BRIEF EXERCISE 14-6 (Continued)
1.40X = 560,000
X = 400,000
2013 Net income = $400,000
BRIEF EXERCISE 14-7
BRIEF EXERCISE 14-8
2014
2013
2012
Sales
Cost of goods sold
Expenses
Net income
100.0
59.2
25.0
15.8
100.0
62.4
25.6
12.0
100.0
64.5
27.5
8.0
Net income as a percent of sales for Dagman increased over the three-year
BRIEF EXERCISE 14-9
(a) Working capital = Current assets – Current liabilities
Current assets $46,690,000
BRIEF EXERCISE 14-9 (Continued)
(b) Current ratio:
Current assets
Current liabilities
=
= 1.15:1
(c) Acid-test ratio:
Cash+ Short–term investments
+ Receivables (net)
Current liabilities
=
$8,113,000 + $4,947,000 + $12,545,000
$40,600,000
=
= .63:1
BRIEF EXERCISE 14-10
(a) Asset turnover =
Net sales
Average assets
=
$88,000,000
$14,000,000 + $18,000,000
2
= 5.5 times
(b) Profit margin =
Net income
Net sales
=
= 14.5%
BRIEF EXERCISE 14-11
(a) Receivables turnover =
Net credit sales
Average net receivables
2014
2013
(1)
$3,745,000
$535,000*
= 7.0 times
$3,000,000
$500,000**
= 6.0 times
*($520,000 + $550,000) ÷ 2
**($480,000 + $520,000) ÷ 2
(2)
Average collection period
365
7.0
= 52.1 days
365
6.0
= 60.8 days
(b) Gladow Company should be pleased with the effectiveness of its credit
and collection policies. The company has decreased the average collection
BRIEF EXERCISE 14-12
(a) Inventory turnover =
inventory Average
sold goods ofCost
(1)
2014
2013
$4,400,000
$980,000 + $1,020,000
2
= 4.4 times
$4,600,000
$860,000 + $980,000
2
= 5.0 times
Beginning inventory $ 980,000
Purchases 4,440,000
Goods available for sale 5,420,000
Ending inventory 1,020,000
Cost of goods sold $4,400,000
$ 860,000
4,720,000
5,580,000
980,000
$4,600,000
(2) Days in inventory
365
4.4
= 83.0 days
365
5.0
= 73.0 days
BRIEF EXERCISE 14-12 (Continued)
(b) Management should be concerned with the fact that inventory is moving
BRIEF EXERCISE 14-13
Payout ratio =
incomeNet
dividends Cash
.20 =
X
$68,000
X = $68,000 (.20) = $13,600
Cash dividends = $13,600
Return on assets =
Net income
Average assets
$68,000
$68,000
BRIEF EXERCISE 14-14
REEVES CORPORATION
Partial Income Statement
Income before income taxes ………………………………………………… $500,000
Income tax expense ($500,000 X 30%) …………………………………… 150,000
BRIEF EXERCISE 14-15
BLEVINS CORPORATION
Partial Income Statement
Loss from operations of European facilities, net
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 14-1
Increase (Decrease) in 2014
Amount
Percent
Current assets $(26,000) (11.6)% [($199,000 – $225,000) ÷ $225,000]
DO IT! 14-2
2014 2013
(a) Current ratio:
(b) Inventory turnover:
(c) Profit margin ratio:
(d) Return on assets:
(e) Return on common stockholders’ equity:
(f) Debt to total assets ratio:
(g) Times interest earned:
DO IT! 14-3
GRINDERS CORPORATION
Income Statement (Partial)
Income before income taxes …………………………………. $500,000
Income tax expense ……………………………………………… 175,000
Income from continuing operations ………………………. 325,000
Discontinued operations
DO IT! 14-4
1.
Current ratio:
A measure used to evaluate a company’s
liquidity.
2.
Pro forma income:
Usually excludes items that a company
thinks are unusual or nonrecurring.
3.
Quality of earnings:
Indicates the level of full and transparent
information provided to users of the
financial statements.
4.
Discontinued operations:
The disposal of a significant segment of a
business.
5.
Horizontal analysis:
Determines increases or decreases in a
series of financial statement data.
6.
Comprehensive income:
Includes all changes in stockholders’ equity
during a period except those resulting from
investments by stockholders and distribu-
tions to stockholders.
SOLUTIONS TO EXERCISES
EXERCISE 14-1
GALLUP INC.
Condensed Balance Sheets
December 31
Increase or (Decrease)
2014
2013
Amount
Percentage
Assets
Current assets
Plant assets (net)
Total assets
$128,000
396,000
$524,000
$100,000
330,000
$430,000
($28,000
( 66,000
94,000
(28.0%)
(20.0%)
(21.9%)
Liabilities
Current liabilities
Long-term liabilities
Total liabilities
$ 91,000
138,700
229,700
$ 70,000
95,000
165,000
($21,000)
( 43,700)
( 64,700)
(30.0%)
(46.0%)
(39.2%)
Stockholders’ Equity
Common stock, $1 par
Retained earnings
Total stockholders’
equity
Total liabilities and
stockholders’
equity
159,000
135,300
294,300
$524,000
115,000
150,000
265,000
$430,000
( 44,000
(14,700)
( 29,300)
($94,000)
(38.3%)
(9.8%)
( 11.1%)
21.9%
EXERCISE 14-2
CONARD CORPORATION
Condensed Income Statements
For the Years Ended December 31
2014
2013
Amount
Percent
Amount
Percent
Net sales
Cost of goods sold
Gross profit
Selling expenses
Administrative expenses
Total operating expenses
Income before income taxes
Income tax expense
Net income
$750,000
480,000
270,000
105,000
75,000
180,000
90,000
36,000
$ 54,000
100.0%
64.0%
36.0%
14.0%
10.0%
24.0%
12.0%
4.8%
7.2%
$600,000
408,000
192,000
84,000
54,000
138,000
54,000
18,000
$ 36,000
100.0%
68.0%
32.0%
14.0%
9.0%
23.0%
9.0%
3.0%
6.0%
EXERCISE 14-3
(a) GARCIA CORPORATION
Condensed Balance Sheets
December 31
2014
2013
Increase
(Decrease)
Percentage
Change
from 2013
Assets
Current assets
Property, plant &
equipment (net)
Intangibles
Total assets
$ 76,000
100,000
24,000
$200,000
$ 80,000
90,000
40,000
$210,000
$ (4,000)
(10,000)
(16,000)
$(10,000)
(5.0%)
(11.1%)
(40.0%)
(4.8%)
EXERCISE 14-3 (Continued)
GARCIA CORPORATION
Condensed Balance Sheets (Continued)
December 31
2014
2013
Increase
(Decrease)
Percentage
Change
from 2013
Liabilities and stock-
holders’ equity
Current liabilities
Long-term
liabilities
Stockholders’
equity
Total liabilities and
stockholders’
equity
$ 40,000
140,000
20,000
$200,000
$ 48,000
150,000
12,000
$210,000
$ (8,000)
(10,000)
8,000)
$(10,000)
(16.7%)
(6.7%)
(66.7%)
(4.8%)
(b) GARCIA CORPORATION
Condensed Balance Sheet
December 31, 2014
Amount
Percent
Assets
Current assets
Property, plant, and equipment (net)
Intangibles
Total assets
Liabilities and stockholders’ equity
Current liabilities
Long-term liabilities
Stockholders’ equity
$ 76,000
100,000
24,000
$200,000
$ 40,000
140,000
20,000
38%
50%
12%
100%
20%
70%
10%