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Accounting 23rd Edition Carl S. Warren - Solutions
=+For the Years Ended December 31, 2010 and 2009 2010 2009 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $714,000 $612,000 Sales returns and allowances . . . . . . . . . . . . 14,000 12,000 ________ ________ Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
=+PR 17-1A Horizontal analysis for income statement obj. 1✔ 1. Net sales 10.0% increase Chapter 17 Financial Statement Analysis 807 For 2010, Othere Technology Company initiated a sales promotion campaign that included the expenditure of an additional $20,000 for advertising. At the end of the
=+2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1).
=+EX 17-26 Unusual items Problems Series A For 2010, Wiglaf Technology Company reported its most significant decline in net income in years. At the end of the year, C. S. Lewis, the president, is presented with the following condensed comparative income statement:Wiglaf Technology Company
=+b. In 2010, the company voluntarily changed its method of accounting for long-term construction contracts from the percentage of completion method to the completed contract method. Both methods are acceptable under generally acceptable accounting principles. The cumulative effect of this change
=+EX 17-25 Income statement and earnings per share for extraordinary items and discontinued operations Discuss whether Baxter Company correctly reported the following items in the financial statements:a. In 2010, the company discovered a clerical error in the prior year’s accounting records.
=+b. Calculate the earnings per common share for Brady, Inc., including per-share amounts for unusual items.Appendix
=+EX 17-24 Extraordinary item 806 Chapter 17 Financial Statement Analysis Brady, Inc., reports the following for 2010:Income from continuing operations before income tax $500,000 Extraordinary property loss from hurricane $60,000*Loss from discontinued operations $90,000*Weighted average number of
=+g. Uninsured flood loss. (Flood insurance is unavailable because of periodic flooding in the area.)Appendix
=+EX 17-22 Price-earnings ratio;dividend yield obj. 3 Assume that the amount of each of the following items is material to the financial statements. Classify each item as either normally recurring (NR) or extraordinary (E).a. Loss on the disposal of equipment considered to be obsolete because of
=+b. Explain the differences in these ratios across the three companies.Appendix
=+EX 17-23 Earnings per share obj. 3✔b. Earnings per share on common stock, $23.40 The table below shows the stock price, earnings per share, and dividends per share for three companies as of October 2007:Earnings Dividends Price per Share per Share Bank of America Corporation $52.99 $4.59 $2.12
=+EX 17-21 Earnings per share, price-earnings ratio, dividend yield obj. 3✔b. Price-earnings ratio, 12.5 The net income reported on the income statement of Goth Co. was $2,500,000. There were 100,000 shares of $10 par common stock and 40,000 shares of $4 preferred stock outstanding throughout the
=+Preferred $10 stock, $40 par (no change during the year) 800,000 The net income was $600,000 and the declared dividends on the common stock were$125,000 for the current year. The market price of the common stock is $20 per share.For the common stock, determine (a) the earnings per share, (b) the
=+EX 17-20 Six measures of solvency or profitability objs. 2, 3✔d. Price-earnings ratio, 10.0 The following information was taken from the financial statements of Finn Resources Inc. for December 31 of the current fiscal year:Common stock, $20 par value (no change during the year) $5,000,000
=+Income before income tax was $1,000,000, and income taxes were $150,000, for the current year. Cash dividends paid on common stock during the current year totaled$200,000. The common stock was selling for $40 per share at the end of the year.Determine each of the following: (a) number of times
=+EX 17-19 Six measures of solvency or profitability objs. 2, 3✔c. Ratio of net sales to assets, 5.0 The balance sheet for Bearing Industries Inc. at the end of the current fiscal year indicated the following:Bonds payable, 10% (issued in 2000, due in 2020) $4,000,000 Preferred $5 stock, $100
=+assets, (e) rate earned on stockholders’ equity, and (f) rate earned on common stockholders’ equity. Round to one decimal place.Property, plant, and equipment (net) . . . . . . . . . . . . . . $ 1,600,000 ___________ ___________ Liabilities:Current liabilities . . . . . . . . . . . . . . . .
=+EX 17-18 Profitability ratios obj. 3✔a. 2006 rate earned on total assets, 9.5%The following data were taken from the financial statements of Heston Enterprises Inc.for the current fiscal year. Assuming that long-term investments totaled $2,100,000 throughout the year and that total assets were
=+d. Evaluate Ann Taylor’s profit performance relative to the industry.
=+c. Evaluate the two-year trend for the profitability ratios determined in (a) and (b).
=+b. Determine the rate earned on stockholders’ equity for Ann Taylor for the fiscal years ended February 3, 2007, and January 28, 2006. Round to one decimal place.
