Problem set C
PROBLEM 17-1C
Selected comparative financial statements of Maxwell Company follow:
MAXWELL company
Comparative Income Statements
For Years Ended December 31, 2009, 2008, and 2007
2009 2008 2007
Sales $167,200 $125,500 $76,000
Cost of goods sold71,060 65,260 33,440
Gross profit$96,140 $60,240 $42,560
Selling expenses12,540 10,291 7,828
Administrative expenses40,797 26,104 13,528
Total expenses$53,337 $36,395 $21,356
Income before taxes$42,803 $23,845 $21,204
Income taxes12,841 7,154 6,361
Net income$29,962 $16,691 $14,843
MAXWELL company
Comparative Balance Sheets
December 31, 2009, 2008, and 2007
2009 2008 2007
Assets
Current assets $34,420 $28,888 $21,789
Long-term investments 0 500 2,550
Plant assets, net 82,000 64,000 50,000
Total assets $116,420 $93,388 $74,339
Liabilities and Equity
Current liabilities $20,010 $15,340 $14,300
Common stock 48,000 48,000 40,000
Other contributed capital 10,000 10,000 8,000
Retained earnings 38,410 20,048 12,039
Total liabilities and equity $116,420 $93,388 $74,339
Required
1.Compute each year’s current ratio.
2.Express the income statement data in common-size percents.
3.Express the balance sheet data in trend percents with 2007 as the base year.
Analysis Component
4.Comment on any significant relations revealed by the ratios and percents computed.
PROBLEM 17-2C
Selected comparative financial statements of Moriglioni Company follow:
MORIGLIONI company
Comparative Income Statements ($000)
For Years Ended December 31, 2009–2003
2009 2008 2007 2006 2005 2004 2003
Sales$1,583 $1,246 $1,193 $1,148 $1,027 $946 $820
Cost of goods sold1,031 913 758 684 631 600 505
Gross profit$552 $333 $435 $464 $396 $346 $315
Operating expenses283 241 223 155 126 124 111
Net income$269 $92 $212 $309 $270 $222 $204
MORIGLIONI company
Comparative Balance Sheets ($000)
December 31, 2009–2003
2009 2008 20072006200520042003
Assets
Cash$88$106$112$122$123$126$125
Accounts receivable, net677691605489404403288
Merchandise inventory1,295959913787693604457
Other current assets42494844332922
Long-term investments100100250250200200200
Plant assets, net1,6231,6011,4661,4321,3441,2751,280
Total assets$3,825$3,506$3,394$3,124$2,797$2,637$2,372
Liabilities and Equity
Current liabilities$873$862$601$657$606$530$303
Long-term liabilities1,3801,1501,100590590610400
Common stock800800800750750750700
Other contributed capital250250250225225225200
Retained earnings522444643902626522769
Total liabilities + equity$3,825 $3,506 $3,394 $3,124 $2,797 $2,637 $2,372
Required
1.Compute trend percents for the components of both statements using 2003 as the base year.
Analysis Component
2.Analyze and comment on the financial statements and trend percents from part (1).
problem 17-3c
Millie Corporation began the month of August with $400,000 of current assets, a current ratio of 3:1, and an acid-test ratio of 1.5:1. During the month, it completed the following transactions (the company uses a perpetual inventory system):
Aug. 1 Paid a $15,000 account payable.
2Issued common stock for $145,000 cash.
8Bought $67,000 of merchandise on account.
12Bought $89,000 of merchandise for cash.
18Wrote off a $2,500 bad debt against the Allowance for Doubtful Accounts account.
22Issued 8,000 shares of common stock for a new computer system
23Paid a $30,000, 60-day note payable.
24Paid a $30,000 long-term secured note payable.
25Sold 6,000 shares of treasury stock for $60,000 cash.
30Sold merchandise that cost $20,000 for $55,000.
Required
Prepare a table showing Millie’s (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Round ratios to two decimal places.
PROBLEM 17-4C
Selected year-end financial statements of Space Odyssey Voyages Corporation follow. (Note: All sales are on credit; Selected balance sheet amounts at December 31, 2007, were total assets, $220,700; inventory, $53,400; common stock, $50,000; and retained earnings, $88,800.)
