Chapter 17 – Analysis of Financial Statements
Problem 17-2A (60 minutes)
Part 1
Current ratio: December 31, 2015: $52,390 / $22,800 = 2.3 to 1
Part 2
KORBIN COMPANY
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………………………………. 51.08 62.50 55.36
Gross profit…………………………………………. 48.92 37.50 44.64
17-963
Chapter 17 – Analysis of Financial Statements
Problem 17-2A (Concluded)
Part 3
KORBIN COMPANY
Balance Sheet Data in Trend Percents
December 31, 2015, 2014, and 2013
2015 2014 2013
Assets
Current assets………..…….……….…… 101.24% 73.29% 100.00%
Liabilities and Equity
Current liabilities…………..……….…… 112.32% 98.33% 100.00%
Common stock…………………………… 120.00 120.00 100.00
Part 4
Significant relations revealed
Korbin’s selling expenses and income taxes consumed smaller portions of
each sales dollar in 2014 than 2013. However, cost of goods sold and
administrative expenses consumed a larger portion in 2014. Therefore, income
Korbin expanded its plant assets in 2014, financing the expansion through the
sale of long-term investments, through a reduction in working capital (the
current ratio decreased from 2.5-to-1 to 1.9-to-1), and perhaps through the sale
17-964
Chapter 17 – Analysis of Financial Statements
Problem 17-3A (60 minutes)
Transaction Current
Assets
Quick
Assets
Current
Liabilities
Current
Ratio
Acid-Test
Ratio
Working
Capital
Beginning* $700,000 $308,000 $280,000 2.50 1.10 $420,000
May 2 + 50,000 _______ + 50,000 ____ ____ _______
May 15 – 22,000 – 22,000 – 22,000 ____ ____ _______
Bal. 783,000 396,000 308,000 2.54 1.29 475,000
May 17 +0 +0 _______ ____ ____ _______
Bal. 783,000 396,000 308,000 2.54 1.29 475,000
May 22 _______ _______ + 50,000 ____ ____ _______
Bal. 783,000 396,000 358,000 2.19 1.11 425,000
May 26 – 50,000 – 50,000 – 50,000 ____ ____ _______
Bal. 733,000 346,000 308,000 2.38 1.12 425,000
May 27 +100,000 +100,000 +100,000 ____ ____ _______
17-965
Chapter 17 – Analysis of Financial Statements
Problem 17-4A (50 minutes)
1. Current ratio
2. Acid-test ratio
3. Days’ sales uncollected
x 365 = 27.4 days
4. Inventory turnover
5. Days’ sales in inventory
x 365 = 39.5 days
6. Debt-to-equity ratio
7. Times interest earned
8. Profit margin ratio
17-966
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
$17,500 + $3,200 + $3,300
$10,000 + $8,400 + $29,200 + $4,500
$17,500 + $3,200 + $3,300
$29,200 + $4,500
$448,600
$32,150
$297,250
Chapter 17 – Analysis of Financial Statements
Problem 17-4A (Concluded)
9. Total asset turnover
10. Return on total assets
= 1 3.5%
11. Return on common stockholders’ equity
17-967
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
$448,600
($240,200 + $189,400)/2
$29,052
($240,200 + $189,400)/2
Chapter 17 – Analysis of Financial Statements
Problem 17-5A (60 minutes)
Part 1
Barco Company Kyan Company
a. Current ratio
= 2.5 to 1 = 2.6 to 1
* $19,500 + $37,400 + $9,100 + $84,440 + $5,000 = $155,440
**$34,000 + $57,400 + $7,200 + $132,500 + $6,950 = $238,050
b. Acid-test ratio
c. Accounts receivable turnover
= 20.2 times = 14.8 times
d. Inventory turnover
f. Days’ sales uncollected
x 365 = 22.0 days x 365 = 26.8 days
Short-term credit risk analysis: Barco and Kyan have essentially equal
17-968
$238,050**
$93,300
$155,440*
$61,340
$880,200
($57,400 + $7,200 + $54,200)/2
$770,000
($37,400 + $9,100 + $29,800)/2
$57,400 + $7,200
$880,200
$37,400 + $9,100
$770,000
Chapter 17 – Analysis of Financial Statements
Problem 17-5A (Concluded)
Part 2
Barco Company Kyan Company
a. Profit margin ratio
= 21.1% = 23.9 %
b. Total asset turnover
d. Return on common stockholders’ equity
= 55.8% = 65.0 %
e. Price-earnings ratio
Investment analysis: Kyan’s profit margin ratio, total asset turnover, return on
total assets, and return on common stockholders’ equity are all higher than
17-969
$210,400
$880,200
$162,200
$770,000
$210,400
($348,150 + $299,600)/2
$162,200
($303,300 + $278,300)/2
Chapter 17 – Analysis of Financial Statements
Problem 17-6AA (60 minutes)
Part 1
Effect of income taxes (debits or losses in parentheses)
Pretax
30% Tax
Effect After-Tax
i. Loss from operating a discontinued segment…..........(18,250) (5,475) (12,775)
Part 2 Income from continuing operations (and its components)
k. Net sales……………………………………………….……….. $ 998,500
a. Interest revenue…………………………………….……….. 14,000
g. Gain from settling lawsuit……………………………….. 44,000
Total revenues and gains…………………………….….. 1,056,500
q. Cost of goods sold……………………………….………...$482,500
b. Depreciation expense—Equipment..…….……….... 34,000
17-970
Education.
Chapter 17 – Analysis of Financial Statements
Problem 17-6AA (Concluded)
Part 3 Income from discontinued segment
i. Loss from operating a discontinued
segment (after-tax)………………………………………………………………….……..$ (12,775)
n. Gain on sale of discontinued segment’s
Part 4 Income before extraordinary items
Income from continuing oper. after taxes (from Part 2)..…………………………$232,400
Part 5 Net income
Income before extraordinary items…………………………………….……….…….$243,425
j. Extraordinary item
17-971