Accrued expenses and other current liabilities
836
696
Income taxes payable
107
224
Total current liabilities
$2,838
$2,491
Long-term debt
$1,230
$1,222
Deferred income taxes
362
333
Other liabilities
243
229
Total liabilities
$4,673
$4,275
Common stock
$ 30
$ 30
Additional paid-in capital
453
459
Retained earnings
4,757
4,478
Foreign currency translation adjustments
(137)
(100)
Treasury shares, at cost
(1,423)
(1,243)
Total stockholders’ equity
$3,680
$3,624
Total liabilities and stockholders’ equity
$8,353
$7,899
(In millions)
6/30/2013
6/30/2012
Increase
Amount
Cash and cash equivalents
Accounts and other receivables
Merchandise inventories
Prepaid expenses and other current assets
Total current assets
Real estate, net
Other, net
Total property and equipment
Goodwill, net
Other assets
Total assets
Short-term borrowings
Accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
Long-term debt
Deferred income taxes
Other liabilities
Total liabilities
Common stock
Additional paid-in capital
Retained earnings
Foreign currency translation adjustments
Treasury shares, at cost
Total stockholders’ equity
Total liabilities and stockholders’ equity
11. The following selected amounts were extracted from the financial statements of Clay Corporation.
(Round all answers below to one decimal place.)
Year
4
Year
3
Year
2
Year
1
Net sales
$1,440,000
$1,380,000
$1,320,000
$1,200,000
Gross margin
928,000
896,000
872,000
800,000
Net income
226,000
222,000
216,000
200,000
a. Prepare a trend analysis for net sales, gross margin, and net income using Year 1 as the base year.
Cash and cash equivalents
$174
Accounts and other receivables
Prepaid expenses and other current assets
80
81
Real estate, net
Other, net
Total property and equipment
$229
Goodwill, net
Other assets
Total assets
$454
Short-term borrowings
$122
Accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
$347
Long-term debt
Deferred income taxes
Other liabilities
Total liabilities
$398
Common stock
Retained earnings
Foreign currency translation adjustments
Treasury shares, at cost
Total stockholders’ equity
Total liabilities and stockholders’ equity
$454
Year 4
Year 3
Year 2
Year 1
(In percentages)
Net sales
Gross margin
Net income
b. For net sales, gross margin, and net income:
1. Calculate the percentage change from Year 1 to Year 2.
2. Calculate the percentage change from Year 2 to Year 3.
c. For each of the four years, compute the percentage relationship of gross margin to net sales and the
relationship of net income to net sales.
Year 4
Year 3
Year 2
Year 1
Gross margin to net sales
Net income to net sales
d. Identify which requirement(s) above involve(s):
1. Horizontal analysis
2. Vertical analysis
Round all answers to the nearest tenth of 1 percent.
Year 4
Year 3
Year 2
Year 1
(In percentages)
Net sales*
12. Contrast the circumstances where horizontal analysis would be an effective analysis tool with those
where common-sized analysis would be more useful.
13. From the following information, compute the ratios indicated and place the proper numbers in the
spaces provided. Assume the average for the year is the same as the ending balances for the balance
sheet accounts. Round percentages to one decimal place, and show your work.
Westwood Corporation
Balance Sheet
December 31, 2013
Assets
Cash
$ 15,000
Marketable securities
10,000
Accounts receivable (net)
20,000
Inventory
30,000
Prepaid expenses
8,000
Property, plant, and equipment
117,000
Total assets
$200,000
Liabilities and Stockholders’ Equity
Current liabilities
$ 30,000
Long-term liabilities
50,000
Stockholders’ equity
120,000
Total liabilities and stockholders’ equity
$200,000
Westwood Corporation
Income Statement
For the Year Ended December 31, 2013
Net sales
$160,000
Cost of goods sold
120,000
Gross margin
$ 40,000
Operating expenses
Selling and administrative expenses
$ 16,000
Interest expense
8,000
Income taxes expense
4,000
28,000
Net income
$ 12,000
Westwood had 4,000 shares of common stock issued and outstanding. The market price of common
stock at year end was $15.00 per share. Dividends paid in 2013 were $0.60 per share.
Current ratio
Asset turnover
Quick ratio
Return on assets
Receivable turnover
Return on equity
Days’ sales uncollected
Debt to equity ratio
Inventory turnover
Interest coverage ratio
Profit margin
Days’ inventory on hand
Dividends yield
Price/earnings (P/E) ratio
14. Financial statements for Boston Corporation are presented below.
Boston Corporation
Comparative Balance Sheet
December 31
Assets
2013
2012
Cash
$ 120,000
$ 110,000
Accounts receivable (net)
135,000
95,000
Inventory
270,000
240,000
Property, plant, and equipment (net)
750,000
800,000
Total assets
$1,275,000
$1,245,000
Liabilities and Stockholders’ Equity
Accounts payable
$ 152,000
$ 208,000
Accrued liabilities
12,000
16,000
Bonds payable, 10 percent
160,000
160,000
Common stock, $10 par
500,000
500,000
Retained earnings
451,000
361,000
Total liabilities and stockholders’ equity
$1,275,000
$1,245,000
Boston Corporation
Income Statement
For the Year Ended December 31, 2013
Net sales
$1,200,000
Cost of goods sold
700,000
Gross margin
$ 500,000
Operating expenses
Depreciation expense
$ 70,000
Interest expense
10,000
Other expenses
260,000
340,000
Income before income taxes
$ 160,000
Income taxes expense
40,000
Net income
$ 120,000
Note: Dividends of $0.60 per share were declared and paid during 2013. The market price of the stock
on December 31, 2013 was $18.00 per share.
