Brief Exercise 4–15
Receivables turnover ratio = Net sales
Average accounts receivable
(net)
Inventory turnover ratio = Cost of goods sold
Average inventory
Brief Exercise 4–16
Profit margin = Net income
Sales
Return on assets = Net income
Average total assets
Return on shareholders’
equity = Net income
Average shareholders’ equity
Shareholders’ equity, beginning of period $500,000
Brief Exercise 4–17
Return on
equity
= Profit
margin
× Asset turnover × Equity multiplier
Net income
Avg. total
equity
= Net income
Total sales
× Total sales
Avg. total assets
× Avg. total assets
Avg. total equity
Return on shareholders’
equity = Net income
Average shareholders’ equity
Profit margin = Net income
Sales
Asset turnover = Sales
Average total assets
Equity multiplier = Average total assets
Average shareholders’ equity
Brief Exercise 4–18
Inventory turnover ratio = Cost of goods sold Average inventory
Sales – Cost of goods sold = Gross profit
Exercise 4–1
EXERCISES
Less operating expenses:
Cost of goods sold $6,200,000
Note: Interest revenue, loss on sale of investments, and interest expense are all
nonoperating items and would be reported in the income statement as “Other
income (expense)” below operating income. Income tax expense is a line item in
the income statement shown after nonoperating income (expense).
Exercise 4–2
Requirement 1
GREEN STAR CORPORATION
Income Statement
For the Year Ended December 31, 2018
Revenues and gains:
Sales ………………………………………………………… $1,300,000
Expenses and losses:
Cost of goods sold …………………………………….. $720,000
Total expenses and losses ………………………… 995,000
Income before income taxes ………………………….. 385,000
Exercise 4–2 (concluded)
Requirement 2
GREEN STAR CORPORATION
Income Statement
For the Year Ended December 31, 2018
Sales revenue ………………………………………………. $1,300,000
Operating expenses:
Selling………………………………………………………. $160,000
Other income (expense):
Interest revenue …………………………………………. 30,000
Exercise 4–3
Requirement 1
GENERAL LIGHTING CORPORATION
Income Statement
For the Year Ended December 31, 2018
Revenues and gains:
Sales ………………………………………………………… $2,350,000
Expenses and losses:
Cost of goods sold …………………………………….. $1,200,300
Selling ……………………………………………………… 300,000
* 40% x $467,200
Exercise 4–3 (concluded)
Requirement 2
GENERAL LIGHTING CORPORATION
Income Statement
For the Year Ended December 31, 2018
Sales revenue ………………………………………………. $2,350,000
Operating expenses:
Selling ……………………………………………………… $300,000
Other income (expense):
Interest revenue …………………………………………. 80,000
Loss on sale of investments ………………………… (22,500)
Exercise 4–4
LINDOR CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2018
Operating expenses:
Other income (expense):
Interest expense …………………………………………… (40 ,000)