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Analysis of the income statement for sheaf corporation
Course:- Accounting Basics
Reference No.:- EM131030492




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Part -1

1. Horizontal Analysis

The comparative accounts payable and long­term debt balances of a company are provided below.

 

2014

2013

Accounts payable

$72,960

$64,000

Long­term debt

31,679

40,100

Based on this information, what is the amount and percentage of increase or decrease that would be shown in a balance sheet with horizontal analysis? Enter all answers as positive numbers.

                                   Amount of Change            Increase/Decrease                  Percentage

Accounts payable   $     _________________          _________________             _________________   %

Long­term debt     $       ________________             _________________            ________________   %

Amount of Change Increase/Decrease Percentage

Accounts payable $       _________________           _________________             _________________ %

Long­term debt $           _________________            _________________            _________________ %

2. Vertical Analysis

Income statement information for Sheaf Corporation is provided below.

Sales

$511,000

Cost of goods sold

178,850

Gross profit

332,150

Prepare a vertical analysis of the income statement for Sheaf Corporation. If required, round percentage answers to the nearest whole number.

Sheaf Corporation

Vertical Analysis of the Income Statement

 

 

 

 

Amount

Percentage

 

Sales

$ 511,000

 

%

 

Cost of goods sold

 

178,850

 

%

 

Gross profit

 

$

 

332,150

 

%

 

3. Current Position Analysis

The following items are reported on a company's balance sheet:

Cash

$516,800

Temporary investments

403,800

Accounts receivable (net)

500,600

Inventory

193,800

Accounts payable

646,000

Determine (a) the current ratio and (b) the quick ratio. Round to one decimal place.

a. Current ratio

b. Quick ratio

4. Accounts Receivable Analysis

A company reports the following:

Net sales                                                         $1,443,940

Average accounts receivable (net)                             62,780

Determine (a) the accounts receivable turnover and (b) the number of days' sales in receivables. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume a 365­day year.

a. Accounts receivable turnover _________________

b. Number of days' sales in receivables _________________ days

5. Inventory Analysis

A company reports the following:

Cost of goods sold                                               $564,655

Average inventory                                                  66,430

Determine (a) the inventory turnover and (b) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year.

a. Inventory turnover _________________

b. Number of days' sales in inventory _________________ days

6. Long­Term Solvency Analysis

The following information was taken from Celebrate Company's balance sheet:

Fixed assets (net)

$566,800

Long­term liabilities

218,000

Total liabilities

457,800

Total stockholders' equity

763,000

Determine the company's (a) ratio of fixed assets to long­term liabilities and (b) ratio of liabilities to stockholders' equity. If required, round your answers to one decimal place.

a. Ratio of fixed assets to long­term liabilities _________________

b. Ratio of liabilities to stockholders' equity _________________

7. Times Interest Charges are Earned

A company reports the following:

Income before income tax               $904,700

Interest expense                             109,000

Determine the number of times interest charges are earned. If required, round the answer to one decimal place.

8. Net Sales to Assets

A company reports the following:

Net sales                                   $1,140,300

Average total assets                        633,500

Determine the ratio of net sales to assets. If required, round your answer to one decimal place.

9. Rate Earned on Total Assets

A company reports the following income statement and balance sheet information for the current year:

Net income

$164,730

Interest expense

29,070

Average total assets

3,230,000

Determine the rate earned on total assets. If required, round the answer to one decimal place.

10. Common Stockholders' Profitability Analysis

A company reports the following:

Net income

$270,000

Preferred dividends

10,800

Average stockholders' equity

1,956,522

Average common stockholders' equity

1,336,082

Determine (a) the rate earned on stockholders' equity and (b) the rate earned on common stockholders' equity. If required, round your answers to one decimal place.

a. Rate earned on stockholders' equity _________________ %

b. Rate earned on common stockholders' equity _________________ %

11. Earnings per Share and Price­Earnings Ratio Animated Example Exercise

A company reports the following:

Net income

$1,261,000

Preferred dividends

$71,000

Shares of common stock outstanding

85,000

Market price per share of common stock

$189.00

a. Determine the company's earnings per share on common stock. Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.

b. Determine the company's price­earnings ratio. Round to one decimal place.

Part -2

1. Vertical Analysis of Income Statement

The following comparative income statement (in thousands of dollars) for the two recent fiscal years was adapted from the annual report of Calvin Motorsports, Inc., owner and operator of several major motor speedways, such as the Atlanta, Texas, and Las Vegas Motor Speedways.

  Current Year   Previous Year
Revenues:      

Admissions

$216,972

 

$219,480

Event­related revenue

233,208

 

213,816

NASCAR broadcasting revenue

237,636

 

211,692

Other operating revenue

50,184

 

63,012

Total revenue

$738,000

 

$708,000

Expenses and other:

Direct expense of events

$112,176

 

$113,280

NASCAR purse and sanction fees

123,984

 

112,572

Other direct expenses

163,836

 

142,308

General and administrative

91,512

 

85,668

Total expenses and other

$491,508

 

$453,828

Income from continuing operations

$246,492

 

$254,172

a. Prepare a comparative income statement for these two years in vertical form, stating each item as a percent of revenues. Round to one decimal place. Enter all amounts as positive numbers.

b. Overall revenue _________________ some between the two years. In addition, the overall mix of revenue sources changed somewhat. The NASCAR broadcasting revenue _________________ as a percent of total revenue by 2.3 percentage points, while the percent of admissions revenue to total revenue 2%.

2. Vertical Analysis of Balance Sheet

Balance sheet data for Hanes Company on December 31, the end of the fiscal year, are shown below.

 

2014

2013

Current assets

$376,600 $234,030

Property, plant, and equipment

559,520 500,340

Intangible assets

139,880 72,630

Current liabilities

247,480 153,330

Long­term liabilities

365,840 266,310

Common stock

129,120 121,050

Retained earnings

333,560 266,310

Prepare a comparative balance sheet for 2014 and 2013, stating each asset as a percent of total assets and each liability and stockholders' equity item as a percent of the total liabilities and stockholders' equity. If required, round percentages to one decimal place.

3. Horizontal Analysis of the Income Statement

Income statement data for Boone Company for the years ended December 31, 2014 and 2013, are as follows:

 

2014

 

2013

Sales

$421,600

 

$340,000

Cost of goods sold

366,000

 

300,000

Gross profit

$55,600

 

$40,000

Selling expenses

$15,960

 

$14,000

Administrative expenses

14,640

 

12,000

Total operating expenses

$30,600

 

$26,000

Income before income tax

$25,000

 

$14,000

Income tax expenses

10,000

 

5,600

Net income

$15,000

 

$8,400

 

a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for 2014 when compared with 2013. If required, round to one decimal place. Enter all amounts as positive numbers.

b. The net income for Boone Company increased by 78.6% from 2013 to 2014. This increase was the combined result of an _________________ in sales of 24% and _________________ percentage _________________ in total operating expenses.

4. Current Position Analysis

The following data were taken from the balance sheet of Bock Suppliers Company:

 

Dec. 31, 2014

Dec. 31, 2013

Cash

$701,500

$545,600

Temporary investments

812,200

613,800

Accounts and notes receivable (net)

332,300

204,600

Inventories

796,600

529,500

Prepaid expenses

410,400

338,500

Total current assets

$3,053,000

$2,232,000

Accounts and notes payable

 

(short­term)

 

 

$411,800

 

 

$434,000

Accrued liabilities

298,200

186,000

Total current liabilities

$710,000

$620,000

a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.

b. The liquidity of Bock Suppliers has _________________ from the preceding year to the current year. The working capital, current ratio, and quick ratio have all _________________ . Most of these changes are the result of an _________________ in current assets relative to current liabilities.

5. Accounts Receivable Analysis

Shelby Stores Company and Landon Stores, Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (all numbers are in millions):

 

Shelby

Landon

Merchandise sales

$262,800 $368,650

Credit card receivables­beginning

29,744 72,587

Credit card receivables­ending

24,832 55,885

a. Determine the (1) accounts receivable turnover and (2) the number of days' sales in receivables for both companies. Round answers to one decimal place. Assume 365 days a year.

                                                               Shelby                         Landon

1. Accounts receivable turnover             _________________          _________________

2. Number of days' sales in receivables    _________________ days   _________________ days

b. Shelby's accounts receivable turnover is _________________ than Landon's. The number of days' sales in receivables is _________________ for Shelby than for Landon. These differences indicate that Shelby is able to turn over its receivables

_________________ quickly than Landon. As a result, it takes Shelby _________________ time to collect its receivables.

6. Inventory Analysis

Corporal Inc. and Admiral Company compete with each other in the personal computer market. Corporal's primary strategy is to assemble computers to customer orders, rather than for inventory. Thus, for example, Corporal will build and deliver a computer within four days of a customer entering an order on a Web page. Admiral, on the other hand, builds some computers prior to receiving an order, then sells from this inventory once an order is received. Below is selected financial information for both companies from a recent year's financial statements (in millions):

 

Corporal Inc.

Admiral Company

Sales

$83,220

$108,300

Cost of goods sold

69,350

102,200

Inventory, beginning of period

2,916

12,104

a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year.

                                                       Corporal                             Admiral

1. Inventory turnover                       _________________            ________________

2. Number of days' sales in inventory   _________________ days     _________________ days

b. Corporal has a _________________ inventory turnover ratio than does Admiral Company. Likewise, Corporal has a _________________ number of days' sales in inventory.

7. Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Olvideo Enterprises Inc. for the current fiscal year.

Property, plant, and equipment (net)

 

 

$1,320,000

Liabilities:

 

 

 

Current liabilities

$120,000

 

 

Mortgage note payable, 8%, issued 2003, due 2019

600,000

 

 

Total liabilities

 

 

$720,000

Stockholders' equity:

 

 

 

Preferred $2 stock, $100 par (no change during year)

$1,080,000

Common stock, $10 par (no change during year)

1,080,000

 

Retained earnings:

 

 

 

Balance, beginning of year

$1,152,000

 

 

 

 

Net income

384,000

 

$1,536,000

 

 

Preferred dividends

$21,600

 

 

 

 

Common dividends

74,400

 

96,000

 

 

Balance, end of year

 

 

 

 

1,440,000

Total stockholders' equity

 

 

 

 

$3,600,000

Net sales

 

 

 

 

$13,338,000

Interest expense

 

 

 

 

$48,000

Assuming that long­term investments totaled $2,160,000 throughout the year and that total assets were $4,104,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a. Ratio of fixed assets to long­term liabilities _________________

b. Ratio of liabilities to stockholders' equity _________________

c. Ratio of net sales to assets _________________

d. Rate earned on total assets _________________ %

e. Rate earned on stockholders' equity _________________ %

f. Rate earned on common stockholders' equity _________________ %

8. Nineteen Measures of Solvency and Profitability

The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $64 on December 31, 2014.

Blige Inc.

Comparative Retained Earnings Statement

 

2014

 

2013

 

Retained earnings, January 1

$1,795,025

 

$1,524,075

 

Add net income for year

431,200

 

312,200

 

Total

$2,226,225

 

$1,836,275

 

Deduct dividends

On preferred stock

 

 

$13,300

 

 

 

$13,300

 

On common stock

27,950

 

27,950

 

Total

$41,250

 

$41,250

 

Retained earnings, December 31

$2,184,975

 

$1,795,025

 

Blige Inc.

Comparative Income Statement

Sales

$2,752,650

 

$2,532,400

Sales returns and allowances

13,690

 

8,900

Net sales

$2,738,960

 

$2,523,500

Cost of goods sold

973,820

 

895,910

Gross profit

$1,765,140

 

$1,627,590

Selling expenses

$599,210

 

$749,770

Administrative expenses

510,430

 

440,340

Total operating expenses

1,109,640

 

1,190,110

Income from operations

$655,500

 

$437,480

Other income

34,500

 

27,920

 

$690,000

 

$465,400

Other expense (interest)

200,000

 

110,400

Income before income tax

$490,000

 

$355,000

Income tax expense

58,800

 

42,800

Net income

$431,200

 

$312,200

Blige Inc.

 

 

Dec. 31, 2014

 

Dec. 31, 2013

 

Assets

 

 

 

 

Current assets

 

 

 

 

 

Cash

 

$584,440

 

$461,210

 

Temporary investments

 

884,560

 

764,300

 

Accounts receivable (net)

 

503,700

 

474,500

 

Inventories

 

379,600

 

292,000

 

Prepaid expenses

 

110,566

 

92,240

 

Total current assets

 

$2,462,866

 

$2,084,250

 

Long­term investments

1,076,582

 

524,275

 

Property, plant, and equipment (net)

2,750,000

 

2,475,000

 

Total assets

$6,289,448

 

$5,083,525

 

 

Liabilities

 

 

 

 

Current liabilities

$794,473

 

$1,098,500

 

Long­term liabilities

 

 

 

 

Mortgage note payable, 8%, due 2019

$1,120,000

 

$0

 

Bonds payable, 8%, due 2015

1,380,000

 

1,380,000

 

Required:

Determine the following measures for 2014, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

1. Working capital $ _________________

2. Current ratio  _________________

3. Quick ratio  _________________

4. Accounts receivable turnover  _________________

5. Number of days' sales in receivables  _________________  days

6. Inventory turnover  _________________

7. Number of days' sales in inventory  _________________  days

8. Ratio of fixed assets to long­term liabilities  _________________

9. Ratio of liabilities to stockholders' equity  _________________

10. Number of times interest charges are earned  _________________

11. Number of times preferred dividends are earned  _________________

12. Ratio of net sales to assets  _________________

13. Rate earned on total assets  _________________ 

14. Rate earned on stockholders' equity  ________________ 

15. Rate earned on common stockholders' equity  _________________ %

16. Earnings per share on common stock  $ _________________

17. Price­earnings ratio  _________________

18. Dividends per share of common stock  $ _________________

19. Dividend yield _________________ %




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