4-75
ATC 4-1 (All dollar amounts are in millions.)
a. Gross margin was not given, so it must be computed.
Sales
–
Cost of Sales
=
Gross Margin
2013
$72,596
–
$51,160
=
$21,436
2012
$71,960
–
$50,568
=
$21,398
Gross Margin
Sales
=
Gross Margin %
2013
$21,436
$72,596
=
29.5%
2012
$21,398
$71,960
=
29.7%
b.
Net Income
Sales
=
Return on Sales %
2013
$1,971
$72,596
=
2.7%
2012
$2,999
$71,960
=
4.2%
c. Net sales for 2013 $72,596
Difference in return on sales percentage,
expressed as a proportion (.027 – .042) x (0.015)
Effect on earnings of lower
return on sales percentage $1,088.9
Remember that the amounts above are in millions, so this difference
is over $1 billion.
ATC 4-2
a. (1)
Calculate cost of goods sold:
Second
Quarter
Third
Quarter
Fourth
Quarter
Sales
$717.4
$815.2
$620.1
Less gross margin
(440.3)
(525.3)
(252.3)
Cost of goods sold
$277.1
$289.9
$367.8
Second
Quarter
Third
Quarter
Fourth
Quarter
Gross margin
$440.3
$525.3
$252.3
Less net income
( 24.6)
( 38.6)
(31.4)
Operating
expenses
$415.7
$486.7
$220.9
Second
Quarter
Third
Quarter
Fourth
Quarter
Sales
$717.4
$815.2
$620.1
Less: cost of goods
sold
(277.1)
(289.9)
(367.8)
Gross margin
440.3
525.3
252.3
Less operating
expenses
(415.7)
(486.7)
(220.9)
Net income
$ 24.6
$ 38.6
$ 31.4
Sales
62.8%
4-77
4-78
ATC 4-2 a. (cont.)
a. (2)
Quarter
1 − Gross margin %
=
Cost of goods sold %
First
1.00 − .628
=
37.2%
Second
1.00 − .614
=
38.6%
Third
1.00 − .644
=
35.6%
Fourth
1.00 − .407
=
59.3%
b. Some points the students may mention include:
4-79
ATC 4-3
The correct matching of the four companies with their related financial
data can be achieved primarily with the gross margin percentage ratio,
plus other factors. However, on the assumption that many students will
RATIO:
A
B
C
D
57.0% =
57.1% =
80.9% =
26.8% =
Gross Margin
$ 2,163.2
$ 8,509.9
$30,067
$14,929
$ 3,794.2
$14,892.2
$37,180
$55,656
11.0% =
0.1% =
29.3% =
10.3% =
Return-on-Sales
$ 416.2
$ 8,8
$10,925
$ 5,722
$3,794.2
$14,892.2
$37,180
$55,656
9.0% =
0.1% =
13.4% =
6.7% =
Return-on-Assets
$ 416.2
$ 8.8
$10,925
$ 5,722
$4,630.9
$11,516.7
$81,812
$84,896
Sales
– Cost of Goods Sold
Gross Margin
4-80
ATC 4-3 (cont.)
The four companies relate to the financial information as follows:
Tiffany is company “A”
Starbucks is company “B”
Oracle is company “C”
4-81
ATC 4-4
a. Gross Margin Percentages:
First, the gross margins must be calculated:
2013: $4,089,128 – $1,333,842 = $2,755,286
2012: $3,946,116 – $1,281,002 = $2,665,114
4-82
ATC 4-5
a. Since Whole Foods is a high-end retailer of groceries, one would
expect its gross margin percentage to be higher than Kroger’s. The
fact that Kroger charges less for its groceries than Whole Foods
does not necessarily mean that its return on sales percentage will be
lower. Kroger probably pays less per square foot of space for its
4-83
ATC 4-6
a.
This writing assignment tests both analytical and writing skills.
Some of the analytical amounts that should be included are:
For 2016:
Sales are overstated by $146,800.
Cost of goods sold is overstated by $94,623.
4-84
A member should maintain objectivity and be free of conflicts of
interest in discharging professional responsibilities. A member in
public practice should be independent in fact and appearance when
violated.
4-85
ATC 4-7
a. An immediate write-off would result in a $600,000 inventory loss
reported under unusual items on the company’s income
statement. This loss would be subtracted from income from
continuing operations. Accordingly, net income would decline.
The write-off would decrease assets (i.e., inventory) and equity
bonus would suffer from an event that happened in the prior
period.
d. Given that the damaged inventory is worthless, it would be
unethical for Ms. Fontanez to refuse to recognize it in the period
the loss was incurred. Fairness would dictate that Ms. Fontanez
accept the loss because it occurred in a period under her
4-86
the law.
