SeCtion i • the BalanCe Sheet 493
Review exeRciSeS
Calculate the following values according to the accounting equation.
Assets Liabilities Owner’s Equity
1.
$283,000
$121,400
$161,600
2.
$548,900
$335,900
$213,000
3.
$45,300
$29,000
$16,300
Calculate the missing balance sheet items for Exercise 9, The home Depot; Exercise 10,
Amazon.com; and Exercise 11, Gap. Complete each company’s column; then move on to
thenext column.
THE BALANCE SHEET
(in millions)
Exercise 9 Exercise 10 Exercise 11
Company
Date
The Home Depot, Inc.
February 2, 2014
Amazon.com, Inc.
December 31, 2013
Gap Inc.
February 1, 2014
$15,279
$24,625
25,239
3,419
40,159
7,849
For the following balance sheet items, check the appropriate category.
Current
Asset
Fixed
Asset
Current
Liability
Long-Term
Liability
Owner’s
Equity
12. Land
13. Supplies
14. Marketable securities
15. Retained earnings
16. Buildings
✓
ClaSSroom aCtivity
In groups, have students complete
Review Exercises 12–33. Then have
the groups compare their answers
with those of another group and
resolve any differences.
15
SECTION I
85461_ch15_hr_483-533_1.indd 493 9/23/15 5:01 PM
$657,300
$241,100
$1,366,500
$2,117,000
$830,400
$210,800
$406,000
$2,000,200
$15,909,000
$6,339,100
494 Chapter 15 • FinanCial StatementS and ratioS
Current
Asset
Fixed
Asset
Current
Liability
Long-Term
Liability
Owner’s
Equity
29. R. Smith, capital
✓
Prepare the following statements on separate sheets of paper.
34. a. Use the following financial information to calculate the owner’s equity and prepare a balance
sheet with vertical analysis as of December 31, 2015, for Victory Lane Sporting Goods, a
sole proprietorship owned by Kyle Pressman: current assets, $157,600; property, plant, and
equipment, $42,000; investments and other assets, $35,700; current liabilities, $21,200; and
long-term liabilities, $53,400.
b. The following financial information is for Victory Lane Sporting Goods as of December 31,
2016: current assets, $175,300; property, plant, and equipment, $43,600; investments and other
assets, $39,200; current liabilities, $27,700; and long-term liabilities, $51,000.
Calculate the owner’s equity for 2016 and prepare a comparative balance sheet with
horizontal analysis for 2015 and 2016.
35. a. Use the following financial information to prepare a balance sheet with vertical analysis as
of June 30, 2015, for Stargate Industries, Inc.: cash, $44,300; accounts receivable, $127,600;
merchandise inventory, $88,100; prepaid maintenance, $4,100; office supplies, $4,000; land,
$154,000; building, $237,000; fixtures, $21,400; vehicles, $64,000; computers, $13,000;
goodwill, $20,000; investments, $32,000; accounts payable, $55,700; salaries payable,
$23,200; notes payable (6-month), $38,000; mortgage payable, $91,300; debenture bonds,
$165,000; common stock, $350,000; and retained earnings, $86,300.
b. The following financial information is for Stargate Industries as of June 30, 2016: cash,
$40,200; accounts receivable, $131,400; merchandise inventory, $92,200; prepaid mainte-
nance, $3,700; office supplies, $6,200; land, $154,000; building, $231,700; fixtures, $23,900;
vehicles, $55,100; computers, $16,800; goodwill, $22,000; investments, $36,400; accounts
payable, $51,800; salaries payable, $25,100; notes payable (6-month), $19,000; mortgage
payable, $88,900; debenture bonds, $165,000; common stock, $350,000; and retained earn-
ings, $113,800.
Prepare a comparative balance sheet with horizontal analysis for 2015 and 2016.
Financial statement solutions
for Exercises 34–36 appear
inAppendixB.
BuSineSS DeciSion: The Balance SheeT
36. From the consolidated balance sheets for Macy’s on the following page,
a. Prepare a horizontal analysis of the Current Assets section comparing February 2, 2013 and
February 1, 2014.
b. Prepare a vertical analysis of the Current Liabilities section for February 1, 2014.
