Solved by verified expert :Assumptions:
At
the beginning of 2009, CanGo purchased the online gaming company. This
purchase was for cash, paid for through the proceeds of the IPO and
results in goodwill.
90%
of the online book sales comes from JIT, the other 10% through the
inventory which CanGo possesses. 100% of the CD/DVD/MP3 come through CanGo
inventory. The result is that 80% of ALL sales is JIT and 20% is
inventory.
There
is one warehouse for shipping of books and one plant for manufacturing.
There
are three divisions: a CD/DVD/MP3 division, an online gaming division and
a books division. All manufacturing takes place in the CD/DVD/MP3
division.
The
IPO took place at the beginning of 2009.
The
CD/DVDs were customized beginning in 2008. The MP3 players were built
beginning in the start of 2009.
The
online gaming company was purchased for $30,000,000 and both Elizabeth and
Andrew initiated the process.
The
company began in 2006, has a VC infusion in 2007 and 2008. It showed a
profit in 2008 and 2009. Its only profitable division is the online book
sales division.
It
has some type of international operations, hence the need for a
“translation gain or loss” in owner’s equity.
It
has an extraordinary loss from fire and a sale of a segment of its
business in 2009.
Balance Sheet
ASSETS
December 31, 2009
Cash
$20,900,000
Marketable
Securities
$117,000,000
Accounts
Receivable
$33,000,000
Less:
Allowance for Bad Debts
$(880,000)
Net
Accounts Receivable
$32,120,000
Inventory
Raw
Materials
$2,000,000
Work-in-process
$1,000,000
Finished
Goods
$5,000,000
Inventory
Purchased for Resale
$24,000,000
Total
Inventory
$32,000,000
Plant,
Property and Equipment
$6,700,000
Less:
Accumulated Depreciation
$(320,000)
Net
Plant, Property and Equipment
$6,380,000
Prepaid
Expenses
$200,000
Goodwill
and Other Purchased Intangibles
$28,000,000
Less:
Amortization
$(700,000)
Net
Goodwill and Other Purchased Intangibles
$27,300,000
Total
Assets
$235,900,000
LIABILITIES
AND OWNERS’ EQUITY
Accounts
Payable
$22,000,000
Accrued
Advertising
$11,800,000
Other
Liabilities and Accrued Expense
$1,400,000
Current
Portion of Long-Term Debt
$2,300,000
Long
Term Debt
$57,400,000
Preferred
Stock, $100 par value per share,
100,000
authorized, 0 shares issued and outstanding
$0
Common
Stock, $1 par value per share,
250,000,000
shares authorized, 13,000,000 shares
issued,
12,900,000 outstanding
$13,000,000
Additional
Paid-in-Capital in excess of par value, Common Stock
$117,000,000
Treasury
Stock
$(1,000,000)
Retained
Earnings (less Cash Dividends Paid)
$12,000,000
$11,000,000
Total
Liabilities and Owner’s Equity
$235,900,000
Income Statement
December 31, 2009
December 31, 2008
Sales
Revenues
$51,000,000
$10,300,000
Less:
Sales Returns
$(1,000,000)
$(300,000)
Net
Sales Revenues
$50,000,000
$10,000,000
Less:
Cost of Goods Sold
$(9,000,000)
$(4,000,000)
Gross
Profit
$41,000,000
$6,000,000
Operating
Expenses:
Advertising
and Sales
$(26,000,000)
$(3,000,000)
Depreciation
$(160,000)
Salaries
and Wages
$(1,700,000)
$(1,400,000)
Product
Development
$(4,000,000)
$(1,200,000)
Merger
and Acquisition Related Costs, including
Amortization
of Goodwill and Other Intangibles
$(700,000)
$0
Total
Operating Expenses
$(32,560,000)
Income
from Continuing Operations Before Income Taxes
$8,440,000
Less:
Income Taxes at 35%
$(2,954,000)
Income
from Continuing Operations
$5,486,000
Discontinued
Operations:
Income
from Operations of Discontinued Division
(less
applicable income taxes)
$350,000
Loss
on Disposal of Discontinued Division
(less
applicable income taxes)
$(150,000)
Total
Gain from Discontinued Operations
$200,000
Extraordinary
Items:
Loss
from fire (less applicable income taxes)
$(200,000)
Net
Income
$5,486,000
Divisional Revenues
Books
$15,000,000
$7,000,000
Online
gaming
$25,000,000
Customized
MP3/CD/DVD
$10,000,000
$3,000,000
Customized
MP3/CD/DVD Inventory at end of 2009
$8,000,000
CanGo, Inc. is a fictional Internet
company that exists to support the Mastering Series project.