=+Assume the apparel industry average rate earned on total assets is 8.2%, and the average rate earned on stockholders’ equity is 10.0% for the year ended February 3, 2007(fiscal year 2006).a. Determine the rate earned on total assets for Ann Taylor for the fiscal years ended February 3, 2007,
=+b. What conclusions can be drawn from these data as to the company’s profitability?Ann Taylor Retail, Inc., sells professional women’s apparel through company-owned retail stores. Recent financial information for Ann Taylor is provided below (all numbers in thousands).Fiscal Year Ended
=+a. Determine the rate earned on total assets, the rate earned on stockholders’ equity, and the rate earned on common stockholders’ equity for the years 2009 and 2010.Round to one decimal place.
=+EX 17-17 Profitability ratios obj. 3✔a. Rate earned on total assets, 2010, 12.0%804 Chapter 17 Financial Statement Analysis The 2010 net income was $242,000, and the 2009 net income was $308,000. No dividends on common stock were declared between 2008 and 2010.
=+EX 17-16 Ratio of net sales to assets obj. 3✔a. YRC Worldwide, 1.7 The following selected data were taken from the financial statements of The Sigemund Group Inc. for December 31, 2010, 2009, and 2008:December 31 2010 2009 2008 Total assets . . . . . . . . . . . . . . . . $3,000,000 $2,700,000
=+b. Assume that the ratio of net sales to assets for each company represents their respective industry segment. Interpret the differences in the ratio of net sales to assets in terms of the operating characteristics of each of the respective segments.
=+YRC Worldwide Union Pacific Worldwide Inc.Net sales $9,918,690 $15,578,000 $6,566,194 Average total assets 5,829,713 36,067,500 1,513,381a. Determine the ratio of net sales to assets for all three companies. Round to one decimal place.
=+EX 17-15 Ratio of liabilities to stockholders’ equity and ratio of fixed assets to long-term liabilities obj. 2✔a. H.J. Heinz, 4.4 Three major segments of the transportation industry are motor carriers, such as YRC Worldwide; railroads, such as Union Pacific; and transportation arrangement
=+b. Determine the ratio of fixed assets to long-term liabilities for both companies. Round to one decimal place.
=+Net property, plant, and equipment $1,998,153 $1,651,300 Current liabilities 2,505,106 1,453,538 Long-term debt 4,413,641 1,248,128 Other long-term liabilities 1,272,596 486,473 Stockholders’ equity 1,841,683 683,423a. Determine the ratio of liabilities to stockholders’ equity for both
=+✔a. Hasbro, 0.9 Recent balance sheet information for two companies in the food industry, H.J. Heinz Company and The Hershey Company, are as follows (in thousands of dollars):H.J. Heinz Hershey
=+c. Interpret the ratio differences between the two companies.
=+b. Determine the number of times interest charges are earned for both companies.Round to one decimal place.
=+The income from operations and interest expense from the income statement for both companies were as follows:Hasbro Mattel Income from operations $376,363 $728,818 Interest expense 27,521 79,853a. Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one
=+b. Compare the two companies with regard to their credit card policies.Shareholders’ equity:Common stock $ 104,847 $ 441,369 Additional paid in capital 322,254 1,613,307 Retained earnings 2,020,348 1,652,140 Accumulated other comprehensive loss and other equity items 11,186 (276,861)Treasury
=+EX 17-14 Ratio of liabilities to stockholders’ equity and number of times interest charges earned obj. 2a. Determine the (1) accounts receivable turnover and (2) the number of days’ sales in receivables for both companies. Round to one decimal place.
=+EX 17-13 Ratio of liabilities to stockholders’ equity and number of times interest charges earned obj. 2✔a. Ratio of liabilities to stockholders’equity, Dec. 31, 2010, 0.6 Hasbro and Mattel, Inc., are the two largest toy companies in North America. Condensed liabilities and stockholders’
=+c. What conclusions can be drawn from these data as to the company’s ability to meet its currently maturing debts?
=+b. Determine the number of times the bond interest charges are earned during the year for both years. Round to one decimal place.
=+EX 17-12 Inventory analysis obj. 2✔a. Dell inventory turnover, 76.8 The following data were taken from the financial statements of Weal Construction Inc.for December 31, 2010 and 2009:Dec. 31, 2010 Dec. 31, 2009 Accounts payable $ 300,000 $ 280,000 Current maturities of serial bonds payable
=+b. Interpret the inventory ratios by considering Dell’s and Hewlett-Packard’s operating strategies.
=+Hewlett-Packard Dell Inc. Company Sales $57,420 $73,557 Cost of goods sold 47,904 69,427 Inventory, beginning of period 588 6,877 Inventory, end of period 660 7,750a. Determine for both companies (1) the inventory turnover and (2) the number of days’ sales in inventory. Round to one decimal
=+EX 17-11 Inventory analysis obj. 2✔a. Inventory turnover, current year, 7.4 Dell Inc. and Hewlett-Packard Company (HP) compete with each other in the personal computer market. Dell’s primary strategy is to assemble computers to customer orders, rather than for inventory. Thus, for example,
=+b. What conclusions can be drawn from these data concerning the inventories?
