Accounting Chapter 7 Homework This document may not be copied, scanned, duplicated, forwarded

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Chapter 07 - Long-Term Assets
Requirement 2
Federer Sports Apparel
Balance Sheet
December 31
Year
Increase (Decrease)
Assets
2019
2018
Amount
%
Cash
$ 2,600,000
$ 1,100,000
$1,500,000
136.4
Accounts receivable
1,200,000
1,700,000
(500,000)
(29.4)
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Exercise 12-5
Requirement 1
Risk Ratios
Calculations
Receivables turnover ratio
$15,200,000
($1,800,000 + $2,100,000) / 2
= 7.8 times
Average collection period
365
7.8
= 46.8 days
Requirement 2
Based on the above ratios, Adrian Express is less risky than the industry average. The
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Exercise 12-6
Requirement 1
Profitability Ratios
Calculations
Gross profit ratio
$5,200,000
$15,200,000
= 34.2%
Requirement 2
Adrian Express is more profitable than the industry average. The gross profit ratio,
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Exercise 12-7
Requirement 1
Risk Ratios
Calculations
a. Receivables turnover ratio
$1,800,000
($74,000 + $84,000) / 2
= 22.8 times
Requirement 2
Note that, for the same company, the current ratio will always be higher than the acid-
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Exercise 12-8
Requirement 1
Profitability Ratios
Calculations
a. Gross profit ratio
$700,000
$1,800,000
= 38.9%
Requirement 2
One company can have a higher return on assets while the other company has a higher
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Exercise 12-9
Requirement 1
Profitability Ratios
Calculations
a. Gross profit ratio
$3,400,000
$10,000,000
= 34.0%
Requirement 2
Dividends paid to shareholders in 2018 were $120,000. This amount can be
determined by analyzing the changes to retained earnings as follows:
Retained earnings, 2017
$200,000
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Exercise 12-10
Profitability Ratios
Calculations
Return on assets
$80,000
$400,000
= 20.0%
Stockholders’ equity, beginning
$275,000
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Exercise 12-11
Classification
Brief Justification
a. Other expenses
Restructuring costs are recorded as other expenses.
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Exercise 12-12
LeBron’s Bookstores
Income Statement
For the Year Ended December 31, 2018
Revenues
$ 14,000,000
Cost of goods sold
8,000,000
Gross profit
6,000,000
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Exercise 12-13
Shaquille Corporation
Income Statement
For the Year Ended December 31, 2018
Income before tax
$1,600,000
Income tax expense
480,000
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Exercise 12-14
a. Aggressive (higher income, lower liabilities)
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Exercise 12-15
Requirement 1
(a) Conservative
(b) Conservative
Requirement 2
The total effect is conservative because net income is lower after the proposed

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