85461_ch15_hr_483-533_1.indd 494 9/23/15 5:01 PM
✓
✓
SeCtion i • the BalanCe Sheet 495
Macy’s, established in 1858, opened as a
small, fancy dry goods store on the corner
of 14th Street and 6th Avenue in New York
City. With corporate offices in Cincinnati
and New York, today Macy’s is one of the
nation’s premier retailers. Together with
its subsidiaries, Macy’s, Inc. operates 850
MACY’S, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
February 1, 2014 February 2, 2013
ASSETS
Current Assets:
Cash and Cash Equivalents
$ 2,273
$ 1,836
Receivables
438
371
Merchandise Inventories
5,557
5,308
8,688
7,876
7,930
8,196
3,743
3,743
527
561
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-Term Debt
$ 463
$ 124
Merchandise Accounts Payable
1,691
1,579
Accounts Payable and Accrued Liabilities
2,810
2,610
5,726
5,075
6,728
6,806
1,273
1,238
1,658
1,821
85461_ch15_hr_483-533_1.indd 495 9/23/15 5:01 PM
Review exeRcises
calculate the missing information based on the format of the income statement.
Net Sales
Cost of
GoodsSold
Gross
Margin
Operating
Expenses Net Profit
1.
$565,700
$244,600
$321,100
$276,400
$44,700
2.
$4,232,000
$2,362,000
$1,870,000
$1,210,500
$659,500
3.
$705,300
$398,450
$306,850
$196,525
$110,325
calculate the missing income statement items for Exercise 9, cVS caremark; Exercise 10,
autozone; and Exercise 11, PetSmart. complete each company’s column; then move on to the
next column.
THE INCOME STATEMENT
Exercise 9 Exercise 10 Exercise 11
Company
Year Ended
CVS Caremark
December 31, 2012
(in millions)
AutoZone
December 31, 2014
(in thousands)
PetSmart
February 3, 2013
(in thousands)
Revenue
$123,133
$9,475,313
$6,758,237
100,627
4,696,098
4,934,907
2,062,139
15,278
3,104,684
651,217
3,351
389,529
Increase (Decrease)
2016 2015 Amount Percent
Operating Expenses
Salaries and Benefits
215,200
121,800
Rent and Utilities
124,650
124,650
15
SECTION II
SeCtion ii • the inCome Statement 503
85461_ch15_hr_483-533_2.indd 503 9/23/15 5:02 PM
$334,500
$132,300
$108,000
$1,640,000
$760,000
$354,780
$257,000
$418,530
$84,370
$341,300
$186,740
$68,050
504 Chapter 15 • FinanCial StatementS and ratioS
12. For the third quarter, Micro Tech had gross sales of $315,450, sales returns and allowances of
$23,100, and sales discounts of $18,700. What were the net sales?
13. For August, Island Traders, Inc. had the following financial information: merchandise inventory,
August 1, $244,500; merchandise inventory, August 31, $193,440; gross purchases, $79,350;
purchase returns and allowances, $8,700; and freight in, $970.
a. What is the amount of the goods available for sale?
b. What is the cost of goods sold for August?
c. If net sales were $335,000, what was the gross margin for August?
d. If total operating expenses were $167,200, what was the net profit?
Prepare the following statements on separate sheets of paper.
14. a. As the assistant accounting manager for Jefferson Airplane Parts, Inc., construct an income
statement with vertical analysis for the first quarter of 2016 from the following information:
gross sales, $240,000; sales discounts, $43,500; beginning inventory, Jan. 1, $86,400; ending
inventory, March 31, $103,200; net purchases, $76,900; total operating expenses, $108,000;
and income tax, $14,550.
b. You have just received a report with the second-quarter figures. Prepare a comparative
income statement with horizontal analysis for the first and second quarter of 2016: gross sales,
$297,000; sales discounts, $41,300; beginning inventory, April 1, $103,200; ending inventory,
June 30, $96,580; net purchases, $84,320; total operating expenses, $126,700; and income tax,
$16,400.
15. a. Use the following financial information to construct a 2015 income statement with vertical
analysis for the Sweets & Treats Candy Company, Inc.: gross sales, $2,249,000; sales returns
and allowances, $143,500; sales discounts, $54,290; merchandise inventory, Jan. 1, $875,330;
merchandise inventory, Dec. 31, $716,090; net purchases, $546,920; freight in, $11,320;
salaries, $319,800; rent, $213,100; depreciation, $51,200; utilities, $35,660; advertising,
$249,600; insurance, $39,410; administrative expenses, $91,700; miscellaneous expenses,
$107,500; and income tax, $38,450.
Financial statement solutions for
Exercises 14 and 15 appear in
Appendix B.
85461_ch15_hr_483-533_2.indd 504 9/23/15 5:02 PM
SeCtion ii • the inCome Statement 505
b. The following data represents Sweets & Treats’ operating results for 2016. Prepare a compara-
tive income statement with horizontal analysis for 2014 and 2015: gross sales, $2,125,000;
sales returns and allowances, $126,400; sales discounts, $73,380; merchandise inventory,
Jan.1, 2016, $716,090; merchandise inventory, Dec. 31, 2016, $584,550; net purchases,
$482,620; freight in, $9,220; salaries, $340,900; rent, $215,000; depreciation, $56,300;
utilities, $29,690; advertising, $217,300; insurance, $39,410; administrative expenses,
$95,850; miscellaneous expenses, $102,500; and income tax, $44,530.
BUsiNess DecisiON: THe iNcOMe sTATeMeNT
16. From the following consolidated statements of income for Comcast Corporation.
a. Prepare a horizontal analysis of the net income comparing 2012 and 2013.
b. Prepare a vertical analysis of the costs and expenses for 2013.
COMCAST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31
(in millions, except per share data) 2013 2012 2011
Revenue
$64,657
$62,570
$55,842
Costs and Expenses:
19,670
19,929
16,596
18,584
16,646
4,831
4,243
Operating Income
13,563
12,179
10,721
Other Income (Expense):
Interest expense
(2,574)
(2,521)
(2,505)
(86)
(35)
(364)
(133)
11,115
11,609
8,207
7,135
7,865
5,157
Net Income Attributable to Comcast Corporation
$6,816
$6,203
$4,160
Basic earnings per common share attributable to Comcast
Corporation shareholders $2.60 $2.32 $1.51
Diluted earnings per common share attributable to Comcast
Answers for Exercise 16 appear in
Appendix B.
entertainment, and communications
companies. Comcast is principally
involved in the operation of cable
systems through Comcast Cable and
cable networks, the NBC and
Telemundo broadcast networks, local
television station groups, television
production operations, a major motion
picture company, and theme parks.
85461_ch15_hr_483-533_2.indd 505 9/23/15 5:02 PM
512 Chapter 15 • FinanCial StatementS and ratioS
Review exeRcises
Calculate the amount of working capital and the current ratio for the following companies.
Round ratios to the nearest hundredth.
Company
Current
Assets
Current
Liabilities
Working
Capital
Current
Ratio
1. Super-Saver, Inc.
$450,000
$132,000
$318,000
3.41:1
Use the additional financial information below to calculate the quick assets and acid test
ratio for the companies in Questions 1–5.
Company Cash
Marketable
Securities
Accounts
Receivable
Quick
Assets
Acid Test
Ratio
6. Super-Saver, Inc.
$39,350
$95,000
$52,770
$187,120
1.42:1
7. Impact Builders, Inc.
$12,320
$30,000
$53,600
$95,920
1.29:1
$2,690
$4,330
$1,180
$914,700
11. Calculate the average collection period for Super-Saver, Inc. from Exercise 6 assuming that the
credit sales for the year amounted to $770,442.
12. Calculate the average collection period for Impact Builders, Inc. from Exercise 7 assuming that
the credit sales for the year amounted to $445,000.
13. a. Calculate the average collection period for Shutterbug Cameras from Exercise 10 assuming
that the credit sales for the year amounted to $8,550,000.
b. Assuming that the industry average for similar firms is 48 days, evaluate the company’s ratio.
15
Section iii
85461_ch15_hr_483-533_3.indd 512 9/23/15 5:02 PM
$125,490
$74,330
$51,160
$14,540
$19,700
.74:1
$1,224,500
$845,430
SeCtion iii • FinanCial ratioS and trend analySiS 513
Calculate the average inventory and inventory turnover ratio for the following companies.
Company
Beginning
Inventory
Ending
Inventory
Average
Inventory
Cost of
Goods Sold
Inventory
Turnover
14. High-Line Jewelers
$1,547,800
$1,366,000
$1,456,900
$6,500,000
4.5
19. The Organic Market had net sales of $650,000 last year. If the total assets of the company are
$2,450,000, what is the asset turnover ratio?
20. Heads or Tails Coin Shop had net sales of $1,354,600 last year. If the total assets of the company
are $2,329,500, what is the asset turnover ratio?
Calculate the amount of owner’s equity and the two leverage ratios for the following
companies.
