Average Total Assets Tax rate = Income taxes/Income before taxes = $12,730/$31,825 = 40% ($19,095 + ($9,275 (1 40%)))/(($279,525 + $270,095)/2) 0.0897 8.97%

Return on common stockholder's equity = (Net Income Preferred Dividends)/ Average Common Stockholders Eq

$19,095/(($165,580 + $158,485)/2) 0.1178

11.78%

Ratio Heartland Inc. Industry Average Current Ratio 0.92 1.23 Acid-Test (Quick) Ratio 0.53 0.75 Accounts Recievable Turnover 39 Times 33 Times Inventory Turnover 31 Times 29 Times Debt-to-Equity Ratio 0.69 0.53 Times Interest Earned 4.43 Times 8.65 Times Return On Sales 4.54% 6.57% Asset Turnover 1.98 Times 1.95 Times Return On Assets 8.97% 12.81% Return On Common Stockholders' Equity 11.78% 17.67%

2)

Using all the previous financial ratios and computations I can roughly see the the overall financial Heartland Inc.. Each Ratio or computation tells its own information. Starting with the Times Intere Ratio we can see that our earnings are 4.43 times the interest expense, showing that the compan problems in paying off its interest payments. When we compare Heartlands ratio to the industry a can see that Heartland is not as solvent as the industy. Return on Total assets is at 8.97%. The Re Commo Stockholders Equity is at 11.78%. These compared to the industry average shows that Hearla profitable as other companies. Debt to Equity Ratio is at .69 to 1. This compared to the industry ave that Heartland has more debt to equity compared to the market. The Current Ratio of .92 to 1 is lo average. The Quick Ratio of.52 to 1 is also lower then the average. From Accounts Receivable Turov can see that Heartland Inc. are collecting there Accounts Receivable roughly 39 times a period. In Turnover Ratio shows that they are selling their inventory 31 times a period which is better then th average. From the Current ratio, Quick ratio, Accounts Receivable Turnover ratio, Inventory Turnove see the liquidity of the company. We already can see the Accounts Receivable Turnover is higher average and have mentiond th inventory turnover ratio is also higher then average. Our Current ra which is better then the industry average and out quick ratio is at .53 which is lower then the a

3)

I believe that the bank may not give Heartland the loan. Even though they are doing better in some the industry, overall they still do not seem to be as liquid, profitable, or solvent as a bank would lik or compared to the industry.

Common Stockholders Equity

ee the the overall financial health of rting with the Times Interest Earned , showing that the company has no nds ratio to the industry average we al assets is at 8.97%. The Return on average shows that Hearland is not as mpared to the industry average shows urrent Ratio of .92 to 1 is lower then Accounts Receivable Turover Ratio we oughly 39 times a period. Inventory iod which is better then the industry er ratio, Inventory Turnover ratio I can eivable Turnover is higher then the en average. Our Current ratio is at .92 which is lower then the average.

y are doing better in some aspects of solvent as a bank would like for a loan