CHAPTER 14
SOLUTIONS TO EXERCISES—SET B
EXERCISE 14-1B
LARRS INC.
Condensed Balance Sheets
December 31
Increase or (Decrease)
2017
2016
Amount
Percentage
Assets
Current assets
$150,000
$100,000
($50,000
(50.0%)
Liabilities
Total liabilities
Stockholders’ Equity
Common stock, $1 par
Retained earnings
Total stockholders’
161,000
135,000
115,000
150,000
( 46,000
(40.0%)
(10.0%)
Total assets
EXERCISE 14-2B
SWENSON CORPORATION
Condensed Income Statements
For the Year Ended December 31
2017
2016
Amount
Percent
Amount
Percent
Sales revenue
Cost of goods sold
$750,000
450,000
100.0%
60.0%
$600,000
400,000
100.0%
66.7%
EXERCISE 14-3B
(a) DALLE CORPORATION
Condensed Balance Sheets
December 31
2017
2016
Increase
(Decrease)
Percentage
Change
from 2016
Assets
Current assets
Property, plant &
equipment (net)
$ 76,000
99,000
$ 80,000
90,000
$ (4,000)
( 9,000)
(5.0%)
(10.0%)
Selling expenses
Administrative expenses
Income before income taxes
100,000
60,000
140,000
84,000
54,000
62,000
EXERCISE 14-3B (Continued)
DALLE CORPORATION
Condensed Balance Sheets (Continued)
December 31
2017
2016
Increase
(Decrease)
Percentage
Change
from 2016
Liabilities and stock-
holders’ equity
Current liabilities
Long-term
$ 42,000
$ 48,000
$(6,000)
(12.5%)
(b) DALLE CORPORATION
Condensed Balance Sheet
December 31, 2017
Amount
Percent
Long-term liabilities
$205,000
Assets
Current assets
Property, plant, and equipment (net)
Intangibles
Total assets
$ 76,000
99,000
30,000
$205,000
37.1%
48.3%
14.6%
100.0%
Total liabilities and
$205,000
$210,000
EXERCISE 14-4B
(a) FORREST CORPORATION
Condensed Income Statements
For the Year Ended December 31
Increase or (Decrease)
During 2017
2017
2016
Amount
Percentage
Net sales
Cost of goods sold
$550,000
440,000
$500,000
430,000
$50,000
10,000
10.0%
2.3%
(b) FORREST CORPORATION
Condensed Income Statements
For the Year Ended December 31
2017
2016
Amount
Percent
Amount
Percent
$ 60,000
9.1%
$ 35,000
Net sales
Cost of goods sold
$550,000
440,000
100.0%
80.0%
$500,000
430,000
100.0%
86.0%
EXERCISE 14-5B
(a) Current ratio = 2.5:1 ($3,362 ÷ $1,350)
Acid-test ratio = 1.6:1 ($2,146a ÷ $1,350)
Net income
EXERCISE 14-5B (Continued)
(b)
Ratio
Nordstrom
J.C. Penney
Industry
Current
Acid-test
Accounts receivable
turnover
Inventory turnover
2.5:1
1.6:1
7.1
6.0
2.02:1
0.87:1
57.0
3.5
1.06:1
0.29:1
28.2
7.0
EXERCISE 14-6B
(a) Current ratio as of February 1, 2016 = 2.5:1 ($125,000 ÷ $50,000).
Feb. 3 2.5:1 No change in total current assets or liabilities.
7 1.9:1 ($97,000 ÷ $50,000).
(b) Acid-test ratio as of February 1, 2016 = 2.2:1 ($110,000* ÷ $50,000).
*$125,000 – $13,000 – $2,000
EXERCISE 14-7B
(a)
$20,000 + $80,000 + $60,000
$50,000
= 3.2:1.
(b)
$20,000 + $80,000
$50,000
= 2.0:1.
EXERCISE 14-8B
(a) Profit margin
$45,000
$800,000
= 5.6%.
(b) Asset turnover
$800,000
$500,000+$600,000
2
$45,000
$550,000
= 1.5 times.
EXERCISE 14-9B
(a) = $2.10.
EXERCISE 14-10B
(a) Inventory turnover = 4.0 =
Cost of goods sold
$220,000+$180,000
2
4.0 X $200,000 = Cost of goods sold
Cost of goods sold = $800,000.
$70,000 –$7,000
30,000 shares
EXERCISE 14-10B (Continued)
(d) Return on assets = 15% =
Average assets = = $676,000
EXERCISE 14-11B
(a) ($6,300 + $21,200 + $10,000)/$10,370 = 3.62
(b) ($6,300 + $21,200)/$10,370 = 2.65
(c) $100,000/[($21,200 + $22,400)/2] = 4.59
EXERCISE 14-12B
$101,400 [see (c) above]
Average assets
$101,400
.15
(a) SIMONE CORPORATION
Partial Income Statement
For the Year Ended October 31, 2017
Income before income taxes ………………………………………….. $650,000
Income tax expense ($650,000 X 30%) …………………………….. 195,000
Income from continuing operations ……………………………….. 455,000
EXERCISE 14-12B (Continued)
(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:
EXERCISE 14-13B
FRANK CORPORATION
Partial Statement of Comprehensive Income
For the Year Ended December 31, 2017
Income from continuing operations ……………………………….. $350,000
Discontinued operations
Loss from operations of discontinued division, net
of $1,500income tax savings ……………………. ($3,500)