Chapter 14 – Weygandt Managerial 7e
Challenge Exercises Solutions
Solution
CE14-1
(a)
NEALON INC.
Condensed Balance Sheets
December 31
Increase or (Decrease)
2017
2016
Amount
Percentage
Assets
Current assets
Plant assets (net)
Total assets
$140,000
440,000
$580,000
$110,000
360,000
$470,000
($30,000
( 80,000
110,000
(27.3%)
(22.2%)
(23.4%)
Liabilities
()
(b) Horizontal analysis is used primarily in intracompany comparisons. Horizontal analysis evaluates a series of
financial statement data over a period of time.
Current liabilities
Total liabilities
260,000
175,000
(26.7%)
(65.0%)
(48.6%)
Total liabilities and
stockholders’ equity
Solution
CE14-2
(a)
POLL CORPORATION
Condensed Income Statements
For the Years Ended December 31
2017
2016
Amount
Percent
Amount
Percent
Sales
Cost of goods sold
Gross profit
$900,000
570,000
330,000
100.0%
63.3%
36.7%
$700,000
450,000
250,000
100.0%
64.3%
35.7%
(b) Vertical analysis is used in both intra- and intercompany comparisons. Because vertical analysis evaluates
financial statement data by expressing each item in a financial statement as a percent of a base amount, it can
be used to determine trends over time within a company, or to discover relationships that differ from company
to company.
Solution
CE 14-3
(a) Current ratio as of beginning of month = 1.46 ($175,000 ÷ $120,000).
(b) 1. Current ratio: 1.46 (no change since both assets are current).
Acid-test ratio: 1.04 (no change since both assets are included in the acid-test numerator).
2. Current ratio: 1.15 [($175,000 – $37,000) ÷ $120,000].
Acid-test ratio: 0.73 [($125,000 – $37,000) ÷ $120,000].
Solution
CE 14-4
(a) Profit margin $150,000 = 12.9%.
$1,160,000
Solution
CE 14-5
(a) ($10,300 + $16,200 + $11,000)/$17,370 = 2.16
(b) ($10,300 + $16,200)/$17,370 = 1.53
(c) $100,000/[($16,200 + $24,400)/2] = 4.93; 365/4.93 = 74 days
(d) $60,000/[($11,000 + $8,000)/2] = 6.32; 365/6.32 = 58 days
Solution
CE 14-6
(a) ANTONIO CORPORATION
Partial Income Statement
For the Year Ended October 31, 2017
Income before income taxes …………………………………………………………………….. $600,000
Income tax expense ($600,000 X 40%) ……………………………………………………… 240,000
(b) To: Chief Accountant
From: Your name, Independent Auditor
After reviewing your income statement for the year ended 10/31/17, we believe it is misleading for the
following reasons: