189) Perform a horizontal analysis on the following information providing both the dollar amount
and percentage change:
2021
2020
Cash
$500,000
$200,000
Accounts receivable
900,000
800,000
Inventory
700,000
500,000
Long-term assets
2,200,000
2,500,000
Total assets
$4,300,000
$4,000,000
82
190) Assume a company’s sales are $1.6 million in 2020, $1.8 million in 2021, and $1.7 million in
2022. What is the percentage change from 2020 to 2021? What is the percentage change from 2021
to 2022? Be sure to indicate whether the percentage change is an increase or a decrease.
191) If a company’s sales are $648,000 in 2021, and this represents an 8% increase over sales in
2020, what were sales in 2020?
192) A company began the year with an Accounts Receivable balance of $250,000, and had a
year-end balance of $280,000. Credit sales of $800,000 generated a gross profit of $150,000.
Calculate the receivables turnover ratio for the year.
83
193) A company 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.
194) 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?
84
195) 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?
85
196) he following income statement and balance sheets for Laser World are provided:
Laser World
Income Statement
For the year-ended December 31, 2021
Sales revenue
$2,200,000
Cost of goods sold
1,500,000
Gross profit
700,000
Expenses:
Operating expenses
350,000
Depreciation expense
70,000
Loss on sale of land
5,000
Interest expense
25,000
Income tax expense
60,000
Total expenses
510,000
Net income
$190,000
Laser World
Balance Sheets
December 31
Assets
2021
2020
Current assets:
Cash
$120,000
$112,000
Accounts receivable
90,000
70,000
Inventory
120,000
100,000
Prepaid rent
10,000
10,000
Long-term assets:
Land
260,000
200,000
Equipment
350,000
210,000
Accumulated depreciation
(70,000)
(42,000)
Total assets
$880,000
$660,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$55,000
$75,000
Interest payable
8,000
7,000
Income tax payable
15,000
12,000
Long-term liabilities:
Notes payable
400,000
300,000
Stockholders’ equity:
Common stock
200,000
200,000
Retained earnings
202,000
66,000
Total liabilities and equity
$880,000
$660,000
86
Assuming that all sales were on account, calculate the following risk ratios for 2021 (round to one
decimal place):
1. Receivables turnover ratio
2. Average collection period
3. Inventory turnover ratio
4. Average days in inventory
5. Current ratio
6. Acid-test ratio
7. Debt to equity ratio
8. Times interest earned ratio
88
197) The following income statement and balance sheets for Worlds of Fun are provided:
Worlds of Fun
Income Statement
For the year-ended December 31, 2021
Sales revenue
$2,200,000
Cost of goods sold
1,500,000
Gross profit
700,000
Expenses:
Operating expenses
350,000
Depreciation expense
70,000
Loss on sale of land
5,000
Interest expense
25,000
Income tax expense
60,000
Total expenses
510,000
Net income
$190,000
Worlds of Fun
Balance Sheet
December 31
Assets
2021
2020
Current assets:
Cash
$120,000
$112,000
Accounts receivable
90,000
70,000
Inventory
120,000
100,000
Prepaid rent
10,000
10,000
Long-term assets:
Land
260,000
200,000
Equipment
350,000
210,000
Accumulated depreciation
(70,000)
(42,000)
Total assets
$880,000
$660,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$55,000
$75,000
Interest payable
8,000
7,000
Income tax payable
15,000
12,000
Long-term liabilities:
Notes payable
400,000
300,000
Stockholders’ equity:
Common stock
200,000
200,000
Retained earnings
202,000
66,000
Total liabilities and equity
$880,000
$660,000
Earnings per share for the year ended December 31, 2021, is $1.90. The closing stock price on
December 31, 2021, is $30.40.
Calculate the following profitability ratios for 2021 (round to one decimal place):
1. Gross profit ratio
2. Return on assets
3. Profit margin
4. Asset turnover
5. Return on equity
6. Price-earnings ratio
91
200) Phillip’s Fun Center has several playgrounds areas, go-karts, miniature golf, bumper boats,
paintball, and laser tag. Determine whether the company should report each of the following items
as discontinued operations, other revenues, or other expenses:
1. The company sells an outdoor playground at a gain of $5,000.
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.
Answer:
201) 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.
Answer:
92
202) 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.
Answer:
93
203) The Sports Warehouse operates in two distinct segments; equipment and apparel. The income
statements for each operating segment are presented below.
Required:
1. Complete the “%” columns to be used in a vertical analysis of The Sports Warehouse’s two
operating segments. Express each amount as a percentage of sales.
2. Use vertical analysis to compare the profitability of the two operating segments. Which segment
is more profitable?
94
Answer:
95
204) The following balance sheets for The Sports Shack are provided.
The Sports Shack
Balance Sheets
December 31
Assets
2021
2020
Current assets:
Cash
$218,000
$196,000
Accounts receivable
680,000
880,000
Inventory
1,250,000
1,100,000
Supplies
90,000
65,000
Long-term assets:
Equipment
1,200,000
900,000
Less: Accumulated depreciation
(350,000)
(250,000)
Total assets
$3,088,000
$2,891,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$65,000
$55,000
Interest payable
4,000
6,000
Income tax payable
40,000
30,000
Long-term liabilities:
Notes payable
400,000
300,000
Stockholders’ equity:
Common stock
900,000
900,000
Retained earnings
1,679,000
1,600,000
Total liabilities and equity
$3,088,000
$2,891,000
Required:
1. Prepare a vertical analysis of The Sports Shack’s 2021 and 2020 balance sheets. Express each
amount as a percentage of total assets for that year.
2. Prepare a horizontal analysis of The Sports Shack’s 2021 balance sheet using 2020 as the base
year.
96