Chapter 15
160. Condensed financial statements for Black Company appear below:
Comparative Balance Sheets
Year 2 Year 1
Cash $ 128,000 $ 201,000
Accounts receivable 472,000 438,000
Inventories 797,000 673,000
Prepaid expenses 81,000 92,000
Plant and equipment (net) 2,655,000 2,428,000
Total assets $4,133,000 $3,832,000
Accounts payable $ 198,000 $ 280,600
Long-term bonds payable 1,000,000 1,000,000
Preferred stock, 10%, $100 par 450,000 450,000
Common stock, no par 1,800,000 1,800,000
Retained earnings 685,000 301,400
Total liabilities and stockholders’ equity $4,133,000 $3,832,000
Income Statement
December 31, Year 2
Sales, net $5,400,000
Less cost of goods sold 3,240,000
Gross margin 2,160,000
Less operating expenses 1,010,000
Net operating income 1,150,000
Interest expense 80,000
Net income before taxes 1,070,000
Chapter 15
Less income taxes 321,000
Net income $749,000
There were 72,000 shares of common stock outstanding throughout the Year 2. Dividends on common stock amounted to
$320,400 and dividends on preferred stock amounted to $45,000. The market value of a share of common stock was $54
at the end of Year 2. The income tax rate is 30%.
Required:
Calculate the following liquidity ratios for Year 2.
A. Current Ratio
B. Quick Ratio
C. Accounts Receivable Turnover Ratio
D. Inventory Turnover Ratio
E. Inventory Turnover in Days
161. Condensed financial statements for Black Company appear below:
Comparative Balance Sheets
Year 2 Year 1
Cash $128,000 $201,000
Chapter 15
Accounts receivable 472,000 438,000
Inventories 797,000 673,000
Prepaid expenses 81,000 92,000
Plant and equipment (net) 2,655,000 2,428,000
Total assets $4,133,000 $3,832,000
Accounts payable $198,000 $280,600
Long-term bonds payable 1,000,000 1,000,000
Preferred stock, 10%, $100 par 450,000 450,000
Common stock, no par 1,800,000 1,800,000
Retained earnings 685,000 301,400
Total liabilities and stockholders’ equity $4,133,000 $3,832,000
Income Statement
December 31, Year 2
Sales, net $5,400,000
Less cost of goods sold 3,240,000
Gross margin 2,160,000
Less operating expenses 1,010,000
Net operating income 1,150,000
Interest expense 80,000
Net income before taxes 1,070,000
Less income taxes 321,000
Net income $749,000
There were 72,000 shares of common stock outstanding throughout the Year 2. Dividends on common stock amounted to
$320,400 and dividends on preferred stock amounted to $45,000. The market value of a share of common stock was $54
at the end of Year 2. The income tax rate is 30%.
Required:
Calculate the following leverage ratios for Year 2:
A. times-interest-earned ratio
B. debt ratio
C. debt-to-equity ratio
Chapter 15
162. Condensed financial statements for Black Company appear below:
Comparative Balance Sheets
Year 2 Year 1
Cash $128,000 $201,000
Accounts receivable 472,000 438,000
Inventories 797,000 673,000
Prepaid expenses 81,000 92,000
Plant and equipment (net) 2,655,000 2,428,000
Total assets $4,133,000 $3,832,000
Accounts payable $198,000 $280,600
Long-term bonds payable 1,000,000 1,000,000
Preferred stock, 10%, $100 par 450,000 450,000
Common stock, no par 1,800,000 1,800,000
Retained earnings 685,000 301,400
Total liabilities and stockholders’ equity $4,133,000 $3,832,000
Income Statement
December 31, Year 2
Sales, net $5,400,000
Less cost of goods sold 3,240,000
Gross margin 2,160,000
Less operating expenses 1,010,000
Net operating income 1,150,000
Interest expense 80,000
Net income before taxes 1,070,000
Less income taxes 321,000
Net income $749,000
There were 72,000 shares of common stock outstanding throughout the Year 2. Dividends on common stock amounted to
$320,400 and dividends on preferred stock amounted to $45,000. The market value of a share of common stock was $54
at the end of Year 2. The income tax rate is 30%.
Required:
Calculate the following profitability ratios for Year 2.
A. Return on Sales
B. Return on Total Assets
C. Return on Common Stockholders’ Equity
D. Earnings per share
Chapter 15
163.
Kooper Co.
Income Statement
For the Year Ended December 31, Year 1
Revenues:
Net sales $383,000
Less: Cost of goods sold 121,700
Gross margin $261,300
Less Operating expenses:
Selling expenses $41,500
Administrative expenses 56,500
Interest expense 12,000
Total expenses 100,000
Net income $151,300
Kooper Co.
Balance Sheet
December 31, Year 1
Assets
Current assets:
Cash $53,000
Accounts receivable 64,300
Chapter 15
Marketable securities 10,500
Inventory 93,250
Total current assets $221,050
Property, plant, and equipment:
Store equipment $325,000
Less Accumulated depreciation 162,100 $162,900
Office equipment $149,750
Less Accumulated depreciation 72,750 77,000
Total property, plant, and equipment 239,900
Total assets $460,950
Liabilities
Current liabilities:
Accounts payable $97,200
Salaries payable 28,700
Total current liabilities $125,900
Long-term liabilities:
Note payable (due Year 1) 154,000
Total liabilities $279,900
Stockholders’ Equity
Total stockholders’ equity 181,050
Total liabilities and equity $460,950
There were 30,000 shares of common stock outstanding throughout Year 1. Dividends on common stock amounted to
$21,000 and dividends on preferred stock amounted to $30,000. The market value of a share of common stock was $36 at
the end of Year 1. The income tax rate is 40%. The accounts receivable and inventory accounts had beginning balances of
$58,500 and $101,400 respectively. Total assets at the beginning of the year were $430,500.
Required: Calculate the following ratios:
A. Current ratio
B. Quick ratio
C. Accounts receivable turnover ratio and accounts receivable turnover in days
D. Inventory turnover ratio and inventory turnover in days
Chapter 15
164.
Kooper Co.
Income Statement
For the Year Ended December 31, Year 1
Revenues:
Net sales $383,000
Less: Cost of goods sold 121,700
Gross margin $261,300
Less Operating expenses:
Selling expenses $41,500
Administrative expenses 56,500
Interest expense 12,000
Total expenses 100,000
Net income $151,300
Kooper Co.
Balance Sheet
December 31,Year 1
Assets
Current assets:
Cash $53,000
Accounts receivable 64,300
Marketable securities 10,500
Inventory 93,250
Total current assets $221,050
Property, plant, and equipment:
Store equipment $325,000
Less Accumulated depreciation 162,100 $162,900
Office equipment $149,750
Less Accumulated depreciation 72,750 77,000
Total property, plant, and equipment 239,900
Total assets $460,950
Liabilities
Chapter 15
Current liabilities:
Accounts payable $97,200
Salaries payable 28,700
Total current liabilities $125,900
Long-term liabilities:
Note payable (due Year 1) 154,000
Total liabilities $279,900
Stockholders’ Equity
Total stockholders’ equity 181,050
Total liabilities and equity $460,950
There were 30,000 shares of common stock outstanding throughout Year 1. Dividends on common stock amounted to
$21,000 and dividends on preferred stock amounted to $30,000. The market value of a share of common stock was $36 at
the end of Year 1. The income tax rate is 40%. The accounts receivable and inventory accounts had beginning balances of
$58,500 and $101,400 respectively. Total assets at the beginning of the year were $430,500.
Required: Calculate the following ratios:
A. return on sales
B. return on total assets
C. earnings per share
D. price-earnings ratio
Chapter 15
165.
Kooper Co.
Income Statement
For the Year Ended December 31, Year 1
Revenues:
Net sales $383,000
Less: Cost of goods sold 121,700
Gross margin $261,300
Less Operating expenses:
Selling expenses $41,500
Administrative expenses 56,500
Interest expense 12,000
Total expenses 100,000
Net income $151,300
Kooper Co.
Balance Sheet
December 31,Year 1
Assets
Current assets:
Cash $53,000
Accounts receivable 64,300
Marketable securities 10,500
Inventory 93,250
Total current assets $221,050
Property, plant, and equipment:
Store equipment $325,000
Less Accumulated depreciation 162,100 $162,900
Office equipment $149,750
Less Accumulated depreciation 72,750 77,000
Total property, plant, and equipment 239,900
Total assets $460,950
Liabilities
Current liabilities:
Accounts payable $97,200
Salaries payable 28,700
Total current liabilities $125,900
Long-term liabilities:
Note payable (due Year 1) 154,000
Total liabilities $279,900
Stockholders’ Equity
Total stockholders’ equity 181,050
Total liabilities and equity $460,950
There were 30,000 shares of common stock outstanding throughout Year 1. Dividends on common stock amounted to
$21,000 and dividends on preferred stock amounted to $30,000. The market value of a share of common stock was $36 at
the end of Year 1. The income tax rate is 40%. The accounts receivable and inventory accounts had beginning balances of
$58,500 and $101,400 respectively. Total assets at the beginning of the year were $430,500.
Chapter 15
Required: Calculate the following ratios:
A. Debt ratio
B. Debt-to-equity ratio
State what information each ratio is providing to the company.
Chapter 15
166. Measures the earning ability of a company
167. Measures the ability of a company to meet long and short term obligations
168. Measures the degree of protection provided to company creditors
169. Measures the ability of the company to meet its current obligations
170. Allows evaluation of the extent to which funds are used efficiently
Chapter 15
171. Current ratio
172. Debt-to-equity ratio
173. Earnings per share
174. Return on sales
175. Dividend payout ratio
176. Inventory turnover ratio
Chapter 15
177. Times-interest–earned ratio
178. Return on total assets ratio
179. Debt ratio
180. Price-earnings ratio
Chapter 15
181. A measure of the company’s ability to pay its short-term liabilities out of short-term assets
182. A measure that compares only the most liquid assets to current liabilities
183. An income statement measure of the ability of a company to service its debts
184. A measure of the degree of protection afforded creditors in case of insolvency
185. A ratio that indicates what proportion of equity and debt the company is using to finance its assets.
186. A measure of the company’s success in earning a return for the common stockholders
Chapter 15
187. The relationship between dividends and the market price of a company’s stock
188. A measure viewed by many investors as an important indicator of stock values. It is found by dividing the market
price per share by the earnings per share
189. A measure that tells an investor the proportion of earnings that a company pays in dividends