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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
Current assets
$150,000
$100,000
($50,000
(50.0%)
Liabilities
Current liabilities
$ 84,000
$ 70,000
($14,000)
(20.0%)
Stockholders’ Equity
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
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
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
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
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
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
= 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
