Reference no: EM13859183

Problem 1:

A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto:

McKenzie Sales, Ltd. Comparative Income Statement This Year		Last Year
Sales	$7,370,000	$5,601,200
Cost of goods sold	4,600,000	3,510,500
Gross margin	2,770,000	2,090,700
Selling and administrative expenses:
Selling expenses	1,383.000	1,077,000
Administrative expenses	703,000	608,500
Total expenses	2.086.000	1.685.500
Net operating income	684.000	405,200
Interest expense	99,000	90.000
Net income before taxes	$ 585,000	$ 315,200

Members of the company's board of directors are surprised to see that net income increased by only $269,800 when sales increased by $1.768,800.

Required:

1. Express each years income statement in common-size percentages. (Round your percentage answers to 1 decimal place

Problem 2:

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 500,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.50. The market value of the company's common stock at the end of the year was $27. All of the company's sales are on account.
                                                                  Weller Corporation
                                                               Comparative Balance Sheet
                                                                  (dollars In thousands)

Assets Current assets:	This Yew	Last Year
Cash	$ 1,100	$ 1,280
Accounts receivable, net	9,600	6,900
Inventory	13,400	12,300
Prepaid expenses	610	680
Total current assets	24,710	21,160
Property and equipment:
Land	10,900	10,900
Buildings and equipment, net	48,910	36,290
Total property and equipment	59.810	47,190
Total assets	$84.520	$68,350
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$20,400	$ 18,600
Accrued liabilities	930	770
Notes payable, short term	290	290
Total current liabilities	21,620	19,660
Long-term liabilities:
Bonds payable	9.000	9,000
Total liabilities	30,620	28,660
Stockholders' equity:
Common stock	500	500
Additional paid-in capital	MOO	4,000
Total paid-In capital	4,500	4,500
Retained earnings	49,400	35,190
Total stockholders' equity	53,900	39,690
Total liabilities and stockholders' equity	$84,520	$68,350

                                                                  Weller Corporation
                                               Comparative Income Statement and Reconciliation
                                                                   (dollars in thousands)

	This Year	Last Year
Sales	$76,000	$65,000
Cost of goods sold	34,000	40,000
Gross margin	42,000	25,000
Selling and administrative expenses:
Selling expenses	10,600	10,700
Administrative expenses	6.400	6,400
Total selling and administrative expenses	17,000	17,100
Net operating income	25,000	7,900

Interest expense	900	900
Net income before taxes	24.100	7.000
Income taxes	9.640	2,800
Net income	14.460	4,200
Dividends to common stockholders	250	250
Net income added to retained earnings	14,210	3,950
Beginning retained earnings	35,190	31,240
Ending retained earnings	$49,400	$35,190

Required:

Compute the following financial data and ratios for this year

1. Working capital.

2. Current ratio. (Round your answer to 2 decimal places.)

3. Acid - test ratio. (Round your answer to 2 decimal places.)

Problem 3:

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.50. The market value of the company's common stock at the end of the year was $26. All of the company's sales are on account.

Weller Corporation
Comparative Balance Sheet
(dollars in thousands)

Assets Current assets:		ThIs Year		Last Year
Cash		$ 1,150		$   1,350
Accounts receivable, net		10.000		7,100
Inventory		12,200		11,900
Prepaid expenses		670		520
Total current assets		24,020		20,870
Property and equipment:
Land		9,900		9,900
Buildings and equipment, net		49,586		40,274
Total property and equipment		59,486		50,174
Total assets		$83,506		$71,044
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$19,600		$17,700
Accrued liabilities		960		880
Notes payable, shod term		260		260
Total current liabilities		20,820		18,840
Long-term liabilities:
Bonds payable		9,600		9,600
Total liabilities		30,420		28,440
Stockholders' equity:
Common stock		600		600
Additional paid-in capital		4,000		4,000
Total paid-in capital		4.600		4,600
Retained earnings		48,486		38,004
Total stockholders' equity		53,086		42,604
Total liabilities and stockholders' equity		$83,506		$ 71,044
Weller Corporation Comparative Income Statement Reconciliation and (dollars In thousands)
	This Year		Last Year
Sales	$74,385		$64,000
Cost of goods sold	37,355		34,000
Gross margin	37,030		30.000
Selling and administrative expenses:
Selling expenses	10,900		10,500
Administrative expenses	7,200		6,600
Total selling and administrative expenses	18,100		17,100
Net operating income	18,930		12,900

Interest expense	960	960
Net income before taxes	17,970	11,940
Income taxes	7,188	4,776
Net Income	10,782	7,164
Dividends to common stockholders	300	300
Net income added to retained earnings	10,482	6,864
Beginning retained earnings	38,004	31,140
Ending retained earnings	$48,486	$38,004

Required:

Compute the following financial data for this year.

1. Accounts receivable turnover. (Assume that all sales are on account.) (Round your answer to 2 decimal places.)

2. Average collection period. (Use 365 days In a year. Round your Intermediate calculations and final answer to 2 decimal places.)

