Question

Please use the information below to solve questions about Alpha Company.

Partial financial statement data for Alpha Company:

	20X6	20X5
Current assets	$6,328	$5,580
Inventories	$3,110	$3,299
Current Liabilities	$3,250	$2,275
Long-term debt	$7,154	$6,785
Common stock	$3,000	$3,000
Additional paid-in-capital	$4,000	$4,000
Retained earnings	$3,305	$2,180
COGS	$7,054
Gain on sale of land	$400
Net income	$1,550
Depreciation	$2,000
Accounts receivable	$5,080	$4,550
Accounts payable	$4,620	$3,440
Wages payable	$3,250	$1,125
Dividends payable	$800	$900
Taxes payable	$2,100	$2,310
Interest payable	$1,550	$1,255

Footnotes:

The company uses the LIFO inventory cost flow method. Had FIFO been used, inventories would have been $1,200 higher in 20X6 and $1,000 higher in 20X5. The effective tax rate for 20X6 was 30%. For all other years, the effective tax rate was 20%.

Per-unit cost information pertaining to some of Alpha's inventory is as follows (year 20X6):

Original cost	$1,317
Estimated selling price	$1,232
Estimated selling costs	$122
Net realizable value (NRV)	$1,310
Replacement cost	$1,197
Normal profit margin	$112

In year 20X7, Alpha Company issued $10,000 in 8% annual-pay, 5-year bonds, when the market rate is 9%.

a)Calculate long-term debt-to-equity ratio for 20X6 for both LIFO and FIFO inventory cost flow methods. Please show each step of your calculation and interpret your results.

b)Using the information about a new bond issue in year 20X7, please find the initial balance sheet liability and a liability one year from the date of the issue.

c)Using the information about a new bond issue in year 20X7, please find the sum of the interest expense on bond for year number 3, 4 and 5. Please explain your calculations.

Answer 1

uMber F35 1 (a) Long-term debt + (Common stock + Preferred stock) 2 2016 LIFO METHOD FIFO METHOD 3299 4 opening stock 4299 (lifo opening stock+ 1000) purchases (balancng figure for lifo method,same is 5 carried out for fifo method) 6 closing stock 6865 6865 3110 4310 (lifo closing stock + 1200) 7054 (GIVEN) FIGURE) 7054 (GIVEN 6854(BALANCING COGS 10 current assets 11 INVENTORY 12 total assets 6328 3110 9438 6328 4310 10638 debt equity ratio debt/ 13 Equity 14 15 Under FIFO mthod,COGS will be less and INVENTORY will be more than lifo method. 0.757999576 0.757999576 0.6378