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Chapter 12 - Financial Statement Analysis
Exercise 12-12 (LO12-5)
LeBron’s Bookstores
Income Statement
For the Year Ended December 31, 2021
Net sales
$ 11,000,000
Cost of goods sold
6,500,000
Gross profit
4,500,000
12-22 Financial Accounting, 5e
Exercise 12-13 (LO12-5)
Shaquille Corporation
Income Statement
For the Year Ended December 31, 2021
Operating income
$ 1,700,000
Inventory write-down
200,000
Chapter 12 - Financial Statement Analysis
Exercise 12-14 (LO12-6)
a. Conservative (lower income, lower assets)
Chapter 12 - Financial Statement Analysis
12-24 Financial Accounting, 5e
Exercise 12-15 (LO12-6)
Requirement 1
(a) Aggressive
(b) Conservative
Requirement 2
The total effect is neutral because net income is the same before and after the
Chapter 12 - Financial Statement Analysis
PROBLEMS: SET A
Problem 12-1A (LO12-1)
Requirement 1
Sports Emporium
Income Statements
For the Year Ended December 31, 2021
Sporting Goods
Sports Apparel
Amount
%
Amount
%
Net sales
$1,800,000
100.0
$970,000
100.0
Cost of goods sold
1,040,000
57.8
440,000
45.4
Requirement 2
The sporting goods segment has a higher net income ($250,000) than the sports
apparel segment ($105,000). Vertical analysis further indicates the sporting goods
Chapter 12 - Financial Statement Analysis
Problem 12-2A (LO12-2)
Requirement 1
Anything Tennis
Income Statements
For the Years Ended December 31
Increase (Decrease)
2021
2020
Amount
%
Net sales
$ 3,500,000
$ 2,620,000
$ 880,000
33.6
Cost of goods sold
2,150,000
1,380,000
770,000
55.8
Requirement 2
Sales increased $880,000 (33.6%), but cost of goods sold increased $770,000 (55.8%),
Chapter 12 - Financial Statement Analysis
Problem 12-3A (LO12-1, 12-2)
Requirement 1
Sports Unlimited
Balance Sheet
December 31, 2021
2021
2020
Assets
Amount
%
Amount
%
Current assets:
Cash
$ 103,500
23.0
$ 70,400
17.6
Accounts receivable
46,800
10.4
32,000
8.0
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 30,150
6.7
$ 46,800
11.7
Interest payable
7,200
1.6
3,600
0.9
12-28 Financial Accounting, 5e
Requirement 2
Sports Unlimited
Balance Sheet
December 31, 2021
Year
Increase (Decrease)
Assets
2021
2020
Amount
%
Current assets:
Cash
$ 103,500
$ 70,400
$ 33,100
47.0
Accounts receivable
46,800
32,000
14,800
46.3
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 30,150
$ 46,800
$(16,650)
(35.6)
Interest payable
7,200
3,600
3,600
100.0
Chapter 12 - Financial Statement Analysis
Problem 12-4A (LO12-3)
Risk Ratios
Calculations
1. Receivables turnover ratio
$3,086,000
($70,000 + $91,000) / 2
= 38.3 times
2. Average collection period
365
38.3
= 9.5 days
Chapter 12 - Financial Statement Analysis
Problem 12-5A (LO12-4)
Profitability Ratios
Calculations
1. Gross profit ratio
$1,126,000
$3,086,000
= 36.5%
Chapter 12 - Financial Statement Analysis
Problem 12-6A (LO12-3, 12-4)
Requirement 1
Risk Ratios
Calculations
Receivables turnover ratio
Inventory turnover ratio
2021
$1,960,000
($145,000 + $115,000) / 2
= 15.1 times
Current ratio
2021
$415,000
$104,000
= 4.0 to 1
Chapter 12 - Financial Statement Analysis
12-32 Financial Accounting, 5e
Requirement 2
Profitability Ratios
Calculations
Gross profit ratio
$3,560,000
Return on assets
2021
$139,000
($794,200 + $946,000) / 2
= 16.0%
2022
$33,000
($946,000 + $1,072,000) / 2
= 3.3%
Asset turnover
2021
$3,086,000
($794,200 + $946,000) / 2
= 3.5 times
Requirement 3
The risk ratios are mixed. The receivables and inventory turnover ratios improved in
2022, while the current ratio and debt to equity ratio indicate greater risk in 2022.
Chapter 12 - Financial Statement Analysis
PROBLEMS: SET B
Problem 12-1B (LO12-1)
Requirement 1
Game-On Sports
Income Statements
For the Year Ended December 31, 2021
Athletic Equipment
Accessories
Amount
%
Amount
%
Net sales
$3,050,000
100.0
$3,500,000
100.0
Requirement 2
The athletic equipment segment is more profitable. Net income is 26.0% of sales in
Problem 12-2B (LO12-2)
Requirement 1
Galaxy Tennis
Income Statements
For the Years Ended December 31
Increase (Decrease)
2021
2020
Amount
%
Net sales
$ 6,150,000
$ 6,250,000
$ (100,000)
(1.6)
Requirement 2
Sales and gross profit decreased 1.6% and 0.9% respectively. However, even though
Chapter 12 - Financial Statement Analysis
Problem 12-3B (LO12-1, 12-2)
Requirement 1
Fantasy Football
Balance Sheet
December 31
Assets
2021
2020
Amount
%
Amount
%
Current assets:
Cash
$ 208,000
5.2
$ 262,200
6.9
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 168,000
4.2
$ 129,200
3.4
Interest payable
0
0.0
3,800
0.1
Chapter 12 - Financial Statement Analysis
12-36 Financial Accounting, 5e
Requirement 2
Fantasy Football
Balance Sheet
December 31
Year
Increase (Decrease)
Assets
2021
2020
Amount
%
Current assets:
Cash
$ 208,000
$ 262,200
$ (54,200)
(20.7)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 168,000
$ 129,200
$ 38,800
30.0
Interest payable
0
3,800
(3,800)
(100.0)
Chapter 12 - Financial Statement Analysis
Problem 12-4B
Risk Ratios
Calculations
1. Receivables turnover ratio
$8,900,000
($810,000 + $790,000) / 2
= 11.1 times
5. Current ratio
$2,469,000
$155,000
= 15.9 to 1
6. Acid-test ratio
$164,000 + $790,000
$155,000
= 6.2 to 1
Chapter 12 - Financial Statement Analysis
Problem 12-5B (LO12-4)
Profitability Ratios
Calculations
1. Gross profit ratio
$3,450,000
$8,900,000
= 38.8%
2. Return on assets
$1,230,000
($3,124,000 + $3,199,000) / 2
= 38.9%