SPACE ODYSSEY VOYAGES corporation
Income Statement
For Year Ended December 31, 2008
Sales $427,600
Cost of goods sold212,050
Gross profit $215,550
Operating expenses94,000
Interest expense4,450
Income before taxes $117,100
Income taxes 35,130
Net income $81,970
SPACE ODYSSEY VOYAGES corporation
Balance Sheet
December 31, 2008
AssetsLiabilities and Equity
Cash$ 22,700Accounts payable$ 28,750
Short-term investment5,300Accrued wages payable2,000
Accounts receivable, net34,000Income taxes payable1,250
Merchandise inventory51,200Long-term Note Payable,
secured by mortgage on
plant assets55,000
Prepaid expenses3,000Common stock, $5 par value50,000
Plant assets, net125,000Retained earnings104,200
Total assets$241,200Total liabilities and equity $241,200
Required
Compute the following: (1) current ratio, (2) acid-test ratio, (3) days’ sales uncollected, (4) inventory turnover, (5) days’ sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders’ equity.
PROBLEM 17-5C
Summary information from the financial statements of two companies competing in the industry follows:
Data from the year-end balance sheets
Birdy Co. Bogey Co.
Assets
Cash$91,000$52,000
Accounts receivable, net60,20040,000
Merchandise inventory50,40080,500
Plant assets, net201,170205,000
Total assets $402,770 $377,500
Liabilities and Equity
Current liabilities$50,400$115,000
Long-term notes payable64,000176,000
Common stock, $2 par value100,00050,000
Retained earnings 188,37036,500
Total liabilities and equity $402,770 $377,500
Data from the current year’s income statement:
Birdy Co. Bogey Co.
Sales$540,030$468,000
Cost of goods sold 393,190 303,300
Interest expense 6,400 20,400
Income tax expense 54,031 114,100
Net income 86,409 30,200
Basic earnings per share 1.73 1.21
Beginning-of-year balance sheet data:
Birdy Co. Bogey Co.
Accounts receivable, net $ 54,700 $38,000
Merchandise inventory 45,500 88,000
Total assets181,166 355,870
Common stock, $2 par value 100,000 40,000
Retained earnings166,500 30,100
Required
1.For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts (including notes) receivable turnover, (d) inventory turnover, (e) days’ sales in inventory, and (f) days’ sales uncollected. Identify the company you consider to have the better short-term financial position and explain why.
2.For both companies compute the (a) profit margin, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders’ equity. Assuming that each company paid cash dividends of $.75 per share and each company’s stock can be purchased at $32 per share, compute their (e) price-earnings ratios and (f) dividend yields. Identify which company’s stock you would recommend as the better investment and explain why.
PROBLEM 17-6C
Selected account balances from the adjusted trial balance for the Nittany Corporation as of December 31, 2006, follow:
Debit Credit
a.Interest earned$34,000
b.Depreciation expense—Equipment$76,000
c.Gain on sale of equipment 31,500
d.Accounts payable 76,000
e.Other operating expenses369,800
f.Accumulated depreciation—Equipment 104,400
g.Gain from insurance settlement 88,000
h. Cumulative effect of change in accounting principle (pretax) 72,000
i.Accumulated depreciation—Buildings 266,600
j.Loss from operating a discontinued segment (pretax)35,000
k. Loss on retirement of debt (pretax) 36,000
l.Net sales1,744,000
m.Depreciation expense—Buildings82,000
n. Correction of understatement of prior year’s sales (pretax) 28,000
o. Gain on sale of discontinued segment’s assets (pretax) 44,000
p.Gain from settlement of lawsuit 6,000
q.Income taxes expense ?
r.Cost of goods sold628,000
Required
Answer each of the following questions by providing supporting computations:
1.Assuming the company’s income tax rate is 35% for all items, identify the tax effects and after-tax measures of the items labeled pretax.
2.What is the amount of the company’s income from continuing operations before income taxes? What is the amount of the company’s income taxes expense? What is the amount of the company’s income from continuing operations after income taxes?
3.What is the total amount of after-tax income (loss) associated with the discontinued segment?
4.What is the amount of income (loss) before both any extraordinary items and any cumulative effect of changes in accounting principle?
5.What is the amount of net income for the year?