Compute the following for 2013 and place your answers in the spaces provided. Round answers to two
decimal places. Show your work.
Current ratio
Payables turnover
Receivable turnover
Days’ inventory on hand
Inventory turnover
Interest coverage ratio
Asset turnover
Return on equity
15. Financial statements for Cancun Corporation are presented below.
Cancun Corporation
Comparative Balance Sheet
December 31
Assets
2013
2012
Cash
$ 120,000
$ 110,000
Accounts receivable (net)
135,000
95,000
Inventory
270,000
240,000
Property, plant, and equipment (net)
750,000
800,000
Total assets
$1,275,000
$1,245,000
Liabilities and Stockholders’ Equity
Accounts payable
$ 152,000
$ 208,000
Accrued liabilities
12,000
16,000
Bonds payable, 10 percent
160,000
160,000
Common stock, $10 par
500,000
500,000
Retained earnings
451,000
361,000
Total liabilities and stockholders’ equity
$1,275,000
$1,245,000
Cancun Corporation
Income Statement
For the Year Ended December 31, 2013
Net sales
$1,200,000
Cost of goods sold
700,000
Gross margin
$ 500,000
Operating expenses
Depreciation expense
$ 70,000
Interest expense
10,000
Other expenses
260,000
340,000
Income before income taxes
$ 160,000
Income taxes expense
40,000
Net income
$ 120,000
Note: Dividends of $0.60 per share were declared and paid during 2013. The market price of the stock
on December 31, 2013 was $18.00 per share.
Compute the following for 2013 and place your answers in the spaces provided. Round answers to two
decimal places. Show your work.
Quick ratio
Days’ payable
Days’ sales uncollected
Debt to equity ratio
Profit margin
Price/earnings (P/E) ratio
Return on assets
Dividends yield
16. Use the following information to calculate the ratios requested below. Round answers to one decimal
place. Show your work.
Average inventory
$ 6,000
Average total assets
80,000
Cost of goods sold
21,000
Income taxes expense
3,600
Interest expense
2,000
Net income
4,800
Net sales
40,000
Market price, December 31, on 2,000 shares
$36/share
Return on assets
Inventory turnover
Price/earnings (P/E) ratio
Interest coverage ratio
($4,800 ÷ $80,000)
6.0%
($21,000 ÷ $6,000)
3.5 times
17. Use the following information to calculate the ratios requested below. Round answers to one decimal
place. Show your work.
Average inventory
$ 4,500
Average total assets
50,000
Cost of goods sold
15,750
Income taxes expense
2,700
Interest expense
1,500
Net income
3,200
Net sales
30,000
Market price, December 31, on 2,000 shares
$48/share
Return on assets
Inventory turnover
Price/earnings (P/E) ratio
Interest coverage ratio
18. Use the following information to calculate the ratios requested below. Round answers to one decimal
place. Show your work.
Average total assets
$112,500
Current assets, December 31
32,000
Current liabilities, December 31
10,000
Dividends paid
7,000
Stockholder’s equity, December 31
62,500
Net sales
270,000
Total liabilities, December 31
50,000
Market price, December 31, on 2,000 shares
$70/share
Dividends yield
Debt to equity ratio
Current ratio
Asset turnover
19. Use the following information to calculate the ratios requested below. Round answers to one decimal
place. Show your work.
Average total assets
$ 256,500
Current assets, December 31
72,000
Current liabilities, December 31
22,500
Dividends paid
15,750
Stockholder’s equity, December 31
150,000
Net sales
637,500
Total liabilities, December 31
105,000
Market price, December 31, on 2,500 shares
$150/share
Dividends yield
Debt to equity ratio
Current ratio
Asset turnover
20. After each of the following transactions is a ratio. Mark an X in the appropriate space to indicate the
effect of the transaction on the ratio.
Transaction
Ratio
Effect
Increase
Decrease
None
a.
Declaration of cash dividend.
Quick ratio
b.
Paid an account payable.
Current ratio
c.
Wrote off an account receivable.
Receivable turnover
d.
Collected an account receivable.
Return on assets
e.
Sold merchandise on account.
Current ratio
f.
Recorded utilities expense.
Profit margin
g.
Converted bonds into stock.
Debt to equity ratio
h.
Sold merchandise on account.
Inventory turnover
i.
Paid previously declared dividend.
Dividends yield
j.
Purchased treasury stock.
Return on equity
Increase
Decrease
None
a.
Declaration of cash dividend.
Quick ratio
b.
Paid an account payable.
Current ratio*
c.
Wrote off an account receivable.
Receivable turnover
d.
Collected an account receivable.
Return on assets
e.
Sold merchandise on account.
Current ratio
f.
Recorded utilities expense.
Profit margin
g.
Converted bonds into stock.
Debt to equity ratio
h.
Sold merchandise on account.
Inventory turnover
i.
Paid previously declared dividend.
Dividends yield
j.
Purchased treasury stock.
Return on equity