CHAPTER 18
SOLUTIONS TO EXERCISES—SET B
EXERCISE 18-1B
LARRS INC.
Condensed Balance Sheets
December 31
Increase or (Decrease)
2017
2016
Amount
Percentage
Assets
Total assets
Current assets
$150,000
$100,000
($50,000
(50.0%)
Liabilities
Total liabilities
Current liabilities
$ 84,000
$ 70,000
($14,000)
(20.0%)
Stockholders’ Equity
equity
19.8%
Common stock, $1 par
equity
Total liabilities and
161,000
296,000
115,000
265,000
( 46,000 (15,000)
31,000
(40.0%)
( 11.7%)
EXERCISE 18-2B
SWENSON CORPORATION
Condensed Income Statements
For the Year Ended December 31
2017
2016
Amount
Percent
Amount
Percent
Selling expenses
100,000
84,000
Income before income taxes
140,000
62,000
Sales revenue
Administrative expenses
Total operating expenses
$750,000
60,000
160,000
100.0%
8.0%
21.3%
$600,000
54,000
138,000
100.0%
9.0%
23.0%
EXERCISE 14-3B
(a) DALLE CORPORATION
Condensed Balance Sheets
December 31
2017
2016
Increase
(Decrease)
Percentage
Change
from 2016
Assets
Current assets
Property, plant &
$ 76,000
$ 80,000
$ (4,000)
(5.0%)
EXERCISE 18-3B (Continued)
DALLE CORPORATION
Condensed Balance Sheets (Continued)
December 31
2017
2016
Increase
(Decrease)
Percentage
Change
from 2016
Total liabilities and
$205,000
$210,000
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
Total assets
Long-term liabilities
$205,000
Assets
Current assets
Property, plant, and equipment (net)
Intangibles
$ 76,000
99,000
30,000
37.1%
48.3%
14.6%
EXERCISE 18-4B
(a) FORREST CORPORATION
Condensed Income Statements
For the Year Ended December 31
Increase or (Decrease)
During 2017
2017
2016
Amount
Percentage
Net sales
Net income
$550,000
$ 60,000
$500,000
$ 35,000
$50,000
$25,000
10.0%
71.4%
(b) FORREST CORPORATION
Condensed Income Statements
For the Year Ended December 31
2017
2016
Amount
Percent
Amount
Percent
9.1%
$ 35,000
Net sales
$550,000
100.0%
$500,000
100.0%
EXERCISE 18-5B
(a) Current ratio = 2.5:1 ($3,362 ÷ $1,350)
Acid-test ratio = 1.6:1 ($2,146a ÷ $1,350)
EXERCISE 18-5B (Continued)
(b)
Ratio
Nordstrom
J.C. Penney
Industry
Inventory turnover
Current
Acid-test
2.5:1
1.6:1
2.02:1
0.87:1
1.06:1
0.29:1
Nordstrom is better than J.C Penney for the current ratio and better for
the acid-test ratio. Nordstrom is below J.C. Penney for the accounts
receivable turnover. Nordstrom is better than J.C. Penney for inventory
turnover.
EXERCISE 18-6B
(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
Feb. 3 2.2:1 No change in total quick assets or current liabilities.
EXERCISE 18-7B
(a)
$20,000 + $80,000 + $60,000
$50,000
= 3.2:1.
(d)
$198,000
$55,000 (2)
= 3.6 times.
EXERCISE 18-8B
(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 18-9B
(a)
$70,000 –$7,000
30,000 shares
= $2.10.
(d)
$70,000+ $20,000+ $22,000
$20,000
=
$112,000
$20,000
= 5.6 times.
EXERCISE 18-10B
(b) Accounts receivable turnover = 9.0 =
Net sales (credit)
$72,500 + $126,000
2
9.0 X $99,250 = Net sales (credit) = $893,250.
EXERCISE 18-10B (Continued)
(d) Return on assets = 15% =
$101,400 [see (c) above]
Average assets
Average assets =
$101,400
.15
= $676,000
EXERCISE 18-11B
(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
(d) $60,000/[($10,000 + $7,000)/2] = 7.06
EXERCISE 18-12B
(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 18-12B (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 18-13B
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