4-87
ATC 4-8
This solution is based on Alcoa’s 2013 Form 10-K. Dollar amounts are in
millions.
a.& b.
2013 2012
Sales $23,032 $23,700
Cost of goods sold 19,286 20,401
4-88
EXERCISE 4-1B
a.
Diamond Consulting
Income Statement
For the Year Ended 2016
Revenue
Consulting Revenue
$60,000
Expenses
Salaries Expense
(38,400)
Net Income
$21,600
Diamond Consulting
Balance Sheet
As of the End of the Year 2016
Assets
Cash*
$101,600
Total Assets
$101,600
Liabilities
Notes Payable
$ 80,000
Total Liabilities
$ 80,000
Stockholders’ Equity
Retained Earnings
$21,600
Total Stockholders’ Equity
21,600
Total Liab. and Stockholders’ Equity
$101,600
4-89
EXERCISE 4-1B a. (cont.)
Diamond Consulting
Statement of Cash Flows
For the Year Ended 2016
Cash Flows From Operating Activities:
Inflow from Clients
$60,000
Outflow for Salaries
(38,400)
Net Cash Flow from Operating Activ.
$ 21,600
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Inflow from Loan
$80,000
Net Cash Flow from Financing Activ.
80,000
Net Increase in Cash
101,600
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$101,600
4-90
EXERCISE 4-1B a. (cont.)
University Bookstore
Income Statement
For the Year Ended 2016
Net Sales
$60,000
Cost of Goods Sold
(33,600)
Gross Margin
26,400
Expenses
Operating Expenses
(4,800)
Net Income
$21,600
University Bookstore
Balance Sheet
As of the End of the Year 2016
Assets
Cash*
$97,200
Merchandise Inventory**
4,400
Total Assets
$101,600
Liabilities
Notes Payable
$80,000
Total Liabilities
$ 80,000
Stockholders’ Equity
Retained Earnings
$21,600
Total Stockholders’ Equity
21,600
Total Liab. and Stockholders’ Equity
$101,600
4-91
EXERCISE 4-1B a. (cont.)
University Bookstore
Statement of Cash Flows
For the Year Ended 2016
Cash Flows From Operating Activities:
Inflow from Customers
$60,000
Outflow for Inventory
(38,000)
Outflow for Operating Expenses
(4,800)
Net Cash Flow from Operating Activities
$ 17,200
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Inflow from Loan
$80,000
Net Cash Flow from Financing Activities
80,000
Net Increase in Cash
97,200
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$97,200
EXERCISE 4-2B
a.
Jason Kidd Merchandising
General Journal, 2016
Date
Account Titles
Debit
Credit
1.
Cash
30,000
Common Stock
30,000
2.
Merchandise Inventory
60,000
Cash
60,000
3a.
Cash
82,000
Sales Revenue
82,000
3b.
Cost of Goods Sold
48,000
Merchandise Inventory
48,000
2. 60,000
3a. 82,000
3b. 48,000
4-93
EXERCISE 4-2B (cont.)
c.
Jason Kidd Merchandising
Income Statement
For the Year Ended December 31, 2016
Net Sales
$82,000
Cost of Goods Sold
(48,000)
Gross Margin
34,000
Operating Expenses
-0-
Net Income
$34,000
d. Total assets: $64,000 (Cash $52,000 + Inventory $12,000).
4-94
EXERCISE 4-3B a.
Rondor Merchandising Company Effect of Events on the Financial Statements
Balance Sheet
Income Statement
Cash Flows
Assets
=
Liab.
+
Stkholders’
Equity
Rev.
−
Exp.
=
Net Inc.
Events
Cash
+
A. Rec.
+
Mdse. Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
Beg. Bal.
20,000
+
NA
+
NA
=
NA
+
20,000
+
NA
NA
−
NA
=
NA
NA
1. Pur. Inv.
NA
+
NA
+
40,000
=
40,000
+
NA
+
NA
NA
−
NA
=
NA
NA
2a. Sold Inv.
NA
+
50,000
+
NA
=
NA
+
NA
+
50,000
50,000
−
NA
=
50,000
NA
2b. Inv. Cost
NA
+
NA
+
(30,000)
=
NA
+
NA
+
(30,000)
NA
−
30,000
=
(30,000)
NA
3. Pd. AP
(24,500)
+
NA
+
NA
=
(24,500)
+
NA
+
NA
NA
−
NA
=
NA
(24,500) OA
4. Coll. AR
38,000
+
(38,000)
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
NA
38,000 OA
5. Pd. Exp.
(9,000)
+
NA
+
NA
=
NA
+
NA
+
(9,000)
NA
−
9,000
=
(9,000)
(9,000) OA
End. Bal.
24,500
+
12,000
+
10,000
=
15,500
+
20,000
+
11,000
50,000
−
39,000
=
11,000
4,500 NC