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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.

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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