P3-5. Calculation of EPS and retained earnings
LG 1; Intermediate
a. Earnings per share:
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Total current liabilities $ 750,000
Long-term debt  420,000
P3-7. Personal Finance: Balance sheet preparation
LG 1; Basic
a.
Adam and Arin Adams
Balance Sheet
December 31, 2015
Assets Liabilities and Net Worth
b. Total assets of the Adams family must equal its debt plus the extent to which it has either experienced
c. Working Capital = Total liquid assets – Total current liabilities
P3-8. Effect of net income on a firm’s balance sheet
LG 1; Basic
Account
Beginning
Value Change
Ending
Value
a. Marketable securities $ 35,000 +$1,365,000 $1,400,000
P3-9. Initial sale price of common stock
LG 1; Basic
(Par value of common stock
Paid in capital in excess of par)
Initial sales price Number of common shares outstanding
+
=
$200,000 $2,600,000
Initial sales price $7.00 per share
400,000
+
= =
P3-10. Statement of retained earnings
LG 1; Intermediate
a. Cash dividends paid on common stock = Net profits after taxes – preferred
Hayes Enterprises
Statement of Retained Earnings
for the Year Ended December 31, 2015
4  Gitman/Zutter • Principles of Managerial Finance,  Fourteenth Edition
b.
*
Net profit after tax Preferred dividends (EACS )
Earnings per share Number of common shares outstanding
–
=
$377,000 $47,000
Earnings per share $2.36
140,000
–
= =
*Earnings available to common stockholders
c.
Total cash dividend
Cash dividend per share # shares
=
P3-11. Changes in stockholders’ equity
LG 1; Intermediate
a. Net income for 2015 = change in retained earnings − dividends paid
b. New shares issued = Outstanding shares in 2015 – Outstanding shares in 2014
P3-13. Liquidity management
LG 3; Basic
a.
2012 2013 2014 2015
c. Bauman Company has low inventory turnover compared to industry average. It suggests that liquidity
P3-14. Personal finance: Liquidity ratio
LG 3; Basic
P3-15. Inventory management
LG 3; Basic
a. Sales $4,000,000 100%
6  Gitman/Zutter • Principles of Managerial Finance,  Fourteenth Edition
b. This may explain the lower turnover and higher average collection period. The December accounts
P3-17. Interpreting liquidity and activity ratios
LG 3; Intermediate
a. Bluegrass appears to be holding excess inventory relative to the industry. This fact is supported by the
b. The accounts receivable of Bluegrass appears to be high due to the large number of days of sales
c. Because the firm is paying its accounts payable in 31 days vs. the industry norm of 40 days, Bluegrass
d. The desire is that management will be able to curtail the level of inventory either by reducing
production or encouraging additional sales through a stronger sales program or discounts. If the
P3-18. Debt analysis
LG 4; Basic
Ratio Definition Calculation Creek Industry
Debt
$36,500,000
0.73 0.51
P3-19. LG 5; Intermediate
Calculation Pepsi Dr. Pepper
Net profit margin
6.12
65.64
9.3 %
0.63
6.01
10.5%
Return on assets
6.12
74.64
8.2%
0.63
8.87
7.1%
First, Pepsi made earned higher profits in absolute terms, so in that sense, they were more profitable.
However, Pepsi is much bigger than Dr. Pepper, so one might want to use ratios to scale the profitability
P3-20. Common-size statement analysis
LG 5; Intermediate
Creek Enterprises
Common-Size Income Statement
for the Years Ended December 31, 2014 and 2015
2015 2014
Sales revenue 100.0% 100.0%
Sales have declined, and cost of goods sold has increased as a percentage of sales, probably due to a loss
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