P5. [LO 2]
a. The three strategies do, indeed, appear to constitute manipulation of earnings.
The first strategy (often referred to as a bill and hold strategy) is being
P6. [LO 3]
Based on the limited information, Danny should be cautious. Inventory turnover at
Venture has declined from 5.63 to 4.20. This may be due to obsolete inventory.
14–18 Jiambalvo Managerial Accounting
P7. [LO 2,3]
a. Gross margin percentage 2017 2016
Sales $4,900,000 $4,800,000
b. It appears that the company has done a good job of managing its gross margin.
c. Inventory turnover 2017 2016
Days’ sales in inventory
P8. [LO 3]
a.
Bell Gangway
b.
Bell Gangway
c.
Bell Gangway
P9. LO 4, 5
The gross margin percentages are the same as those calculated in P8.
P10. [LO 1, 3]
a. Horizontal Analysis:
Mandrake Motorcycles December 31, December 31, Percentage
Balance Sheets 2018 2017 Change Change
Assets
Current assets
Cash and cash equivalents $ 240,000 $ 425,000 $ (185,000) -43.5%
Liabilities and stockholders’ equity
Current liabilities
Accounts payable $ 260,000 $ 205,000 55,000 26.8%
Total liabilities and
Chapter 14 Analyzing Financial Statements: A Managerial Perspective 14–21
Year Ended Year Ended
Mandrake Motorcycles December 31, December 31,
Income Statements 2018 2017
Net sales $ 1,590,000 $ 1,690,000 $ (100,000) -5.9%
14–22 Jiambalvo Managerial Accounting
Vertical Analysis: December 31, December 31,
Mandrake Motorcycles 2018 2017
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 240,000 9.4% $ 425,000 16.1%
Liabilities and stockholders’ equity
Current liabilities
Accounts payable $ 260,000 10.2% $ 205,000 7.8%
Chapter 14 Analyzing Financial Statements: A Managerial Perspective 14–23
Year Ended Year Ended
Mandrake Motorcycles December 31, December 31,
Income Statements 2018 2017
Net sales $ 1,590,000 100.0% $ 1,690,000 100.0%
b.
2018 2017
Return on total assets
Inventory turnover
Debt-to-equity ratio
14–24 Jiambalvo Managerial Accounting
Times interest earned
P11. [LO 1, 3]
This information is quite consistent with what we concluded in part c of P10.
Chapter 14 Analyzing Financial Statements: A Managerial Perspective 14–25
P12. [LO 3]
1. a.
b.
2.
The Effect on
Current
Ratio
1. Paid a cash dividend previously declared
increase
increase
3. Sold inventory costing $80,000 for $115,000, on
increase
decrease
increase
decrease
7. Purchased inventory on account for $91,000
decrease
8. Paid off all short-term notes due $68,000
increase
9. Purchased equipment for cash, $23,000
decrease
10. Sold marketable securities costing $29,000 for
decrease
11. Collected cash on accounts receivable,
12. Paid interest on a note payable, $3,500
increase
2. Issued additional shares of common stock for
14–26 Jiambalvo Managerial Accounting
P13. [LO 1]
a.
