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Problem 17-2B (120 minutes)
Part 1
TRIPOLY COMPANY
Income Statement Trends
For Years Ended December 31, 2014-2008
2014
2013
2012
2011
2010
2009
2008
Sales .....................................
65.1%
70.9%
73.3%
79.1%
86.0%
89.5%
100.0%
Cost of goods sold ..............
72.6
76.3
77.4
82.6
89.5
92.1
100.0
Gross profit ..........................
59.2
66.7
70.0
76.3
83.3
87.5
100.0
Operating expenses ............
56.0
69.3
74.7
84.0
93.3
96.0
100.0
Net income ...........................
60.6
65.5
67.9
72.7
78.8
83.6
100.0
TRIPOLY COMPANY
Balance Sheet Trends
December 31, 2014-2008
2014
2013
2012
2011
2010
2009
2008
Cash ....................................
64.7%
67.6%
76.5%
79.4%
88.2%
91.2%
100.0%
Accounts recble., net ..........
81.3
85.0
87.5
90.0
93.8
96.3
100.0
Merchandise inventory ........
79.8
82.7
85.6
86.5
89.4
91.3
100.0
Other current assets ............
85.0
85.0
90.0
95.0
95.0
100.0
100.0
Long-term investments .......
32.7
27.3
23.6
100.0
100.0
100.0
100.0
Plant assets, net ..................
112.3
113.2
114.5
90.7
92.5
94.3
100.0
Total assets ..........................
88.5
89.6
91.5
90.2
92.7
94.6
100.0
Current liabilities .................
52.9
55.7
66.4
67.9
75.0
92.9
100.0
Long-term liabilities .............
35.4
46.2
54.6
56.9
74.6
82.3
100.0
Common stock .....................
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Other paid-in capital ............
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Retained earnings................
166.7
157.8
145.9
137.0
122.2
103.7
100.0
Total liabilities & equity .......
88.5
89.6
91.5
90.2
92.7
94.6
100.0
Fundamental Accounting Principles, 21st Edition
1008
Problem 17-2B (Concluded)
Part 2
Analysis and Interpretation
• The statements and the trend percent data show that sales declined
every year. However, cost of goods sold did not fall as rapidly as sales.
As a result, gross profit fell more rapidly than sales.
• It appears that the cash generated from operations was used primarily
to reduce both current and long-term liabilities.
Problem 17-3B (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
_______
________
____
____
_______
Bal.
345,000
288,000
120,000
2.88
2.40
225,000
June 3
+ 88,000
+ 88,000
- 88,000
- 88,000
________
____
____
_______
Bal.
345,000
288,000
120,000
2.88
2.40
225,000
June 5
+150,000
________
+150,000
____
____
_______
Bal.
495,000
288,000
270,000
1.83
1.07
225,000
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.
440,000
233,000
370,000
1.19
0.63
70,000
June 15
________
________
+ 80,000
____
____
_______
Bal.
440,000
233,000
450,000
0.98
0.52
(10,000)
June 19
+0
+0
________
____
____
_______
Bal.
440,000
233,000
450,000
0.98
0.52
(10,000)
June 22
- 12,000
- 12,000
- 12,000
____
____
_______
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
Current assets (given) ................................
$300,000
Current liabilities ($300,000 / 2.50) .........................
120,000
Quick assets ($120,000 x 1.40) ...............................
168,000
Fundamental Accounting Principles, 21st Edition
1010
Problem 17-4B (50 minutes)
1. Current ratio
= 2.5 to 1
2. Acid-test ratio
3. Days' sales uncollected
4. Inventory turnover
5. Days’ sales in inventory
x 365 = 20.9 days
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
$11,500 + $3,300 + $2,600
$13,500
$236,100
Problem 17-4B (Concluded)
9. Total asset turnover
10. Return on total assets
11. Return on common stockholders' equity
= 38.3%
$23,800
($70,100 + $54,300)/2
Problem 17-5B (60 minutes)
Part 1
Fargo Company
Ball Company
a. Current ratio
= 2.3 to 1
= 2.1 to 1
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
Short-term credit risk analysis: Fargo and Ball have nearly equal current
$290,600
($86,800 + $105,100)/2
$290,600
$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
$480,000
$667,500
Problem 17-5B (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
e. Price-earnings ratio
= 19.7 = 11.4
f. Dividend yield
Investment analysis: Ball’s profit margin, total asset turnover, return on total
$33,850
$393,600
$33,850
($382,100 + $383,400)/2
$25
$1.27
$25
$61,700
$667,500
$61,700
($460,400 + $443,000)/2
$25
$2.19
$25
Fundamental Accounting Principles, 21st Edition
1014
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)
l. Loss from operating a discontinued segment .........................
(120,000)
(30,000)
(90,000)
n. Correction of overstatement of prior year’s expense .............
48,000
12,000
36,000
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
b.
Interest revenue .............................................................
20,000
j.
Gain from settling lawsuit .............................................
68,000
Total revenues and gains .............................................
2,728,000
o.
Cost of goods sold ........................................................
$1,040,000
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
Income from continuing operations before taxes ............
1,044,000
d.
Income taxes expense (25%) ................................
(261,000)
Income from continuing operations after taxes ...............
$ 783,000
Problem 17-6BA (Concluded)
Part 3 Income from discontinued segment
l.
Loss from operating a discontinued segment (after-tax) ..................
$ (90,000)
p.
Loss on sale of discontinued segment’s assets (after-tax) ..............
(135,000)
Loss from discontinued segment ................................................
$(225,000)
Part 4 Income before extraordinary items
Income from cont. operations after taxes (from Part 2) .................
$ 783,000
Loss from discontinued segment (from Part 3) ..............................
(225,000)
Income before extraordinary items .............................................
$ 558,000
Part 5 Net income
Income before extraordinary items .............................................
$ 558,000
Extraordinary item:
e.
Loss on hurricane damage (after-tax) .........................................
(48,000)
Net income .....................................................................................
$ 510,000
