Chapter 13 – Analyzing and Interpreting Financial Statements
Problem 13-2B (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%
100.0%
Cost of goods sold …………..
72.6
76.3
77.4
82.6
89.5
100.0
Gross profit ……………………..
59.2
66.7
70.0
76.3
83.3
100.0
Operating expenses ………...
56.0
69.3
74.7
84.0
93.3
100.0
Net income ……………………...
60.6
65.5
67.9
72.7
78.8
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
Problem 13-2B (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.
Problem 13-4B (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
$315,500
Problem 13-5B (60 minutes)
Part 1
Fargo Company
Ball Company
a. Current ratio
= 2.3 to 1
= 2.1 to 1
= 1.2 to 1
= 1.2 to 1
c. Accounts (and notes) receivable turnover
= 4.9 times = 8.7 times
$290,600
$393,600
($77,100 + $11,600 + $72,200)/2
$205,200
$90,500
$108,700
$90,500
$208,100
$97,000
$116,000
$97,000
$667,500
($70,500 + $9,000 + $73,300)/2
Problem 13–6BA (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