Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
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Chapter 13
Analysis of Financial Statements
QUICK STUDY
Quick Study 13-1 (5 minutes)
a. Included
b. Included
Quick Study 13-2 (10 minutes)
1. competitor
Quick Study 13-3 (5 minutes)
840
Quick Study 13-4 (15 minutes)
Current
Year
Prior
Year
Dollar
Change
Percent
Change
Short-term investments ………….
$374,634
$234,000
$140,634
60.1%
Quick Study 13-5 (15 minutes)
Current
Year
Prior
Year
Dollar
Change
Percent
Change
Cash ………………………………………
$ 7,440
$ 8,000
$ (560)
(7.0)%
10.0%
$132,000
49.3%
Quick Study 13-6 (15 minutes)
Current Year
Prior Year
Cash ………………………………………
3.8%
6.1%
Quick Study 13-7 (5 minutes)
Trend percents
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
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Quick Study 13-8 (5 minutes)
Common-size percents
Quick Study 13-9 (15 minutes)
a.
Current Ratio: = 2.7 to 1
Quick Study 13–10 (10 minutes)
Transaction
Current Assets
Current Liabilities
Current Ratio
1.
No Effect
No Effect
No Effect
Quick Study 13–11 (15 minutes)
a.
Accounts Receivable Turnover: = 6.0 times
$15,000 + $5,000 + $8,000 + $20,000 + $6,000
$20,000
$60,000
($14,000 + $6,000)/2
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Quick Study 13–12 (15 minutes)
a.
Inventory Turnover: = 8.0 times
$40,000
Quick Study 13–13 (10 minutes)
Quick Study 13-14 (15 minutes)
a.
Debt–to-equity Ratio: = 0.4
$30,000
Quick Study 13-15 (15 minutes)
a.
Profit Margin: = 20%
($60,000 + $68,000)/2
$40,000
($2,000 + $8,000)/2
$20,000
$50,000
$16,000
$80,000
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Quick Study 13-17 (10 minutes)
Ratio
Current
Year
Prior
Year
Change
1. Profit Margin Ratio …………………………..
9%
8%
Favorable
2. Debt Ratio ……………………………………….
47%
42%
Unfavorable
4. Acid-test Ratio…………………………………
1.15
Unfavorable
7. Inventory Turnover ………………………….
Favorable
8. Dividend Yield …………………………………
Favorable
Quick-Study 13–18 (5 minutes)
a. More likely. An increase in the current ratio suggests the company is
better able to pay debts and continue operating.
Quick-Study 13–19 (5 minutes)
a. More likely. An increase in return on equity suggests an improvement
in a company’s ability to earn income for its stockholders.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
Quick-Study 13–20 (30 minutes)
1. Parker. Explanation: Parker’s higher current ratio and acid-test ratio
puts it in a better position to pay current liabilities.
Quick Study 13–21A (10 minutes)
a. Unusual and/or Infrequent. The destruction of rainwater tanks is an
unusual and/or infrequent loss because a hurricane is considered an
unusual and infrequent calamity (“act of God”).
Quick Study 13–22A (10 minutes)
Income from continuing operations ………………………..
$180,000
Discontinued segment
Income from consulting segment (net of tax) ……….
Gain on sale of consulting segment (net of tax) ……
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
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EXERCISES
Exercise 13-1 (10 minutes)
1.
B
4.
A
7.
B
3.
D
6.
B
9.
A
Exercise 13-2 (5 minutes)
1. Profit Margin (f); Total Asset Turnover (e) —in either order
Exercise 13-3 (20 minutes)
2021
2020
2019
2018
2017
Sales ………………………………….
189
181
168
156
100
Accounts receivable …………..
201
192
182
169
100
Analysis:
Sales trend is favorable. Further analysis can consider economic conditions in
which this trend occurred such as competitor performance and inflation rates.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
Exercise 13-4 (25 minutes)
Current Yr
Prior Yr
Sales …………………………………………….