Company
Total
Assets
Total
Liabilities
Owner’s
Equity
Debt-to-
Assets Ratio
Debt-to-
Equity Ratio
21. Royal Rugs
$1,400.000
$535,000
$865,000
.38:1
.62:1
$232,430
$115,320
$512,900
$357,510
$2,875,000
$2,189,100
Calculate the gross and net profits and the two profit margins for the following companies.
Company Net Sales
Cost of
Goods Sold
Gross
Profit
Operating
Expenses Net Profit
Gross Profit
Margin (%)
Net Profit
Margin (%)
25. Plant World
$640,000
$414,000
$226,000
$112,600
$113,400
35.3
17.7
$743,500
$489,560
$175,410
$324,100
$174,690
$99,200
$316,735
$203,655
$85,921
Using the owner’s equity information below, calculate the return on investment for the
companies in Exercises 25–28.
Owner’s Equity Return on Investment (%)
29. Plant World
$525,000
21.6
$434,210
$615,400
$397,000
$90,125
$58,770
$487,640
$856,430
$944,380
$3,437,500
$121,400
$89,900
$659,000
$313,240
$300,050
$4,356,470
514 Chapter 15 • FinanCial StatementS and ratioS
33. Prepare a trend analysis from the following financial data for Hook, Line, and Sinker Fishing
Supply.
Hook, Line, and Sinker Fishing Supply
5-Year Selected Financial Data
2015 2014 2013 2012 2011
Net Sales $238,339 $282,283 $239,448 $215,430 $221,800
Hook, Line, and Sinker Fishing Supply
Trend Analysis (in percentages)
2015 2014 2013 2012 2011
Business Decision: Financial Ratios
The years 2005 to 2009 were a period of rapid growth for Starbucks and the company’s revenues
grew by more than 50% during that period. Use the financial data for Starbucks on the following page
for Exercises 34a–34e.
34. a. Calculate the asset turnover ratio for 2008 and 2009.
b. Calculate the net profit margin for 2007, 2008, and 2009.
starbucks is the world’s #1 specialty coffee retailer. Its story
began in 1971 when it was a roaster and retailer of whole
bean and ground coffee, tea, and spices with a single store
in Seattle’s Pike Place Market. Starbucks Corporation was
founded in 1985, and it remains based in Seattle, Washington.
Starbucks engages in the purchase, roasting, and sale
of whole bean coffees worldwide. It offers brewed coffees,
85461_ch15_hr_483-533_3.indd 514 9/23/15 5:03 PM
SeCtion iii • FinanCial ratioS and trend analySiS 515
c. Calculate the return on investment for 2007, 2008, and 2009.
d. Prepare a trend analysis of the net revenue and total assets for 2005 through 2009.
e. Extra credit: Prepare a trend analysis multiple-line chart for the information in part d.
Starbucks—Selected Financial Data
(In millions, except earnings per share)
Sept. 27,
2009
Sept. 28,
2008
Sept. 30,
2007
Oct. 1,
2006
Oct. 2,
2005
As of and for the fiscal year ended (52 wks) (52 wks) (52 wks) (52 wks) (52 wks)
Results of Operations
Net revenues:
Company-operated retail ………………………………………………………..
$8,180.1
$ 8,771.9
$7,998.3
$6,583.1
$5,391.9
Specialty:
1,222.3
1,171.6
1,026.3
860.6
673.0
$ 503.9
$1,053.9
$ 894.0
$ 780.5
315.5
672.6
581.5
Cumulative effect of accounting change for asset
retirement obligations, net of taxes …………………………………………. — — —
17.2
—
Net earnings ……………………………………………………………………………
$ 390.8
$ 315.5
$ 672.6
$ 564.3
$ 494.4
Earnings per common share before cumulative
effect of change in accounting principle—diluted (“EPS”) …………
$ 0.52
$ 0.43
$ 0.87
$ 0.73
$ 0.61
0.02
$ 0.52
$ 0.43
$ 0.87
$ 0.71
$ 0.61
$1,389.0
$ 1,258.7
$1,331.2
$1,131.6
$ 922.9
$ 445.6
$ 984.5
$1,080.3
$ 771.2
$ 643.3
$5,576.8
$ 5,672.6
$5,343.9
$4,428.9
$3,513.7
713.0
710.3
700.0
277.0
550.3
2.7
3.6
$3,045.7
$ 2,490.9
$2,284.1
$2,228.5
$2,090.3