Chapter 13 – Analyzing and Interpreting Financial Statements
Problem 13-2A (concluded)
Part 2
Analysis and Interpretation
• The statements and the trend percent data indicate that the company
significantly expanded its plant assets in 2012. Prior to that time, the
Problem 13-3A (60 minutes)
Trans-
action
Current
Assets
Quick
Assets
Current
Liabilities
Current
Ratio
Working
Capital
Beginning*
$700,000
$308,000
$280,000
2.50
1.10
$420,000
May 2
+ 50,000
_______
+ 50,000
____
____
_______
Bal.
750,000
308,000
330,000
2.27
0.93
420,000
May 8
+110,000
+110,000
– 55,000
_______
_______
____
____
_______
Bal.
805,000
418,000
330,000
2.44
1.27
475,000
May 10
+ 20,000
+ 20,000
– 20,000
– 20,000
_______
____
____
_______
Bal.
805,000
418,000
330,000
2.44
1.27
475,000
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
____
____
_______
Bal.
833,000
446,000
408,000
2.04
1.09
425,000
May 28
+ 80,000
+ 80,000
________
____
____
_______
Bal.
913,000
526,000
408,000
2.24
1.29
505,000
May 29
– 180,000
– 180,000
________
____
____
_______
Bal.
$733,000
$346,000
$408,000
1.80
0.85
$325,000
*Beginning balances
Current assets (given) ……………………………………..
$700,000
Current liabilities ($700,000 / 2.50) ………….………..
280,000
Quick assets ($280,000 x 1.10) ………………..………..
308,000
Problem 13-4A (Concluded)
9. Total asset turnover
10. Return on total assets
11. Return on common stockholders’ equity
$448,600
($240,200 + $189,400)/2
$29,052
($240,200 + $189,400)/2
$29,052
($152,800 + $112,748)/2
Problem 13–5A (Concluded)
Part 2
Barco Company
Kyan Company
a. Profit margin ratio
= 21.1% = 23.9%
= 5.1% = 5.1%
Investment analysis: Kyan’s profit margin ratio, total asset turnover, return on
$162,200
$770,000
$4.51
$3.80
$75
$210,400
$880,200
$5.11
$3.80
$75
Problem 13–6AA (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
assets (after-tax) ……………………………………………………….
23,800
Income from discontinued segment ……………………………..…………………..
$ 11,025
Part 4 Income before extraordinary items
Income from continuing oper. after taxes (from Part 2) …………………………..
$232,400
Income from discontinued segment (from Part 3) …………………………..
11,025
Income before extraordinary items ……………………………….…………………..
$243,425
Part 5 Net income
Income before extraordinary items ……………………………….…………………..
$243,425
j.
Extraordinary item
Gain on insurance recovery of tornado damage
(after-tax) ……………………………………………………………..…………………..
20,384
Net income …………………………………………………………………..……………….
$263,809
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Solutions Manual, Chapter 13
29
Problem 13-1B (60 minutes)
Part 1
Current ratio: December 31, 2014: $54,860 / $22,370 = 2.5 to 1
December 31, 2013: $32,660 / $19,180 = 1.7 to 1
December 31, 2012: $36,300 / $16,500 = 2.2 to 1
Part 2
BLUEGRASS CORPORATION
Common-Size Comparative Income Statements
For Years Ended December 31, 2014, 2013, and 2012
2014
2013
2012
Sales ……………………………………………………
100.00%
100.00%
100.00%
Cost of goods sold …………………………..
54.77
51.91
46.04
Gross profit …………………………………………
45.23
48.09
53.96
Selling expenses …………………………….……
11.41
11.92
12.52
Administrative expenses ………………..……
8.43
8.80
10.92
Total expenses ……………………………….……
19.84
20.72
23.44
Income before taxes ……………………….….
25.39
27.36
30.53
Income taxes ………………………………….……
3.04
3.56
3.69
Net income ……………………………………..…..
22.34%
23.80%
26.84%
* Some totals do not reconcile due to rounding.
Problem 13-1B (Concluded)
Part 3
BLUEGRASS CORPORATION
Balance Sheet Data in Trend Percents
December 31, 2014, 2013, and 2012
2014
2012
Assets
Current assets ………………………………..……
151.13%
89.97%
100.00%
Long-term investments …………………..……
0.00
100.00
Plant assets …………………………………………
142.80
100.00
Total assets …………………………………………
133.18
100.00
Liabilities and Equity
Current liabilities…………………………….……
135.58%
100.00%
Common stock ……………………………….……
125.68
100.00
Other paid in capital ……………………….….
122.57
100.00
Retained earnings …………………………..……
139.03
100.00
Total liabilities and equity ……………….……
133.18
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
smaller portion each year, but not enough to offset the effect of cost of
goods sold. As a result, income became a smaller percent of sales each
year.
The large expansion of plant assets in 2013 was financed by a reduction in
current assets, an increase in current liabilities, a large reduction in long-
term investments, and apparently by a stock sale. One effect of this plan
was to reduce the current ratio. However, the current ratio recovered in
2014. This apparently resulted from profits, limiting the amount of