100.0%
100.0%
Analysis:
Cost of goods sold increase is most responsible for the income decline.
There is substantial decline in net income as a percent of sales for the current
Exercise 13-5 (25 minutes)
Answer: Net income decreased.
Supporting calculations: When the sum of each year’s common-size cost of
goods sold and operating expenses is subtracted from the common-size sales
percent, the net income percent is as follows:
2 Years Ago net income percent: 100.0 – 59.1 – 15.1 = 25.8% of sales
Next, if 2 Years Ago sales are assumed to be $100, then sales from 1 Year Ago
are $104.20 and the sales from the Current Year are $105.40. If the net income
percents for the three years are applied to these amounts, the net incomes are:
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
Exercise 13-6 (20 minutes)
1.
Simon Company
Common–Size Comparative Balance Sheets
At December 31
Current
Year
1 Year
Ago*
2 Years
Ago
Assets
Cash ………………………………………………………….
6.1%
8.0%
10.0%
Accounts receivable, net …………………………….
17.1
14.0
13.3
21.5
18.5
14.3
Liabilities and Equity
Accounts payable ………………………………………
24.8%
16.9%
13.6%
Long-term notes payable …………………………...
18.8
22.9
22.1
Common stock, $10 par value …………………….
36.7
43.3
Total liabilities and equity …………………………..
2. Unfavorable.
The increase in accounts receivable as a percentage of total assets is an
3. Unfavorable.
The increase in merchandise inventory as a percentage of total assets is an
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
Exercise 13-7 (25 minutes)
1. Current ratio
Current Yr: = 1.88 to 1
2. Acid-test ratio
Current Yr: = 0.93 to 1
$31,800 + $89,500 + $112,500 + $10,700
$129,900
$31,800 + $89,500
$129,900
$35,625 + $62,500
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Exercise 13-8 (25 minutes)
1. Days’ sales uncollected
Current Yr: x 365 = 48.5 days
$62,500
$532,000
2. Accounts receivable turnover
Current Yr: = 8.9 times
$532,000
($62,500 + $50,200)/2
3. Inventory turnover
Current Yr: = 4.2 times
$345,500
($82,500 + $54,000)/2
4. Days’ sales in inventory
Current Yr: x 365 = 99.9 days
$82,500
$345,500
$89,500
$673,500
$673,500
($89,500 + $62,500)/2
$411,225
($112,500 + $82,500)/2
$112,500
$411,225
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Exercise 13-9 (25 minutes)
1. Debt and equity ratios
Current Year
1 Year Ago
Total liabilities and debt ratio
$129,900 + $98,500 …………………..
$228,400
43.7%
$75,250 + $101,500 …………………..
$176,750
39.7%
Total equity and equity ratio
$163,500 + $131,100 …………………
$163,500 + $104,750 …………………
60.3
2. Debt–to-equity ratio
Current Year: $228,400 / $294,600 = 0.78 to 1
3. Times interest earned
Current Year: ($31,100 + $9,525 + $12,100) / $12,100 = 4.4 times
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Exercise 13-10 (30 minutes)
1. Profit margin
Current Year: $31,100 / $673,500 = 4.6%
2. Total asset turnover
Current Year: = 1.4 times
$532,000
($445,000 + $377,500)/2
3. Return on total assets
Current Year: = 6.4%
$29,375
($445,000 + $377,500)/2
$673,500
($523,000 + $445,000)/2
$31,100
($523,000 + $445,000)/2
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
Exercise 13-11 (20 minutes)
1. Return on equity
2. Dividend yield
3. Price-earnings ratio
Current Year: $30 / $1.90 = 15.8
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Exercise 13–12 (20 minutes)
Date
Current Assets
Current Liabilities
Current Ratio
Jan. 1
$72,000
$60,000
1.20
Jan. 5
-18,000
0
Bal., Jan. 5
54,000
60,000
0.90
Jan. 12
49,000
55,000
0.89
Jan. 18
49,000
55,000
0.89
Jan. 22
+12,000
+12,000
Bal., Jan. 22
Jan. 31
+12,700
Bal., Jan. 31
73,700
67,000
1.10
Exercise 13-13 (15 minutes)
Current ratio = $9,000 / $900 = 10
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
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Exercise 13-14 (15 minutes)
1. Profit margin
BioBeans: $15,000 / $75,000 = 20%
2. BioBeans
Explanation: BioBeans has a profit margin of 20%, which is greater than
Exercise 13-15 (20 minutes)
a.
Accounts Receivable Turnover: = 8
? = $6,250 x 8
? = $50,000 Net Sales
?
$6,250
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 13
Exercise 13–16 (25 minutes)
1. a. Clay. Clay’s profit margins are better than Roak’s.
2. Clay. Clay’s rates of improvement in sales growth are better than
Roak’s—current year: 24% ($210,000/$170,000); and 1 year ago: 55%.
Exercise 13-17A (10 minutes)
1. A Net sales less operating expense section
2. B Other unusual and/or infrequent gains (losses)
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Exercise 13-18A (20 minutes)
RANDA MERCHANDISING, INC.
Income Statement
For Year Ended December 31
Net sales ………………………………………………………………..
$2,900,000
Expenses
Cost of goods sold ………………………………………………
$1,480,000
Depreciation expense ………………………………………….
232,000
Total operating expenses …………………………………….
1,712,000
Income from continuing operations before taxes …….
778,000
Income tax expense ……………………………………………….
217,000
Income from continuing operations ………………………..
561,000
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PROBLEM SET A
Problem 13-1A (120 minutes)
Part 1
HAROUN COMPANY
Income Statement Trends
For Years Ended December 31
2021
2020
2019
2018
2017
2016
2015
Sales ……………………………….
182.5%
161.2%
147.6%
136.2%
127.8%
119.6%
100.0%
Cost of goods sold …………..
212.6
176.1
153.9
136.9
128.3
121.2
100.0
Gross profit ……………………..
131.0
135.7
136.8
135.1
126.9
117.0
100.0
Operating expenses …………
279.7
216.9
198.3
144.1
123.7
122.0
100.0
HAROUN COMPANY
Balance Sheet Trends
At December 31
2021
2020
2019
2018
2017
2016
2015
Cash ………………………………..
65.2%
87.6%
92.1%
94.4%
98.9%
96.6%
100.0%
Accounts recble., net ……….
226.9
238.0
215.7
166.7
147.2
139.8
100.0
Merchandise inventory ……..
298.9
221.8
195.8
167.8
152.2
131.7
100.0
Other current assets …………
400.0
355.6
155.6
377.8
311.1
311.1
100.0
100.0
100.0
100.0
100.0
Plant assets, net ………………
278.6
277.8
241.7
130.2
134.9
118.6
100.0
Total assets ……………………..
246.8
222.3
195.4
144.4
138.6
124.0
100.0
Current liabilities ……………..
432.6
369.5
254.6
217.7
193.6
185.1
100.0
Long-term liabilities ………….
323.5
285.0
278.0
142.5
145.0
155.0
100.0
Common stock …………………
153.8
153.8
153.8
130.8
130.8
100.0
100.0
Other paid-in capital …………
166.7
166.7
166.7
113.3
113.3
100.0
100.0
Retained earnings…………….
213.2
179.2
137.7
124.5
109.4
100.0
Total liabilities & equity …….
246.8
222.3
195.4
144.4
138.6
124.0
100.0
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Problem 13-1A (concluded)
Part 2
2. a. Yes.
Sales grew steadily for the entire period of 2015 to 2021. (However,
beginning in 2019, cost of goods sold and operating expenses
increased dramatically relative to sales, resulting in a significant
reduction in net income.)
b. No.