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Solutions Manual, Chapter 15 31
Problem 15-16 (30 minutes)
1. Lydex Company
Comparative Balance Sheets
This Year Last Year
Current assets:
Cash …………………………………………… 5.6% 8.5%
Marketable securities ……………………… 0.0 2.0
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32 Managerial Accounting, 16th Edition
Problem 15-16 (continued)
2. Lydex Company
Comparative Income Statements
This Year Last Year
Sales …………………………………………….. 100.0% 100.0%
*Due to rounding, figures may not fully reconcile down a column.
3. The company’s current position has declined substantially between the
two years. Cash this year represents only 5.6% of total assets, whereas
it represented 10.5% last year (cash + marketable securities). In
Looking at the income statement, as noted in the solution to the
preceding problem there has been a slight deterioration in the gross
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Solutions Manual, Chapter 15 33
Problem 15-17 (30 minutes)
a. It is becoming more difficult for the company to pay its bills as they
come due. Although the current ratio has improved over the three years,
d. The level of inventory undoubtedly is increasing. Notice that the
inventory turnover is decreasing. Even if sales (and cost of goods sold)
e. The market price is going down. The dividends paid per share over the
f. The amount of earnings per share is increasing. Again, the dividends
g. The price-earnings ratio is going down. If the market price of the stock
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34 Managerial Accounting, 16th Edition
Problem 15-18 (60 minutes)
This Year Last Year
1. a. Current assets………………………………….. $1,520,000 $1,090,000
b. Current assets (a) …………………………….. $1,520,000 $1,090,000
c. Quic
k
assets (a) ……………………………….. $550,000 $468,000
A
d. Sales on account (a) ………………………….. $5,000,000 $4,350,000
A
g
A
A
vera
g
e collection period: 365 days ÷
e. Cost of
g
oods sold (a) ……………………….. $3,875,000 $3,450,000
A
g
A
vera
g
e sales period:
f.
A
vera
g
e sale period …………………………… 73.0 days 57.9 days
A
g
g
. Sales (a) …………………………………………. $5,000,000 $4,350,000
A
g
T
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Solutions Manual, Chapter 15 35
Problem 15-18 (continued)
This Year Last Year
h.
T
otal liabilities (a) ……………………………… $1,400,000 $1,030,000
i. Net income before interest and taxes (a) .. $472,000 $352,000
T
j
.
A
vera
g
e total assets (a) ……………………… $2,730,000 $2,440,000
A
g
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36 Managerial Accounting, 16th Edition
Problem 15-18 (continued)
2. a. Sabin Electronics
Common-Size Balance Sheets
This Year Last Year
Current assets:
Cash …………………………………………….. 2.3% 6.1%
Marketable securities………………………… 0.0 0.7
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Solutions Manual, Chapter 15 37
Problem 15-18 (continued)
b. Sabin Electronics
Common-Size Income Statements
This Year Last Year
Sales ……………………………………..…….. 100.0% 100.0%
Cost of
g
oods sold …………………………… 77.5 79.3
3. The following points can be made from the analytical work in parts (1)
and (2) above:
a. The company’s current position has deteriorated significantly since
last year. Both the current ratio of 1.9 and the acid-test ratio of 2.53
b. The drain on the cash account seems to be a result mostly of a large
buildup in accounts receivable and inventory. Notice that the average
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38 Managerial Accounting, 16th Edition
Problem 15-18 (continued)
c. The inventory turned only 5.0 times this year as compared to 6.3
times last year. It takes nearly two weeks longer for the company to
d. The debt-to-equity ratio of 0.88 is aligned with the industry average
e. In the authors’ opinion, the loan should be approved only if the
company gets its accounts receivable and inventory back under
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Solutions Manual, Chapter 15 39
Problem 15-19 (45 minutes)
This Year Last Year
1. a. Net income (a) ……………………………… $280,000 $196,000
b. Dividends per share (a) …………………… $2.20 $1.90
c. Dividends per share (a) …………………… $2.20 $1.90
d. Market price per share (a) ……………….. $40.00 $36.00
Investors regard Sabin Electronics less favorably than other
companies in the industry. This is evidenced by the fact that they are
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40 Managerial Accounting, 16th Edition
Problem 15-19 (continued)
This Year Last Year
e.
T
otal stockholders’ equity (a) ………………. $1,600,000 $1,430,000
Number of common shares outstandin
g
This Year Last Year
2. a. Gross mar
g
in (a) …………………………….. $1,125,000 $900,000
g
b. Net income (a) ……………………………….. $280,000 $196,000
c. Net income ……………………………………. $ 280,000 $ 196,000
A
dd afte
r
-tax cost of interest paid:
–
T
A
A