978-0078025761 Chapter 13 Solution Manual Part 5

SERIAL PROBLEM — SP 13

1. Gross margin with services revenue

Gross margin = Total revenue – Cost of goods sold

= $44,000 – $14,052 = $29,948

2. Current ratio = $95,568 / $875 = 109.2

3. Debt ratio = $875 / $120,268 = 0.7%

4. Current assets are 79.4% of total assets ($95,568/$120,268)

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775

Reporting in Action — BTN 13-1

1. Trend percents for selected income statement accounts

($ in millions)

Fiscal

2013

Fiscal

2012

Fiscal

2011

Net Sales …………………………………………………..….

157.9%

144.6%

100.0%

$170,910

$156,508

$108,249

Cost of sales ……………………………………………..….

165.5%

136.3%

100.0%

$106,606

$87,846

$64,431

Operating income ……………………………………..….

145.0%

163.5%

100.0%

$48,999

$55,241

$33,790

Other income/(expense) …………………………….….

278.6%

125.8%

100.0%

$1,156

$522

$415

Income taxes (provision for income taxes) …….

158.4%

169.4%

100.0%

$13,118

$14,030

$8,283

Net income ………………………………………………..….

142.9%

161.0%

100.0%

$37,037

$41,733

$25,922

2. Common–size percents for asset categories and accounts

($ in millions)

Sep. 28, 2013

Sep. 29, 2012

Total current assets …………………………………..….

35.4%

32.7%

$73,286

$57,653

Property, plant and equipment, net ……………….

8.0%

8.8%

$16,597

$15,452

Goodwill and other intangible assets …………….

2.8%

3.0%

$5,756

$5,359

Total assets as of September 28, 2013 and September 29, 2012 are $207,000 and $176,064, respectively.

3. For fiscal 2013, revenues grew at a lower rate than cost of sales,

however, for fiscal 2012, revenues grew at a higher rate than cost of

2011. Consequently, net income declined in 2013 and its trend percent

was lower than revenue growth for 2013 (the reverse occurred in 2012).

vs. 3.0% in 2012).

4. Answers depend on the financial statement information obtained.

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Financial and Managerial Accounting, 6th Edition

776

Comparative Analysis — BTN 13-2

1.

Key figures ($ millions)

Apple

Google

Cash and equivalents ……..…..

6.9%

$14,259

17.0%

$18,898

Accounts receivable, net ..…..

6.3%

13,102

8.0%

8,882

Inventories …………………….…..

0.9%

1,764

0.4%

426

Retained earnings ………….…..

50.4%

104,256

55.2%

61,262

Cost of sales ………………….…..

62.4%

106,606

43.2%

25,858

Revenues ……………………….….

100.0%

170,910

100.0%

59,825

Total assets ………………………..

100.0%

207,000

100.0%

110,920

2. Apple’s retained earnings make up a smaller percentage of its total

3. Apple’s cost of sales percent is higher at 62.4% compared to Google’s

at 43.2%.

37.6% (computed from 100% less 62.4%), while Google has the higher

4. Although Apple has almost twice as much inventory as a percent of

total assets (0.9%) compared to Google (0.4%), both of these ratios

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Solutions Manual, Chapter 13

777

Ethics Challenge — BTN 13-3

1. The CEO appears to have selectively chosen from the 11 available

ratios to present only the ones that show trends that are favorable to

2. The consequences of this action by the CEO might be mixed. It is likely

that the analysts will ask other questions that may reveal some

negative trends such as the trends in return and profit margins. The

CEO’s actions may become transparent to the analysts as they

discover the presence of less favorable trends through their questions.

Taking It to the Net — BTN 13-5

($ thousands)

As of 12/31/2012

As of 12/31/2013

1. Profit margin ratio …….……….

$660,931/$6,644,252 = 9.9%

$820,470/$7,146,079= 11.5%

2. Gross profit ratio ……..……….

$2,859,882/ $6,644,252 = 43.0%

$3,280,848/$7,146,079 = 45.9%

3. Return on total

assets …………………….…….

$660,931 / ([$4,754,839 +

$4,407,094]/2) = 14.4%

$820,470/ ([$5,357,488 +

$4,754,839]/2) = 16.2%

4. Return on common

stockholders’ equity* ..……….

$660,931 / ([$880,943 +

$1,048,373]/2) = 68.5%

$820,470/ ([$1,048,373 +

$1,616,052]/2) = 61.6%

5. Basic net income per

common share** ……………….

$ 3.01

$ 3.76

*An acceptable alternative solution would be to include minority interest in equity.

**Taken from consolidated statement of income.

Analysis and Interpretation: Hershey’s performance generally improved in

compare sales of one period to sales of another and determine the dollar

amount of the increase or decrease.

We also determine the percent of increase or decrease in sales that this

change represents. This type of comparison is generally completed on a

line–by-line basis for both income statement and balance sheet items (and

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Solutions Manual, Chapter 13

779

Teamwork in Action (Concluded)

If a horizontal comparison is made over a number of periods, the

comparisons are made to corresponding amounts in a selected period

called the base period. Each subsequent period’s amount is compared to

the base period. The change is expressed as a percent of the base period.

This is commonly referred to as trend analysis.

Vertical Analysis

Vertical analysis is comparing a company’s financial statement amounts to

a base amount. Usually this base amount is a total or aggregate amount.

An income statement’s base is usually total revenue and a balance sheet’s

b. Solvency analysis measures a company‘s long–run financial viability and

its ability to cover long-term obligations.

c. Profitability analysis measures a company’s ability to generate an

adequate return on invested capital.

d. Market analysis measures the company’s returns (for example, EPS and

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Financial and Managerial Accounting, 6th Edition

780

Entrepreneurial Decision — BTN 13-7

1. No. Although the current ratio improved over the three–year period, the

acid-test ratio declined and accounts receivable and merchandise

paid.

2. No. The decreasing turnover of accounts receivable indicates the

3. No. Sales are increasing and accounts receivable are turning more

4. Yes. To illustrate, if sales are assumed to equal $100 in 2013, the sales

$33.33 for plant assets in 2013 ($100/ 3.0), $37.88 in 2014 ($125/ 3.3) and

$39.14 in 2015 ($137/ 3.5).

5. No. The percent of return on equity declines from 12.25% in 2013 to

9.75% in 2015.

6. The dollar amount of selling expenses increased in 2014 and decreased

and $13.43 in 2015.

Hitting the Road — BTN 13-8

One possible strategy to fulfill the requirements of this assignment is:

Assume that a $37,500 salary will be earned upon graduation at age 25.

Also, assume that the level of investment will be at 8% of your salary (or

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Solutions Manual, Chapter 13

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Global Decision — BTN 13-9

Key figures (KRW in millions)

Samsung

Cash and equivalents ………………………………....

7.6%

₩ 16,284,780

Accounts receivable, net ……………………………..

13.0%

27,875,934

Inventories ………………………………………………....

8.9%

19,134,868

Retained earnings …………………………..…………..

69.4%

148,600,282

Cost of sales …………………………..…………………..

60.2%

137,696,309

Revenues …………………………………………………...

100.0%

228,692,667

Total assets …………………………..…………………...

100.0%

214,075,018

Comparisons and comments:

 Samsung’s cash and equivalents is greater than Apple and less than

Google as a percent of assets.

 Samsung has the highest percentage of accounts receivable as a

percentage of total assets as compared to both Apple and Google.

 Samsung’s retained earnings make up a larger percentage of its total

financing (liabilities and equity) compared to that of Apple and Google.

 Samsung’s cost of sales is higher than Google and lower than Apple.