Reference no: EM132337149

Accounting Assignment -

Problem 1 - Top managers of Bella Tiles Inc., a specialty fabricating company, have asked for your help in comparing the company's profit performance and financial position with the average for the tile-making industry. The accountant has given you the company's income statement and balance sheet, and also the average data for the tile-making industry (amounts in millions):

Bella Tiles Inc. Income Statement For the Year Ended December 31, 2017
	Bella Tiles Inc.	Industry Average
Net sales	$29.2	100.0%
Cost of goods sold	17.6	65.9
Gross margin	11.6	34.1
Operating expenses	8.4	28.1
Operating income	3.2	6.0
Other expenses	0.2	0.4
Net income	$3.0	5.6%

 

Bella Tiles Inc. Balance Sheet December 31, 2017
	Bella Tiles Inc.	Industry Average
Current assets	$10.4	66.6%
Property, plant, equip., net	8.0	32.3
Other assets	0.2	1.1
Total assets	$18.6	100.0%
Current liabilities	$6.2	35.6
Long-term liabilities	5.2	19.0
Shareholders' equity	7.2	45.4
Total liabilities and shareholders' equity	$18.6	100.0%

Required -

1. Prepare a two-column common-size income statement and a two-column common-size-balance sheet for Bella Tiles Inc. The first column of each statement should present Bella Tiles Inc.'s common-size statement, and the second column should show the industry averages.

2. For the profitability analysis, compare Bella Tiles Inc.'s (a) ratio of gross margin to net sales, (b) ratio of operating income (loss) to net sales, and (c) ratio of net income (loss) to net sales. Compare these figures with the industry averages. Is Bella Tiles Inc.'s profit performance better or worse than the average for the industry?

3. For the analysis of financial position, compare Bella Tiles Inc.'s (a) ratio of current assets to total assets and (b) ratio of shareholders' equity to total assets. Compare these ratios with the industry averages. Is Bella Tiles Inc.'s financial position better or worse than the average for the industry?

Problem 2 - Financial statement data of Xi Supplies Inc. as at December 31, 2017, include the following items:

Cash	$53,000
Accounts receivable, net	127,000
Inventories	251,000
Prepaid expenses	10,000
Total assets	922,000
Short-term notes payable	80,000
Accounts payable	91,000
Accrued liabilities	64,000
Long-term liabilities	248,000
Net income	147,000
Number of common shares outstanding	44,000 shares

Required -

1. Compute Xi Supplies Inc.'s current ratio, debt ratio, and earnings per share. Round all ratios to two decimal places.

2. Compute each of the three ratios after evaluating the effect of each transaction that follows. Consider each transaction separately

a. Borrowed $100,000 on a long-term note payable.

b. Issued 12,000 common shares on January 2, 2018, receiving cash of $180,000.

c. Received cash on account, $29,000.

d. Paid short-term notes payable, $50,000.

e. Purchased merchandise costing $62,000 on account, debiting Inventory.

f. Paid long-term liabilities, $15,000.

g. Declared, but did not pay, a $40,000 cash dividend on the common shares.

Set up a table in the following format for your answers:

Transaction	Current Ratio	Debt Ratio	Earnings per Share

Problem 3 - Jens Hardware Inc.'s financial statements for the year ended December 31, 2017, are shown below:

Jens Hardware Inc. Balance Sheet December 31, 2017 and 2016
	2017	2016
Assets
Cash	$21,600	$15,600
Accounts receivable	33,050	21,000
Merchandise inventory	38,000	42,000
Prepaid expenses	1,000	1,500
Property, plant, and equipment	170,000	157,000
Accumulated amortization	(34,000)	(24,000)
Goodwill	15,000	15,000
Total assets	$244,650	$228,100
Liabilities
Accounts payable	$15,000	$18,500
Notes payable (due in 30 days)	2,000	3,500
Mortgage payable	40,000	45,000
Total liabilities	57,000	67,000
Shareholders' equity
Preferred shares (8,000 shares; $2.00, callable at $15.00 per share)	48,000	48,000
Common shares (2017-12,000 shares; 2016-8,000 shares)	81,000	65,000
Retained earnings	58,650	48,100
Total shareholders' equity	187,650	161,100
Total liabilities and shareholders' equity	$244,650	$288,100

 

Jens Hardware Inc. Income Statement For the Year Ended December 31, 2017
Net sales	$330,000
Cost of goods sold	190,000
Gross margin	140,000
Operating expenses:
Selling expenses	40,000
Administrative expenses	23,000
Interest expense	6,000
Total operating expenses	69,000
Operating income	71,000
Income taxes (30%)	21,300
Net income	$49,700

 

Jens Hardware Inc. Statement of Retained Earnings For the Year Ended December 31, 2017
Retained earnings, January 1, 2017		$48,100
Add net income for 2017		49,700
		97,800
Less dividends: Preferred	$16,000
Common	23,150	39,150
Retained earnings, December 31, 2017		$58,650

Required -

1. Perform a horizontal analysis of the comparative balance sheets. Comment on the analysis.

2. Perform a vertical analysis of the income statement. The industry standards are a gross margin of 45 percent and net income of 15 percent. Comment on the analysis.

3. Calculate each of the following ratios for the year ended December 31, 2017. The industry standards are provided in parentheses for some of the ratios.

a. Current ratio (2:1)

b. Acid-test ratio

c. Inventory turnover

d. Days' sales in receivables

e. Debt ratio (0.47)

f. Times-interest-earned ratio

g. Rate of return on net sales

h. Rate of return on total assets

i. Rate of return on common shareholders' equity

j. Price-earnings ratio-the market price per share is $9.00 at year end, when dividends were paid (14.0).

k. Dividend yield (4%)

4. Comment on your calculations for Jens Hardware Inc. Include comments for those ratios for which industry standards were provided.

Attachment:- Template.rar