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
* Some totals do not reconcile due to rounding.
Problem 17-2B (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
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
The large expansion of plant assets in 2014 was financed by a reduction in
current assets, an increase in current liabilities, a large reduction in
Transactio
n
Current
Assets
Quick
Assets
Current
Liabilities
Current
Ratio
Acid-Test
Ratio
Working
Capital
*Beginning balances
Current assets (given)………………………………………..$300,000
Problem 17-4B (50 minutes)
1. Current ratio
2. Acid-test ratio
3. Days’ sales uncollected
4. Inventory turnover
5. Days’ sales in inventory
6. Debt-to-equity ratio
7. Times interest earned
8. Profit margin ratio
$6,100 + $6,900 + $12,100 + $3,000 + $13,500 + $2,000
$11,500 + $3,300 + $2,600
$6,100 + $6,900 + $12,100 + $3,000
$11,500 + $3,300 + $2,600
$12,100 + $3,000
$315,500
$236,100
($13,500 + $17,400)/2
$13,500
$236,100
$23,800
Problem 17-4B (Concluded)
9. Total asset turnover
10. Return on total assets
11. Return on common stockholders’ equity
$315,500
($117,500 + $94,900)/2
$23,800
($117,500 + $94,900)/2
$23,800
Problem 17-5B (60 minutes)
Part 1
Fargo Company Ball Company
a. Current ratio
b. Acid-test ratio
c. Accounts (and notes) receivable turnover
d. Inventory turnover
e. Days’ sales in inventory
f. Days’ sales uncollected
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.
$290,600
($86,800 + $105,100)/2
$86,800
$290,600
$77,100 + $11,600
$393,600
$205,200
$90,500
$108,700
$90,500
$208,100
$97,000
$116,000
$97,000
$480,000
($82,000 + $80,500)/2
$82,000
$480,000
$70,500 + $9,000
$667,500
Problem 17-5B (Concluded)
Part 2
Fargo Company Ball Company
a. Profit margin ratio
b. Total asset turnover
c. Return on total assets
d. Return on common stockholders’ equity
e. Price-earnings ratio
f. Dividend yield
Investment analysis: Ball’s profit margin, total asset turnover, return on total
assets, and return on common stockholders’ equity are all higher than
Fargo’s. Also, Ball has a lower price-earnings ratio, while paying the same
dividend. These factors indicate that Ball stock is likely the better investment.
$33,850
$393,600
$393,600
($382,100 + $383,400)/2
$33,850
($382,100 + $383,400)/2
$33,850
($198,600 + $182,100)/2
$25
$1.27
$1.50
$25
$61,700
$667,500
$667,500
($460,400 + $443,000)/2
$61,700
($460,400 + $443,000)/2
$61,700
($270,100 + $250,700)/2
$25
$2.19
$1.50
$25
Problem 17-6BA (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)
(45,000)
Part 2 Income from continuing operations (and its components)
c. Net sales……………………………………………………………… $2,640,000
b. Interest revenue…………………………………………………… 20,000
Problem 17-6BA (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: