Problem 13-2B (60 minutes)
Part 1
Current ratio: December 31, 2015: $54,860 / $22,370 = 2.5 to 1
Part 2
BLUEGRASS CORPORATION
Common-Size Comparative Income Statements
For Years Ended December 31, 2015, 2014, and 2013
2015 2014 2013
Sales……………..……………………..……….….…100.00% 100.00% 100.00%
Cost of goods sold………….………………..…. 54.77 51.91 46.04
Gross profit…………………………………………. 45.23 48.09 53.96
Income taxes………………..….…….…….….…. 3.04 3.56 3.69
Net income……………..………………………..…. 22.34 % 23.80 % 26.84 %
* Some totals do not reconcile due to rounding.
Problem 13-2B (Concluded)
Part 3
BLUEGRASS CORPORATION
Balance Sheet Data in Trend Percents
December 31, 2015, 2014, and 2013
2015 2014 2013
Assets
Current assets………..………………..….….…..151.13% 89.97% 100.00%
Long-term investments…..….…….…….…...0.00 16.04 100.00
Plant assets……………..……….….………..……142.80 143.87 100.00
Total assets………………………….………………133.18 117.57 100.00
Liabilities and Equity
Part 4
Significant relations revealed
Bluegrass’s cost of goods sold took a larger percent of sales each year.
Selling and administrative expenses and income taxes took a somewhat
smaller portion each year, but not enough to offset the effect of cost of
goods sold. As a result, income became a smaller percent of sales each
year.
Financial and Managerial Accounting, 6th Edition
Problem 13-3B (60 minutes)
Trans-
action
Current
Assets
Quick
Assets
Current
Liabilities
Current
Ratio
Acid-Test
Ratio
Working
Capital
Beginning* $300,000 $168,000 $120,000 2.50 1.40 $180,000
June 1 +120,000 +120,000
– 75,000 _______ ________ ____ ____ _______
June 7 +100,000 +100,000 +100,000 ____ ____ _______
Bal. 595,000 388,000 370,000 1.61 1.05 225,000
June 10 +120,000 +120,000 _______ ____ ____ _______
Bal. 715,000 508,000 370,000 1.93 1.37 345,000
June 12 – 275,000 – 275,000 ________ ____ ____ _______
Bal. 428,000 221,000 438,000 0.98 0.50 (10,000)
June 30 – 80,000 – 80,000 – 80,000 ____ ____ _______
Bal. $348,000 $141,000 $358,000 0.97 0.39 (10,000)
*Beginning balances
Problem 13-4B (50 minutes)
1. Current ratio
= 2.5 to 1
2. Acid-test ratio
3. Days’ sales uncollected
x 365 = 17.5 days
4. Inventory turnover
5. Days’ sales in inventory
x 365 = 20.9 days
6. Debt-to-equity ratio
7. Times interest earned
$30,200 / $2,200 = 13.7 times
8. Profit margin ratio
$6,100 + $6,900 + $12,100 + $3,000 + $13,500 + $2,000
$11,500 + $3,300 + $2,600
$12,100 + $3,000
$315,500
$13,500
$236,100
Problem 13-4B (Concluded)
9. Total asset turnover
10. Return on total assets
= 22.4%
11. Return on common stockholders’ equity
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 13
$315,500
($117,500 + $94,900)/2
$23,800
($117,500 + $94,900)/2
769
Problem 13-5B (60 minutes)
Part 1
Fargo Company Ball Company
a. Current ratio
b. Acid-test ratio
= 1.2 to 1 = 1.2 to 1
c. Accounts (and notes) receivable turnover
d. Inventory turnover
= 3.0 times = 5.9 times
e. Days’ sales in inventory
f. Days’ sales uncollected
x 365 = 82.3 days x 365 = 43.5 days
Short-term credit risk analysis: Fargo and Ball have nearly equal current
ratios and equal acid-test ratios. However, Ball both turns its merchandise
and collects its accounts receivable much more rapidly than Fargo. On this
basis, Ball probably is the better short-term credit risk.
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
Financial and Managerial Accounting, 6th Edition
$208,100
$97,000
$205,200
$90,500
$116,000
$97,000
$108,700
$90,500
$480,000
($82,000 + $80,500)/2
$290,600
($86,800 + $105,100)/2
$70,500 + $9,000
$667,500
$77,100 + $11,600
$393,600
Problem 13-5B (Concluded)
Part 2
Fargo Company Ball Company
a. Profit margin ratio
= 8.6% = 9.2%
b. Total asset turnover
c. Return on total assets
= 8.8% = 13.7%
d. Return on common stockholders’ equity
= 17.8% = 23.7%
e. Price-earnings ratio
f. Dividend yield
= 6.0% = 6.0%
Investment analysis: Ball’s profit margin, total asset turnover, return on total
$61,700
$667,500
$33,850
$393,600
$61,700
($460,400 + $443,000)/2
$33,850
($382,100 + $383,400)/2
$61,700
($270,100 + $250,700)/2
$33,850
($198,600 + $182,100)/2
$1.50
$25
$1.50
$25
Problem 13-6BA (60 minutes)
Part 1 Effect of income taxes (debits or losses in parentheses)
Pretax
25% Tax
Effect After-Tax
e. Loss on hurricane damage……………………………....…..….(64,000)
(16,000) (48,000)
p. Loss on sale of discontinued segment’s assets……………….
(180,000)
(45,000)
(135,000)
Part 2 Income from continuing operations (and its components)
c. Net sales…………….……………………..……………….……….... $2,640,000
h. Depreciation expense—Equipment………………….….….100,000
m. Depreciation expense—Buildings………………….….……156,000
g. Other operating expenses………….……………………….….328,000
k. Loss on sale of equipment…………………………..….……..24,000
i. Loss from settling lawsuit……………………..….….…….…. 36,000
Total expenses and losses…………………………..………... 1,684,000
Financial and Managerial Accounting, 6th Edition
Problem 13-6BA (Concluded)
Part 3 Income from discontinued segment
l. Loss from operating a discontinued segment (after-tax)…...............
$ (90,000)
Part 4 Income before extraordinary items
Income from cont. operations after taxes (from Part 2)………........$ 783,000
Part 5 Net income
Income before extraordinary items……………….….……….…….…..$ 558,000
Extraordinary item: