Current Assets
Cash 41,200$ 53,000$
Accounts receivable 570,000 443,000
Inventory 5,070,000 4,841,000
Prepaid expenses 83,800 78,000
Total current assets 5,765,000 5,415,000
Building and equipment, net 1,097,000 1,095,000
Total assets 6,862,000$ 6,510,000$
Liabilities and Stockholders’ equity
Current liabilities
Accounts payable 604,000$ 624,000$
Bank loan payable 679,000 625,000
Other accrued payables 213,000 313,000
Total current liabilities 1,496,000 1,562,000
Long-term debt 1,729,000 1,797,000
Total liabilities 3,225,000 3,359,000
Stockholders’ equity
Common stock 1,359,000 1,359,000
Retained earnings 2,278,000 1,792,000
Total stockholders’ equity 3,637,000 3,151,000
Total liab. and stockholders’ equity 6,862,000$ 6,510,000$
2018 2017
Net sales 5,568,000$ 5,253,000$
Cost of goods sold 2,840,000 2,627,000
Gross margin 2,728,000 2,626,000
Operating expenses:
Selling expenses 501,000 630,000
General and admin. expenses 835,000 788,000
Total operating expenses 1,336,000 1,418,000
Operating income 1,392,000 1,208,000
Interest expense 139,000 158,000
Income before taxes 1,253,000 1,050,000
Income taxes 439,000 368,000
814,000$ 682,000$
Additional information:
Net income
Statements of Earnings
Solution: Exercise 14-8 Profitability Ratios
The following information for Great Oaks Furniture, a retail furniture and design
firm, relates to exercises 14-6 through 14-11.
Great Oaks Furniture
December 31
Balance Sheets
2018
2017
Assets
Great Oaks Furniture
Year Ended December 31
Shares of common stock outstanding at end of both years 100,000
Price per share at end of 2017
110$
Price per share at end of 2018
134$
Required
Earnings per share
Return on total assets
Income tax rate
2018 35.04%
Calculate earnings per share, the price-earnings ratio, the gross margin percentage,
return on total assets, and return on common stockholders’ for 2017 and 2018.
Can you identify any significant findings or trends when comparing the ratios between
years? What other information would be necessary in order to make a complete
assessment of Great Oaks’ performance?
company’s main competitors and the industry as a whole.
What-if?
Earnings per share
Current Assets
Cash 41,200$ 53,000$
Accounts receivable 570,000 443,000
Inventory 5,070,000 4,841,000
Prepaid expenses 83,800 78,000
Total current assets 5,765,000 5,415,000
Building and equipment, net 1,097,000 1,095,000
Total assets 6,862,000$ 6,510,000$
Liabilities and Stockholders’ equity
Current liabilities
Accounts payable 604,000$ 624,000$
Bank loan payable 679,000 625,000
Other accrued payables 213,000 313,000
Total current liabilities 1,496,000 1,562,000
Long-term debt 1,729,000 1,797,000
Total liabilities 3,225,000 3,359,000
Stockholders’ equity
Common stock 1,359,000 1,359,000
Retained earnings 2,278,000 1,792,000
Total stockholders’ equity 3,637,000 3,151,000
Total liab. and stockholders’ equity 6,862,000$ 6,510,000$
2018 2017
Net sales 5,568,000$ 5,253,000$
Cost of goods sold 2,840,000 2,627,000
Gross margin 2,728,000 2,626,000
Operating expenses:
Selling expenses 501,000 630,000
General and admin. expenses 835,000 788,000
Total operating expenses 1,336,000 1,418,000
Operating income 1,392,000 1,208,000
Interest expense 139,000 158,000
Income before taxes 1,253,000 1,050,000
Income taxes 439,000 368,000
814,000$ 682,000$
Required
Exercise 14-9 Turnover Ratios
The following information for Great Oaks Furniture, a retail furniture and design
firm, relates to exercises 14-6 through 14-11.
Great Oaks Furniture
December 31
Balance Sheets
2018
2017
Net income
Assets
Great Oaks Furniture
Year Ended December 31
Statements of Earnings
Asset turnover
2018 ÷ =
2017 ÷ =
Accounts receivable turnover
2018 ÷ =
2017 ÷ =
Day’s sales in receivables
2018 ÷ =
2017 ÷ =
Inventory turnover
2018 ÷ =
2017 ÷ =
Days’ sales in inventory
2018 ÷ =
2017 ÷ =
Amounts may differ from solutions manual due to rounding.
How well does Great Oaks Furniture appear to manage its accounts receivable and
inventory? What suggestions do you have for the company?
Calculate asset turnover, accounts receivable turnover, days’ sales in receivables,
inventory turnover, and days’ sales in inventory for 2017 and 2018.
Current Assets
Cash 41,200$ 53,000$
Accounts receivable 570,000 443,000
Inventory 5,070,000 4,841,000
Prepaid expenses 83,800 78,000
Total current assets 5,765,000 5,415,000
Building and equipment, net 1,097,000 1,095,000
Total assets 6,862,000$ 6,510,000$
Liabilities and Stockholders’ equity
Current liabilities
Accounts payable 604,000$ 624,000$
Bank loan payable 679,000 625,000
Other accrued payables 213,000 313,000
Total current liabilities 1,496,000 1,562,000
Long-term debt 1,729,000 1,797,000
Total liabilities 3,225,000 3,359,000
Stockholders’ equity
Common stock 1,359,000 1,359,000
Retained earnings 2,278,000 1,792,000
Total stockholders’ equity 3,637,000 3,151,000
Total liab. and stockholders’ equity 6,862,000$ 6,510,000$
2018 2017
Net sales 5,568,000$ 5,253,000$
Cost of goods sold 2,840,000 2,627,000
Gross margin 2,728,000 2,626,000
Operating expenses:
Selling expenses 501,000 630,000
General and admin. expenses 835,000 788,000
Total operating expenses 1,336,000 1,418,000
Operating income 1,392,000 1,208,000
Interest expense 139,000 158,000
Income before taxes 1,253,000 1,050,000
Income taxes 439,000 368,000
814,000$ 682,000$
Required
Calculate asset turnover, accounts receivable turnover, days’ sales in receivables,
Net income
Assets
Great Oaks Furniture
Year Ended December 31
Statements of Earnings
Solution: Exercise 14-9 Turnover Ratios
The following information for Great Oaks Furniture, a retail furniture and design
firm, relates to exercises 14-6 through 14-11.
Great Oaks Furniture
December 31
Balance Sheets
2018
2017
Note: Amounts may differ from solutions manual due to rounding when cell-referencing is used in Excel.
inventory turnover, and days’ sales in inventory for 2017 and 2018.
How well does Great Oaks Furniture appear to manage its accounts receivable and
inventory? What suggestions do you have for the company?
Current Assets
Cash 41,200$ 53,000$
Accounts receivable 570,000 443,000
Inventory 5,070,000 4,841,000
Prepaid expenses 83,800 78,000
Total current assets 5,765,000 5,415,000
Building and equipment, net 1,097,000 1,095,000
Total assets 6,862,000$ 6,510,000$
Liabilities and Stockholders’ equity
Current liabilities
Accounts payable 604,000$ 624,000$
Bank loan payable 679,000 625,000
Other accrued payables 213,000 313,000
Total current liabilities 1,496,000 1,562,000
Long-term debt 1,729,000 1,797,000
Total liabilities 3,225,000 3,359,000
Stockholders’ equity
Common stock 1,359,000 1,359,000
Retained earnings 2,278,000 1,792,000
Total stockholders’ equity 3,637,000 3,151,000
Total liab. and stockholders’ equity 6,862,000$ 6,510,000$
2018 2017
Net sales 5,568,000$ 5,253,000$
Cost of goods sold 2,840,000 2,627,000
Gross margin 2,728,000 2,626,000
Operating expenses:
Selling expenses 501,000 630,000
General and admin. expenses 835,000 788,000
Total operating expenses 1,336,000 1,418,000
Operating income 1,392,000 1,208,000
Interest expense 139,000 158,000
Income before taxes 1,253,000 1,050,000
Income taxes 439,000 368,000
814,000$ 682,000$
Required
Exercise 14-10 Debt-Related Ratios
The following information for Great Oaks Furniture, a retail furniture and design firm,
relates to exercises 14-6 through 14-11.
Great Oaks Furniture
December 31
Balance Sheets
2018
2017
Net income
Assets
Great Oaks Furniture
Year Ended December 31
Statements of Earnings
Current ratio
2018 ÷ =
2017 ÷ =
Acid-test ratio
2018 ÷ =
2017 ÷ =
Debt-to-equity ratio
2018 ÷ =
2017 ÷ =
Times interest earned
2018 ÷ =
2017 ÷ =
Calculate the current ratio, the acid-test ratio, the debt-to-equity ratio and times interest
earned for 2017 and 2018.
Assume that Great Oaks Furniture was applying for a business loan and you are the loan
officer. Do you have any concerns about lending them money?
Current Assets
Cash 41,200$ 53,000$
Accounts receivable 570,000 443,000
Inventory 5,070,000 4,841,000
Prepaid expenses 83,800 78,000
Total current assets 5,765,000 5,415,000
Building and equipment, net 1,097,000 1,095,000
Total assets 6,862,000$ 6,510,000$
Liabilities and Stockholders’ equity
Current liabilities
Accounts payable 604,000$ 624,000$
Bank loan payable 679,000 625,000
Other accrued payables 213,000 313,000
Total current liabilities 1,496,000 1,562,000
Long-term debt 1,729,000 1,797,000
Total liabilities 3,225,000 3,359,000
Stockholders’ equity
Common stock 1,359,000 1,359,000
Retained earnings 2,278,000 1,792,000
Total stockholders’ equity 3,637,000 3,151,000
Total liab. and stockholders’ equity 6,862,000$ 6,510,000$
2018 2017
Net sales 5,568,000$ 5,253,000$
Cost of goods sold 2,840,000 2,627,000
Gross margin 2,728,000 2,626,000
Operating expenses:
Selling expenses 501,000 630,000
General and admin. expenses 835,000 788,000
Total operating expenses 1,336,000 1,418,000
Operating income 1,392,000 1,208,000
Interest expense 139,000 158,000
Income before taxes 1,253,000 1,050,000
Income taxes 439,000 368,000
814,000$ 682,000$
Required
Solution: Exercise 14-10 Debt-Related Ratios
The following information for Great Oaks Furniture, a retail furniture and design firm,
relates to exercises 14-6 through 14-11.
Great Oaks Furniture
December 31
Balance Sheets
2018
2017
Net income
Assets
Great Oaks Furniture
Year Ended December 31
Statements of Earnings
Current ratio
Calculate the current ratio, the acid-test ratio, the debt-to-equity ratio and times interest
earned for 2017 and 2018.
Assume that Great Oaks Furniture was applying for a business loan and you are the loan
officer. Do you have any concerns about lending them money?
Current Assets
Cash 41,200$ 53,000$
Accounts receivable 570,000 443,000
Inventory 5,070,000 4,841,000
Prepaid expenses 83,800 78,000
Total current assets 5,765,000 5,415,000
Building and equipment, net 1,097,000 1,095,000
Total assets 6,862,000$ 6,510,000$
Liabilities and Stockholders’ equity
Current liabilities
Accounts payable 604,000$ 624,000$
Bank loan payable 679,000 625,000
Other accrued payables 213,000 313,000
Total current liabilities 1,496,000 1,562,000
Long-term debt 1,729,000 1,797,000
Total liabilities 3,225,000 3,359,000
Stockholders’ equity
Common stock 1,359,000 1,359,000
Retained earnings 2,278,000 1,792,000
Total stockholders’ equity 3,637,000 3,151,000
Total liab. and stockholders’ equity 6,862,000$ 6,510,000$
2018 2017
Net sales 5,568,000$ 5,253,000$
Cost of goods sold 2,840,000 2,627,000
Gross margin 2,728,000 2,626,000
Operating expenses:
Selling expenses 501,000 630,000
General and admin. expenses 835,000 788,000
Total operating expenses 1,336,000 1,418,000
Operating income 1,392,000 1,208,000
Interest expense 139,000 158,000
Income before taxes 1,253,000 1,050,000
Income taxes 439,000 368,000
814,000$ 682,000$
In addition, cash flow amounts for the two years were:
Exercise 14-11 Net Income versus Cash Flow from Operations
The following information for Great Oaks Furniture, a retail furniture and design firm,
relates to exercises 14-6 through 14-11.
Great Oaks Furniture
December 31
Balance Sheets
2018
2017
Net income
Assets
Great Oaks Furniture
Year Ended December 31
Statements of Earnings
Cash flow from operations, 2017 700,000$
Cash flow from operations, 2018 863,000$
Required
Net income versus cash flow from operations
2018 2017
Net income
Cash flow from operations
Difference
Does it appear that management of Great Oaks Furniture has manipulated earnings
upward in these years?
Current Assets
Cash 41,200$ 53,000$
Accounts receivable 570,000 443,000
Inventory 5,070,000 4,841,000
Prepaid expenses 83,800 78,000
Total current assets 5,765,000 5,415,000
Building and equipment, net 1,097,000 1,095,000
Total assets 6,862,000$ 6,510,000$
Liabilities and Stockholders’ equity
Current liabilities
Accounts payable 604,000$ 624,000$
Bank loan payable 679,000 625,000
Other accrued payables 213,000 313,000
Total current liabilities 1,496,000 1,562,000
Long-term debt 1,729,000 1,797,000
Total liabilities 3,225,000 3,359,000
Stockholders’ equity
Common stock 1,359,000 1,359,000
Retained earnings 2,278,000 1,792,000
Total stockholders’ equity 3,637,000 3,151,000
Total liab. and stockholders’ equity 6,862,000$ 6,510,000$
2018 2017
Net sales 5,568,000$ 5,253,000$
Cost of goods sold 2,840,000 2,627,000
Gross margin 2,728,000 2,626,000
Operating expenses:
Selling expenses 501,000 630,000
General and admin. expenses 835,000 788,000
Total operating expenses 1,336,000 1,418,000
Operating income 1,392,000 1,208,000
Interest expense 139,000 158,000
Income before taxes 1,253,000 1,050,000
Income taxes 439,000 368,000
814,000$ 682,000$
In addition, cash flow amounts for the two years were:
Solution: Exercise 14-11 Net Income versus Cash Flow from Operations
The following information for Great Oaks Furniture, a retail furniture and design firm,
relates to exercises 14-6 through 14-11.
Great Oaks Furniture
December 31
Balance Sheets
2018
2017
Net income
Assets
Great Oaks Furniture
Year Ended December 31
Statements of Earnings
Cash flow from operations, 2017 700,000$
Cash flow from operations, 2018 863,000$
Required
Net income versus cash flow from operations
2018 2017
Does it appear that management of Great Oaks Furniture has manipulated earnings
upward in these years?