EXERCISE 14-4
(a) HENDI CORPORATION
Condensed Income Statements
For the Years Ended December 31
Increase or (Decrease)
During 2013
2014
2013
Percentage
Net sales
Cost of goods sold
Gross profit
Operating expenses
Net income
$600,000
468,000
132,000
60,000
$ 72,000
$500,000
400,000
100,000
54,000
$ 46,000
20.0%
17.0%
32.0%
11.1%
56.5%
(b) HENDI CORPORATION
Condensed Income Statements
For the Years Ended December 31
2014
2013
Amount
Percent
Amount
Percent
Net sales
Cost of goods sold
Gross profit
Operating expenses
Net income
$600,000
468,000
132,000
60,000
$ 72,000
100.0%
78.0%
22.0%
10.0%
12.0%
$500,000
400,000
100,000
54,000
$ 46,000
100.0%
80.0%
20.0%
10.8%
9.2%
EXERCISE 14-5
(a) Current ratio = 2.0:1 ($4,054 ÷ $2,014)
Acid-test ratio = 1.4:1 ($2,830 ÷ $2,014)
EXERCISE 14-5 (Continued)
(b)
Ratio
Nordstrom
J.C. Penney
Industry
Current
Acid-test
Receivables turnover
Inventory turnover
2.0:1
1.4:1
4.2
5.9
2.05:1
1.05:1
37.2
3.1
1.70:1
.70:1
46.4
4.3
Nordstrom is similar to J.C. Penney for the current and acid-test ratios,
Nordstrom is better than the industry average for the current and acid–
EXERCISE 14-6
(a) Current ratio as of February 1, 2013 = 2.8:1 ($140,000 ÷ $50,000).
Feb. 3 2.8:1 No change in total current assets or liabilities.
7 2.2:1 ($112,000 ÷ $50,000).
(b) Acid-test ratio as of February 1, 2013 = 2.5:1 ($125,000* ÷ $50,000).
*$140,000 – $10,000 – $5,000
Feb. 3 2.5:1 No change in total quick assets or current liabilities.
EXERCISE 14-7
(a)
$140,000
$50,000
= 2.8:1.
(b)
$80,000
$50,000
= 1.6:1.
(c)
$390,000
$60,000 (1)
= 6.5 times.
(d)
$187,000
$55,000 (2)
= 3.4 times.
(1)
$70,000 + $50,000
2
(2)
$60,000 + $50,000
2
EXERCISE 14-8
(a) Profit margin
$42,000
$700,000
= 6.0%.
$42,000
$700,000
$560,000
EXERCISE 14-9
(a)
$60,000 –$6,000
30,000 shares
= $1.80.
(b)
$10.80
$1.80
= 6.0 times.
(c)
$21,000
$60,000
= 35%.
(d)
$60,000 + $14,000 + $17,000
$14,000
=
$91,000
$14,000
= 6.5 times.
EXERCISE 14-10
(a) Inventory turnover = 3.4 =
Cost of goods sold
$200,000 + $180,000
2
(b) Receivables turnover = 8.8 =
Net sales (credit)
$73,000 + $126,000
2
(c) Return on common stockholders’ equity = 25% =
Net income
$400,000 + $134,000 + $400,000 + $122,000
2
EXERCISE 14-10 (Continued)
(d) Return on assets = 20% =
$132,000 [see (c) above]
Average assets
$132,000
EXERCISE 14-11
(a) ($4,300 + $22,000+ $10,000)/$12,000 = 3.03:1
(b) ($4,300 + $22,000)/$12,000 = 2.19:1
(c) $100,000/[($22,000 + $24,000)/2] = 4.35 times
EXERCISE 14-12
(a) DOUGLAS CORPORATION
Partial Income Statement
For the Year Ended October 31, 2014
Income before income taxes ………………………………………….. $550,000
Income tax expense ($550,000 X 30%) ……………………………. 165,000
EXERCISE 14-12 (Continued)
(b) To: Chief Accountant
From: Your name, Independent Auditor
The amount reported for income before extraordinary items is overstated
the extraordinary loss.
EXERCISE 14-13
(a) MAULDER CORPORATION
Partial Income Statement
For the Year Ended December 31, 2014
Income from continuing operations ……………………………….. $290,000
Discontinued operations
Gain on discontinued division, net of $10,500
of retained earnings by $17,500, or [$25,000 – ($25,000 X 30%)].
SOLUTIONS TO PROBLEMS
PROBLEM 14-1
(a) Condensed Income Statement
For the Year Ended December 31, 2014
Lionel Company
Barrymore
Company
Dollars
Percent
Dollars
Percent
Net sales
Cost of goods sold
Gross profit
Operating expenses
Income from operations
Other expenses and losses
Interest expense
Income before income taxes
Income tax expense
Net income
$1,549,035
1,053,345
495,690
278,825
216,865
7,745
209,120
61,960
$ 147,160
100.0%
68.0%
32.0%
18.0%
14.0%
.5%
13.5%
4.0%
9.5%
$339,038
237,325
101,713
77,979
23,734
2,034
21,700
8,476
$ 13,224
100.0%
70.0%
30.0%
23.0%
7.0%
.6%
6.4%
2.5%
3.9%
(b) Lionel Company appears to be more profitable. It has higher relative
gross profit, income from operations, income before taxes, and net income.
$147,160
$147,160
a is higher than Barrymore’s
PROBLEM 14-1 (Continued)
average assets:
2014
2013
Current assets
Plant assets
Total assets
$401,584
596,920
$998,504
+
$388,020
575,610
$963,630
=
$1,962,134
2
average assets:
2014
2013
Current assets
Plant assets
Total assets
$ 86,450
142,842
$229,292
+
$ 82,581
128,927
$211,508
=
$440,800
2
average stockholders’ equity:
2014
2013
Common stock
Retained earnings
Stockholders’ equity
$578,765
252,224
$830,989
+
$578,765
225,358
$804,123
=
$1,635,112
2
2014 average stockholders’ equity:
2014
2013
Common stock
Retained earnings
Stockholders’ equity
$137,435
55,528
$192,963
+
$137,435
47,430
$184,865
=
$377, 828
2
PROBLEM 14-2
(a) Earnings per share =
$192,000
60,000
= $3.20.
(b) Return on common stockholders’ equity =
$192,000
$465,400 + $542,600
2
=
$192,000
$504,000
= 38.1%.
(c) Return on assets =
$192,000
$852,800 + $946,100
2
=
$192,000
$899,450
= 21.3%.
(d) Current ratio =
$345,800
$203,500
= 1.70:1
(e) Acid-test ratio =
$234,850
$203,500
= 1.15:1
$1,818,500
PROBLEM 14-2 (Continued)
(g) Inventory turnover =
$1,011,500
$115,500 + $110,950
2
=
$1,011,500
$113,225
= 8.9 times.
$291,000