=+EX 17-10 Accounts receivable analysis obj. 2 802 Chapter 17 Financial Statement Analysis The following data were extracted from the income statement of Brecca Systems Inc.:Current Year Preceding Year Sales $1,139,600 $1,192,320 Beginning inventories 80,000 64,000 Cost of goods sold 569,800
=+Merchandise sales $28,000 $65,000 Credit card receivables—beginning 2,750 15,000 Credit card receviables—ending 2,250 11,000
=+EX 17-9 Accounts receivable analysis obj. 2✔a. Accounts receivable turnover, 2010, 8.0 Xavier Stores Company and Lestrade Stores, Inc., are large retail department stores.Both companies offer credit to their customers through their own credit card operations. Information from the financial
=+b. What conclusions can be drawn from these data concerning accounts receivable and credit policies?
=+days’ sales in receivables. Round to nearest dollar and one decimal place.
=+EX 17-8 Current position analysis obj. 2 The following data are taken from the financial statements of McKee Technology Inc.Terms of all sales are 2/10, n/60.2010 2009 2008 Accounts receivable, end of year $147,500 $158,000 $165,000 Net sales on account 975,000 900,000a. Determine for each year
=+b. Is the company satisfying the terms of the bond indenture?
=+1. Current assets:Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,000 Temporary investments . . . . . . . . . . . . . . . . 80,000 Accounts and notes receivable (net) . . . . . . 200,000 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Prepaid expenses .
=+EX 17-7 Current position analysis obj. 2✔a. (1) Dec. 31, 2005 current ratio, 1.1 The bond indenture for the 10-year, 10% debenture bonds dated January 2, 2009, required working capital of $142,000 a current ratio of 1.7, and a quick ratio of 1.2 at the end of each calendar year until the bonds
=+b. What conclusions can you draw from these data?
=+PepsiCo, Inc., the parent company of Frito-Lay snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years:Dec. 30, 2006 Dec. 31, 2005(in millions) (in millions)Cash and cash equivalents $1,651 $1,716 Short-term investments, at cost
=+b. What conclusions can be drawn from the horizontal analysis?
=+EX 17-6 Current position analysis obj. 2✔a. 2010 working capital, $1,000,000 Income statement data for Grendel Images Company for the years ended December 31, 2010 and 2009, are as follows:2010 2009 Sales $196,000 $160,000 Cost of goods sold 170,100 140,000 ________ ________ Gross profit $
=+b. What conclusions can be drawn from these data as to the company’s ability to meet its currently maturing debts?
=+The following data were taken from the balance sheet of Bock Suppliers Company:Dec. 31, 2010 Dec. 31, 2009 Cash $ 295,000 $ 210,000 Temporary investments 315,000 230,000 Accounts and notes receivable (net) 290,000 250,000 Inventories 405,000 309,000 Prepaid expenses 195,000 105,000 __________
=+Property, plant, and equipment 560,000 560,000 Intangible assets 120,000 40,000 Current liabilities 210,000 120,000 Long-term liabilities 350,000 300,000 Common stock 100,000 100,000 Retained earnings 340,000 280,000 Prepare a comparative balance sheet for 2010 and 2009, stating each asset as a
=+Balance sheet data for Hanes Company on December 31, the end of the fiscal year, are shown below.2010 2009 Current assets 320,000 200,000
=+b. As far as the data permit, comment on significant relationships revealed by the comparisons.
=+EX 17-3 Common-sized income statement obj. 1✔a. Sorenson net income: $44,000;2.2% of sales 800 Chapter 17 Financial Statement Analysisa. Prepare a common-sized income statement comparing the results of operations for Hrothgar Electronics Company with the industry average. Round to one decimal
=+Company Average Sales $2,050,000 102.5%Sales returns and allowances 50,000 2.5 __________ _____ Net sales $2,000,000 100.0%Cost of goods sold 1,100,000 61.0 __________ _____ Gross profit $ 900,000 39.0% __________ _____ Selling expenses $ 560,000 23.0%Administrative expenses 220,000 10.0
=+EX 17-2 Vertical analysis of income statement obj. 1✔a. Fiscal year 2006 income from continuing operations, 30.7% of revenues Revenue and expense data for the current calendar year for Sorenson Electronics Company and for the electronics industry are as follows. The Sorenson Electronics
=+Direct expense of events $ 95,990 $ 97,042 NASCAR purse and sanction fees 105,826 96,306 Other direct expenses 113,141 102,535 General and administrative 78,070 73,281 _________ _________ Total expenses and other $393,027 $369,164 _________ _________ Income from continuing operations $174,338
=+vEX 17-1 Vertical analysis of income statement obj. 1✔a. 2010 net income: $5,000;1.0% of sales The following comparative income statement (in thousands of dollars) for the fiscal years 2005 and 2006 was adapted from the annual report of Speedway Motorsports, Inc., owner and operator of several
=+b. Comment on the significant changes disclosed by the comparative income statement.
=+a. Prepare an income statement in comparative form, stating each item for both 2010 and 2009 as a percent of sales. Round to one decimal place.
=+Revenue and expense data for Rogan Technologies Co. are as follows:2010 2009 Sales $500,000 $440,000 Cost of goods sold 325,000 242,000 Selling expenses 70,000 79,200 Administrative expenses 75,000 70,400 Income tax expense 25,000 26,400
=+Income statement information for Beowulf Corporation is provided below. Sales $600,000 Cost of goods sold 480,000 ________ Gross profit $120,000 ________ ________ Prepare a vertical analysis of the income statement for Beowulf Corporation.
=+The comparative temporary investments and inventory balances for a company are provided below. 2010 2009 Temporary investments $70,800 $ 60,000 Inventory 99,000 110,000 Based on this information, what is the amount and percentage of increase or decrease that would be shown in a balance sheet with
=+The comparative accounts payable and long-term debt balances of a company are provided below. 2010 2009 Accounts payable $ 78,400 $70,000 Long-term debt 101,760 96,000 Based on this information, what is the amount and percentage of increase or decrease that would be shown in a balance sheet with
=+17. Describe two reports provided by independent auditors in the annual report to shareholders.
=+15. Why would the dividend yield differ significantly from the rate earned on common stockholders’ equity?
=+the selling price of the common stock in relation to current earnings?
=+14. The price-earnings ratio for the common stock of Breeden Company was 12 at December 31, the end of the current fiscal year. What does the ratio indicate about
=+the latest year, the number of shares outstanding was doubled by a stock split.There were no other changes in the amount of stock outstanding. What were the earnings per share in the preceding year, adjusted for comparison with the latest year?
=+13. The net income (after income tax) of McCants Inc. was $20 per common share in the latest year and $80 per common share for the preceding year. At the beginning of
=+lower than the rate earned on total stockholders’ equity? Explain.
=+b. Should the rate earned on common stockholders’ equity normally be higher or
=+12.a. Why is the rate earned on stockholders’ equity by a thriving business ordinarily higher than the rate earned on total assets?
=+b. Which ratio is normally higher? Explain.
=+11.a. How does the rate earned on total assets differ from the rate earned on stockholders’ equity?
=+Current Year Preceding Year Fixed assets (net) . . . . . . . . . . . . . . . . . . . . $480,000 $540,000 Total long-term liabilities . . . . . . . . . . . . . . 120,000 180,000
=+c. Is it possible to have a high inventory turnover and a high number of days’sales in inventory? Discuss.
=+b. Is it possible for the inventory turnover to be too high? Discuss.
=+9.a. Why is it advantageous to have a high inventory turnover?
=+Has the current position improved? Explain.
=+6. For Gray Corporation, the working capital at the end of the current year is $10,000 more than the working capital at the end of the preceding year, reported as follows:Preceding Current Year Year Current assets:Cash, temporary investments, and receivables . . . . . . . . . . . . . . . . . $
=+3. The ratio determined by dividing total current assets by total current liabilities is the:A. current ratio. C. bankers’ ratio.B. working capital ratio. D. all of the above.
=+1. What type of analysis is indicated by the following?Amount Percent Current assets $100,000 20%Property, plant, and equipment 400,000 80 ________ ___ Total assets $500,000 100% ________ ___ ________ ___ A. Vertical analysis C. Profitability analysis B. Horizontal analysis D. Contribution
=+Corporations normally issue annual reports to their stockholders and other interested parties.Such reports summarize the corporation’s operating activities for the past year and plans for the future.• Describe the elements of a corporate annual report.Describe the contents of corporate annual
=+Rainbow Paint Co.’s comparative financial statements for the years ending December 31, 2010 and 2009, are as follows. The market price of Rainbow Paint Co.’s common stock was $30 on December 31, 2009, and $25 on December 31, 2010.Rainbow Paint Co.Comparative Income Statement For the Years
=+5. The net income reported on the income statement for the year was $55,000, and depreciation of fixed assets for the year was $22,000. The balances of the current asset and current liability accounts at the beginning and end of the year are shown below.End Beginning Cash $ 65,000 $ 70,000
=+Prepaid expenses 7,500 8,000 Accounts payable(merchandise creditors) 51,000 58,000 The total amount reported for cash flows from operating activities in the statement of cash flows, using the indirect method, is:A. $33,000. C. $65,500.B. $55,000. D. $77,000.
=+6. A long-term investment in bonds with a cost of $60,000 was sold for $72,000 cash.
=+(a) What was the gain or loss on the sale?
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