3. Inventory turnover. (Round your answer to 2 decimal places.)

4. Average sale period. (Use 365 days In a year. Round your Intermediate calculations and final answer to 2 decimal places.)

5. Operating cycle. (Round your intermediate calculations and final answer to 2 decimal places.)

6. Total asset turnover. (Round your answer to 2 decimal places.)

Problem 4:

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not Issue any new common stock during the year. A total of 700,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $.75. The market value of the company's common stock at the end of the year was $28. All of the company's sales are on account.

Weller Corporation
Comparative Balance Sheet
(dollars In thousands)

Assets Current assets:	This Year	Last Year
Cash	$ 1,220	$ 1,280
Accounts receivable, not	10,300	8,100
Inventory	13,000	12,100
Prepaid expenses	790	620
Total current assets	25,310	22.100
Property and equipment:
Land	10,200	10,200
Buildings and equipment, net	41,718	41,209
Total property and equipment	51,918	51,409
Total assets	$77,228	$73,509
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$19.000	$ 18,600
Accrued liabilities	1,030	800
Notes payable, short term	0	250
Total current liabilities	20,030	19,650
Long-term liabilities:
Bonds payable	9,600	9,600
Total liabilities	29,630	29,250
Stockholders' equity:
Common stock	2,000	2,000
Additional paid•in capital	4,000	4,000
Total paid-in capital	6.000	6,000
Retained earnings	41,598	38,259
Total stockholders' equity	47,598	44,259
Total liabilities and stockholders' equity	$77,228	$73,509

Weller Corporation
Comparative Income Statement and Reconciliation
(dollars in thousands)

	This Year Last Year
Sales	$67,000	$64,000
Cost of goods sold	41,000	33,000
Gross margin	26,000	31,000
Selling and administrative expenses:
Selling expenses	11,500	10,700
Administrative expenses	7,100	6,600
Total selling and administrative expenses	18,600	17,300
Net operating income	7,400	13,700
Interest expense	960	960
Net income before taxes	6.440	12,740
Income taxes	2.576	5,096
Net Income	3,864	7,644
Dividends to common stockholders	525	525
Net income added to retained earnings	3,339	7,119
Beginning retained earnings	38,259	31,140
Ending retained earnings	$41,598	$38,259
Required:
Compute the following financial ratios for this year:

Required:
Compute the following financial ratios for this year:

1. Times Interest earned ratio. (Round your answer to 1 decimal place.)
2. Debt-to-equity ratio. (Round your answer to 2 decimal places.)
3. Equity multiplier. (Round your answer to 2 decimal places.)

Problem 5:

Comparative financial statements for Weller Corporation, a merchandising company. for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 830,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%. and the dividend per share of common stock was $0.40. The market value of the company's common stock at the end of the year was $19.50. All of the company's sales are on account.

Weller Corporation
Comparative Balance Sheet
(dollars in thousands)

Assets Current assets:	This Year	Last Year
Cash	$ 5,078	$ 5,190
Accounts receivable, net	12,600	9,250
Inventory	9,850	8,320
Prepaid expenses	1,830	2,160
Total current assets	29,358	24,920
Property and equipment:
Land	6,300	6,300
Buildings and equipment, net	19,500	19,300
Total property and equipment	25,800	25,600
Total assets	$55,158	$50,520
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 9,800	$ 8.450
Accrued liabilities	660	850
Notes payable, short term	330	330
Total current liabilities	10,790	9,630
Long-term liabilities:
Bonds payable	8,750	8,750
Total liabilities	19,540	18,380
Stockholders' equity:
Common stock	830	830
Additional paid-in capital	4,350	4,350
Total pald-in capital	5,180	5,180
Retained earnings	30,438	26,960
Total stockholders' equity	35,618	32,140
Total liabilities and stockholders' equity	$55,158	$50,520

Weller Corporation
Comparative Income Statement and Reconciliation
(dollars in thousands)

	This Year	Last Year
Sales	$82,000	$77,000
Cost of goods sold	53,500	49,500
Gross margin	28.500	27.500
Selling and administrative expenses:
Selling expenses	8,800	8,300
Administrative expenses	12,300	11.300
Total selling and administrative expenses	21,100	19,600
Net operating income	7,400	7,900
Interest expense	1.050	1,050
Net income before taxes	6,350	6,850
Income taxes	2.540	2,740
Net income	3,810	4,110
Dividends to common stockholders	332	332
Net income added to retained earnings	3,478	3,778
Beginning retained earnings	26,960	23,182
Ending retained earnings	$30,438	$26,960

Required:
Compute the following financial data for this year:
1. Gross margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
2. Net profit margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
3. Retum on total assets. (Round your percentage answer to 1 decimal place (I.e., 0.1234 should be entered as 12.3).)
4. Return on equity. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Problem 6:

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 850.000 shares of common stock were outstanding. The interest rate on the bond payable was 12%. the income lax rate was 40%, and the dividend per share of common stock was $0.40. The market value of the company's common stock at the end of the year was $20.50. All of the company's sales are on account.
Weller Corporation
Comparative Balance Sheet
(dollars in thousands)

Assets Current assets:		This Year		Last Year
Cash		$ 1,810		$         710
Accounts receivable, net		12,800		10,000
Inventory		9,950		8,400
Prepaid expenses		1,850		2,200
Total current assets		26,410		21,310
Property and equipment:
Land		6,500		6,500
Buildings and equipment, net		19,700		19,500
Total property and equipment		26.200		26,000
Total assets		$52,610		$47,310
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$10,000		$ 8,550
Accrued liabilities		700		950
Notes payable, short term		350		350
Total current liabilities		11,050		9.850
Long-term liabilities:
Bonds payable		5,000		5,000
Total liabilities		16,050		14,850
Stockholders' equity:
Common stock		850		850
Additional paid-in capital		4,450		4,450
Total paid-in capital		5,300		5,300
Retained earnings		31,260		27,160
Total stockholders' equity		36.560		32,460
Total liabilities and stockholders' equity		$52,610		$47,310
Weiler Corporation Comparative Income Statement Reconciliation and (dollars In thousands)
	This Year		Last Year
Sales	$84,000		$79,000
Cost of goods sold	54,500		50,500
Gross margin	29,500		28,503
Selling and administrative expenses:
Selling expenses	9,000		8,500
Administrative expenses	12,500		11,500
Total selling and administrative expenses	21,500		20,000
Net operating income	8,000		8,500
Interest expense	600		600
Net income before taxes	7.400		7.900
Income taxes	2,960		3,160
Net income	4,440		4,740
Dividends to common stockholders	340		340
Net income added to retained earnings	4,100		4,400
Beginning retained earnings	27,160		22,760
Ending retained earnings	$31.280		$27,160

Required:
Compute the following financial data for this year.
1. Earnings per share. (Round your answer to 2 decimal places.)
2. Pdce-earnings ratio. (Round your intermediate calculations and final answer to 2 decimal niaces.)
3. Dividend payout ratio. (Round your intermediate calculations and final answer to 2 decimal places.)
4. Dividend yield ratio. (Round your intermediate calculations and final answer to 2 decimal places.)
5. Book value per share. (Round your answer to 2 decimal places.)

Problem 7:

Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company's current assets, current liabilities, and sales have been reported as follows over the last five years (Year 5 is the most recent year):

	Year 1	Year 2	Year 3	Year 4	Year 5
Sales	$4,556,090	$4,866,830	$5,103,410	$5,434,060	$5,721,240
Cash
	$       97,532	$      104,951	$      92,470	$      90.966	$      67,724
Accounts receivable, net	416.455	425.820	437,223	507,915	577,020
Inventory	806,723	869,850	834,585	897,619	898,997
Total current assets	$1,320,710	$1.400,621	$1,364,278	$1.496,500	$1,543,741
Current liabilities	$     314,974	$ 349,284	$ 337,560	$ 335,088	$ 396,570

Required:

1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year.
(Round your percentage answers to 1 decimal place (i.e.. 0.1234 should be entered as 12.3).)

Problem 8:

In the right-hand column below, certain financial ratios are listed. To the left of each ratio is a business transaction or event relating to the operating activities of Delta Company.

Business Transaction or Event                                                 Ratio

1.     Declared a cash dividend.                                                            Current ratio

2.     Sold inventory on account at cost.                                               Acid-test ratio

3.     Issued bonds with an interest rate of 8%. The company's return on

assets is 10%.                                                                                                            Return on equity

4.     Net Income decreased by 10% between last year and this year. Long-

term debt remained unchanged.                                                       Times interest earned

5.     Paid a previously declared cash dividend.                                    Current ratio

6.     The market price of the company's common stock dropped from

$24.50 to $20.00. The dividend paid per share remained unchanged. Dividend payout ratio

7.     Obsolete inventory totaling $100,000 was written off as a loss.     Inventory turnover ratio

8.     Sold inventory for cash at a profit.                                              Debt-to-equity ratio

9.     Changed customer credit terms from 2110, n/30 to 2/15. n/30 to

comply with a change in industry practice.                                    Accounts receivable turnover ratio

10.  Issued a stock dividend to common stockholders.                       Book value per share

11.  The market price of the company's common stock increased from

$24.50 to $30.00.                                                                                                       Book value per share

12.  Paid $40,000 on accounts payable.                                             Working capital

13.  Issued a stock dividend to common stockholders.                       Earnings per share

14.  Paid accounts payable.                                             Debt-to-equity ratio

15.  Purchased inventory on account.                                                 Acid-test ratio

16.  Wrote off an uncollectible account against the Allowance for Bad Debts.                                                                                                                         Current ratio

17.  The market price of the company's common stock Increased from

$24.50 to $30.00. Earnings per share remained unchanged.            Price-earnings ratio

18.  The market price of the company's common stock Increased from

$24.50 to $30.00. The dividend paid per share remained unchanged. Dividend yield ratio

Required:

Indicate the effect that each business transaction or event would have on the ratio listed opposite to it. State the effect in terms of increase, decrease, or no effect on the ratio involved. In all cases. assume that the current assets exceed the current liabilities both before and after the event or transaction.