131. United Products began the year with an Inventory balance of $180,000, and had a year-
end balance of $200,000. Sales of $800,000 generated a gross profit of $150,000. Calculate
the inventory turnover ratio for the year.
132. BC Training reports sales revenue of $2,200,000. Average inventory during the year was
$200,000. The inventory turnover ratio for the year is 8.0. What amount of gross profit would
the company report in its income statement?
133. LeBron’s Kids Camps has a current ratio of 0.75 to 1, based on current assets of $3
million and current liabilities of $4 million. How, if at all, will a $500,000 cash purchase of
inventory affect the current ratio? How, if at all, will a $500,000 purchase of inventory on
account affect the current ratio?
134. The following income statement and balance sheets for Laser World are provided:
Assuming that all sales were on account, calculate the following risk ratios for 2012:
135. Explain why ratios that compare an income statement account with a balance sheet
account should express the balance sheet account as an average of the beginning and ending
balances.
136. The following income statement and balance sheets for Laser World are provided:
Earnings per share for the year-ended December 31, 2012, is $1.90. The closing stock price
on December 31, 2012, is $30.40.
Calculate the following profitability ratios for 2012:
137. Barry’s BBQ had sales revenue for the year of $200 million and net income of $20
million. Total assets were $70 million at the beginning of the year, and $80 million at the end
of the year. Calculate Barry’s return on assets, profit margin, and asset turnover ratios.
138. Paul Pierce Enterprises reports net income of $800,000, average total assets of
$2,400,000, and average total liabilities of $400,000. Calculate the return on asset and return
on equity ratios.
139. Sideline Sports Products reports a return on assets of 6%, and a return on equity of 10%.
Why do these two ratios differ?
140. Define earnings persistence. How does earnings persistence relate to the reporting of
discontinued operations and extraordinary items?
141. Phillip’s Fun Center has go-karts, miniature golf, bumper boats, paintball, and laser tag.
Determine whether the company should report each of the following items as discontinued
operations, extraordinary items, or other expenses:
1. Uninsured losses of $200,000 were incurred due to a hurricane that swept through the area
for the first time in 50 years.
2. The company sold its old go-karts at a loss of $25,000 and replaced them with all new go
karts.
3. The company sold its laser tag center at a loss of $10,000 to focus on the other more
profitable segments. Laser tag is considered to be a separate business segment.
4. The company restructured its business at a cost of $75,000, replacing some employee
positions with automated equipment.
142. Explain the difference between conservative and aggressive accounting practices.
Provide an example of a conservative accounting practice and explain why this practice is
conservative. Provide an example of an aggressive accounting practice and explain why this
practice is aggressive.
143. Classify each of the following accounting practices as conservative or aggressive:
1. Increase the allowance for uncollectible accounts.
2. When costs are rising, change from FIFO to LIFO.
3. Increase the estimated useful life of equipment.
144. Classify each of the following accounting practices as conservative or aggressive.
1. Choosing a shorter life for calculating depreciation.
2. The write-down of inventory.
3. Decrease the allowance for uncollectible accounts.
4. Recording revenues sooner.
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