The Sports Warehouse
Income Statements
For the Year Ended December 31, 2015
Equipment Apparel
Amount % Amount %
Sales $1,700,000 100.0 $2,850,000 100.0
Cost of goods sold 1,100,000 65.7 1,400,000 49.1
Gross profit 600,000 35.3 1,450,000 50.9
Operating expenses 250,000 14.7 500,000 17.6
Problem 12-1C
Requirement 1
Requirement 2
The apparel segment is more profitable. Net income is 21.4% of sales in that segment
compared to only 16.8% of sales in the equipment segment. If these results continue,
Problem 12-2C
Requirement 1
The Sports Warehouse
Income Statements
For the Years Ended December 31
Increase (Decrease)
2016 2015 Amount %
Sales $ 4,700,000 $ 4,550,000 $ 150,000 3.3
Cost of goods sold 2,600,000 2,500,000 100,000 4.0
Gross profit 2,100,000 2,050,000 50,000 2.4
Operating expenses 690,000 750,000 (60,000) (8.0)
The Sports Shack
Balance Sheets
December 31
Assets 2015 2014
Amount % Amount %
Current assets:
Cash $ 218,000 7.1 $ 196,000 6.8
Accounts receivable 680,000 22.0 880,000 30.4
Long-term assets:
Equipment 1,200,000 38.9 900,000 31.1
Requirement 2
Sales and gross profit both increased about 3%. The company also managed to
Problem 12-3C
Requirement 1
Total assets $3,088,000 100.0 $2,891,000 100.0
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 65,000 2.1 $ 55,000 1.9
Long-term liabilities:
Stockholders’ equity:
Common stock 900,000 29.1 900,000 31.1
The Sports Shack
Balance Sheets
December 31
Year Increase (Decrease)
Assets 2015 2014 Amount %
Current assets:
Cash $ 218,000 $ 196,000 22,000 11.2
Accounts receivable 680,000 880,000 (200,000) (22.7)
Long-term assets:
Accumulated depreciation (350,000) (250,000) (100,000) (40.0)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 65,000 $ 55,000 10,000 18.2
Long-term liabilities:
Stockholders’ equity:
Common stock 900,000 900,000 0 0
Requirement 2
Risk Ratios Calculations
1. Receivable turnover ratio $6,600,000
2. Average collection period 365
3. Inventory turnover ratio $4,700,000
4. Average days in inventory 365
5. Current ratio $2,238,000
6. Acid-test ratio $218,000 + $680,000
7. Debt to equity ratio $509,000
8. Times interest earned ratio $270,000 + $50,000 + $80,000
Profitability Ratios Calculations
1. Gross profit ratio $1,900,000
2. Return on assets $270,000 = 9.0%
Problem 12-4C
Problem 12-5C
3. Profit margin $270,000
4. Asset turnover $6,600,000
5. Return on equity $270,000
6. Price-earnings ratio $5.40
Risk Ratios Calculations
Receivable turnover ratio
2015 $6,600,000
2016 $8,200,000
Inventory turnover ratio
2015 $4,700,000
2016 $6,100,000
Current ratio
2015 $2,238,000
2016 $2,339,000
Debt to equity ratio
2015 $509,000
2016 $290,000 = 10.7%
Problem 12-6C
Requirement 1
Profitability Ratios Calculations
Gross profit ratio
2015 $1,900,000
2016 $2,100,000
Return on assets
2015 $270,000
2016 $440,000
Profit margin
2015 $270,000
2016 $440,000
Asset turnover
2015 $6,600,000
2016 $8,200,000
Requirement 2
Requirement 3
Regarding risk, all four ratios improved in 2016including the receivable turnover ratio,
Regarding profitability, the return on assets, profit margin, and asset turnover all