Bao Corporation
Comparative Balance Sheet
December 31, 2018 and 2017
2018
2017
Assets
Current Assets:
Cash
$1,900
1.2%
$1,300
0.8%
Liabilities and
Stockholders’ Equity
Current liabilities:
Accounts payable
$17,600
11.2%
21,000
13.5%
Accrued expenses
1.0%
2.8%
Notes payable, short term
0.3%
0.1%
Total current liabilities
19,760
12.5%
25,650
16.4%
Long-term liabilities:
Bonds payable
3.4%
3.4%
Notes payable
34,400
21.9%
35,000
22.4%
Total long-term liabilities
39,700
25.3%
40,300
25.8%
Total liabilities
37.8%
65,950
42.3%
Stockholders’ equity:
Common stock
11,000
7.0%
11,000
7.1%
Additional paid-in capital
19,000
12.1%
19,000
12.2%
Total paid-in capital
30,000
19.1%
30,000
Retained earnings
68,000
43.2%
60,000
38.5%
Total stockholders’ equity
98,000
62.2%
90,000
57.7%
Total liabilities and
stockholders’ equity
$157,460
$155,950
Accounts receivable, net
5.8%
4.7%
Inventory
11,300
7.2%
5.8%
Total current assets
22,860
11.5%
Property and equipment:
Land
86,000
54.6%
86,000
55.2%
48,600
30.9%
52,000
33.3%
Total property and equipment
134,600
85.5%
88.5%
Total assets
$157,460
$155,950
Sales
$130,000
100.0%
$111,000
100.0%
Cost of goods sold
Gross margin
Operating expenses:
Total operating expenses
Net operating income
Interest expense
Income before taxes
Less income taxes
Net Income
e. Develop a strategy for continuous growth and another strategy for fibreakthrough”
14–28 Jiambalvo Managerial Accounting
P14. [LO 1]
a.
Bao Corporation
Horizontal Analysis
December 31, 2018 and 2017
Assets
Current Assets:
2018
2017
Change
Percent
Change
Cash
$ 1,900
$ 1,300
$600
46.2%
Liabilities and
Stockholders’ Equity
Current liabilities:
Accounts payable
$17,600
21,000
-3,400
-16.2%
Accrued expenses
1,620
4,430
-2,810
–63.4%
Notes payable, short term
Total current liabilities
19,760
25,650
-5,890
Long-term liabilities:
Bonds payable
5,300
5,300
Notes payable
Total long-term liabilities
Total liabilities
-6,490
Stockholders’ equity:
Common stock
Additional paid-in capital
Total paid-in capital
Retained earnings
13.3%
Total stockholders’ equity
98,000
90,000
Total liabilities and
stockholders’ equity
$157,460
$155,950
Accounts receivable net
9,100
7,300
24.7%
Inventory
9,100
24.2%
Prepaid expenses
Property and equipment:
Land
-3,400
Total property and equipment
-3,400
Total Assets
$157,460
$155,950
Chapter 14 Analyzing Financial Statements: A Managerial Perspective 14–29
b.
Bao Corporation
Horizontal Analysis
For the Year Ended December 31, 2018 and 2017
2018
2017
Change
Percent
Change
Sales
$130,000
$111,000
$19,000
17.1%
P15. [LO 3]
a. Current Ratio = $22,860 ÷ 19,760 = 1.157
b. Bao’s current ratio is greater than 1, demonstrating that it has an ability to meet
Cost of Goods Sold
Gross margin
26.0%
Operating expenses:
expenses
19.9%
expenses
21.4%
Net operating income
36.4%
Interest expense
19.2%
Net income before taxes
43.9%
Less income taxes
43.9%
Net Income
43.9%
14–30 Jiambalvo Managerial Accounting
P16. [LO 3]
1. It is becoming easier for Mendella to pay its bills as they come due because its
return on assets.
P17. [LO 3]
1. decrease
P18. [LO 3]
a.
2018 2017
Gross Margin Percentage
c.
2018 2017
Inventory Turnover
d. The company has effectively controlled its investment in inventory. Its inventory
14–32 Jiambalvo Managerial Accounting
Case 14-1 [LO 1, 3]
JORDAN-WILLIAMS, INCORPORATED
Summary
Jordan-Williams Incorporated (JWI) is considering a strategic partnership with
NetKnowledge (NK) and senior management of JWI is evaluating the financial analysis
in a report from its due diligence team.
Questions to ask students
1. What is the situation facing JWI?
2. What are your thoughts on the memo prepared by Ted Chapman?
3. Should JWI pursue an alliance with NK?
Discussion
What is the situation facing JWI? JWI is a publisher of college textbooks that wants to
enter the market for manager training. Their plan is to partner with a company that has
the technology to deliver JWI’s content via the Internet. The company they are
considering is NK, and a due diligence team headed by Ted Chapman has just finished
a review of the company.