Ass 13

1.

Common-size and trend percents for Rustynail Company's sales, cost of goods sold, and expenses follow.

	Common-Size Percents							Trend Percents
	2015		2014		2013			2015		2014		2013
Sales	100.0	%	100.0	%	100.0	%		105.4	%	104.2	%	100.0	%
Cost of goods sold	63.4		61.9		59.1			113.1		109.1		100.0
Total expenses	15.3		14.8		15.1			106.8		102.1		100.0

  

Determine the net income for the following years. (Enter all amounts as positive values. Round your answers to nearest whole dollar.)

	2015 2014 2013 Sales $105,400 $104,200 $100,000 Cost of Goods Sold 66,842 64,478 59,100 Total Expenses 16,127 15,417 15,100 Net Income $22,431 $24,305 $25,800

Did the net income increase, decrease, or remain unchanged in this three-year period?

Net income decreased 

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Questions 2-5

[The following information applies to the questions displayed below.]

Simon Company’s year-end balance sheets follow.

  

	At December 31			2015			2014			2013
	Assets
	Cash		$	31,800		$	35,625		$	37,800
	Accounts receivable, net			89,500			62,500			50,200
	Merchandise inventory			112,500			82,500			54,000
	Prepaid expenses			10,700			9,375			5,000
	Plant assets, net			278,500			255,000			230,500
	Total assets		$	523,000		$	445,000		$	377,500
	Liabilities and Equity
	Accounts payable		$	129,900		$	75,250		$	51,250
	Long-term notes payable secured by   mortgages on plant assets			98,500			101,500			83,500
	Common stock, $10 par value			163,500			163,500			163,500
	Retained earnings			131,100			104,750			79,250
	Total liabilities and equity		$	523,000		$	445,000		$	377,500

  

The company’s income statements for the years ended December 31, 2015 and 2014, follow. Assume that all sales are on credit:

  

For Year Ended December 31	2015						2014
Sales				$	673,500					$	532,000
Cost of goods sold	$	411,225					$	345,500
Other operating expenses		209,550						134,980
Interest expense		12,100						13,300
Income taxes		9,525						8,845
Total costs and expenses					642,400						502,625
Net income				$	31,100					$	29,375
Earnings per share				$	1.90					$	1.80

2.

(1)	Compute days' sales uncollected.

	Days' Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected Accounts receivable / Net sales x 365 = Days' Sales Uncollected 2015: $89,500 / $673,500 x 365 = 48.5 days 2014: $62,500 / $532,000 x 365 = 42.9 days

3.

(2)	Compute accounts receivable turnover.

	Accounts Receivable Turnover Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover Net sales / Average accounts receivable, net = Accounts receivable turnover 2015: $673,500 / $76,000 = 8.9 times 2014: $532,000 / $56,350 = 9.4 times

4.

(3)	Compute inventory turnover.

	Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover Cost of goods sold / Average inventory = Inventory turnover 2015: $411,225 / $97,500 = 4.2 times 2014: $345,500 / $68,250 = 5.1 times

5.

(4)	Compute days' sales in inventory.

	Days’ Sales In Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales In Inventory Ending inventory / Cost of goods sold x 365 = Days’ sales in inventory 2015: $112,500 / $411,225 x 365 = 99.9 days 2014: $82,500 / $345,500 x 365 = 87.2 days

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6.

Selected comparative financial statements of Haroun Company follow.

  

HAROUN COMPANY
Comparative Income Statements
For Years Ended December 31, 2015–2009
($ thousands)			2015				2014				2013				2012				2011				2010			2009
Sales		$	1,694			$	1,496			$	1,370			$	1,264			$	1,186			$	1,110			$	928
Cost of goods sold			1,246				1,032				902				802				752				710				586
Gross profit			448				464				468				462				434				400				342
Operating expenses			330				256				234				170				146				144				118
Net income		$	118			$	208			$	234			$	292			$	288			$	256			$	224

HAROUN COMPANY
Comparative Balance Sheets
December 31, 2015–2009
($ thousands)		2015			2014			2013			2012			2011			2010			2009
Assets
Cash	$	58		$	78		$	82		$	84		$	88		$	86		$	89
Accounts receivable, net		490			514			466			360			318			302			216
Merchandise inventory		1,838			1,364			1,204			1,032			936			810			615
Other current assets		36			32			14			34			28			28			9
Long-term investments		0			0			0			146			146			146			146
Plant assets, net		2,020			2,014			1,752			944			978			860			725
Total assets	$	4,442		$	4,002		$	3,518		$	2,600		$	2,494		$	2,232		$	1,800
Liabilities and Equity
Current liabilities	$	1,220		$	1,042		$	718		$	614		$	546		$	522		$	282
Long-term liabilities		1,294			1,140			1,112			570			580			620			400
Common stock		1,000			1,000			1,000			850			850			650			650
Other paid-in capital		250			250			250			170			170			150			150
Retained earnings		678			570			438			396			348			290			318
Total liabilities and equity	$	4,442		$	4,002		$	3,518		$	2,600		$	2,494		$	2,232		$	1,800

  

Required:
1.	Complete the below table to calculate the trend percents for all components of both statements using 2009 as the base year. (Round your percentage answers to 1 decimal place.)

HAROUN COMPANY Income Statement Trends For Years Ended December 31, 2015–2009 2015 2014 2013 2012 2011 2010 2009 Sales 182.5 % 161.2 % 147.6 % 136.2 % 127.8 % 119.6 % 100.0 % Cost of goods sold 212.6 176.1 153.9 136.9 128.3 121.2 100.0 Gross profit 131.0 135.7 136.8 135.1 126.9 117.0 100.0 Operating expenses 279.7 216.9 198.3 144.1 123.7 122.0 100.0 Net income 52.7 % 92.9 % 104.5 % 130.4 % 128.6 % 114.3 % 100.0 %

HAROUN COMPANY Balance Sheet Trends December 31, 2015–2009 2015 2014 2013 2012 2011 2010 2009 Assets Cash 65.2 % 87.6 % 92.1 % 94.4 % 98.9 % 96.6 % 100.0 % Accounts receivable, net 226.9 238.0 215.7 166.7 147.2 139.8 100.0 Merchandise inventory 298.9 221.8 195.8 167.8 152.2 131.7 100.0 Other current assets 400.0 355.6 155.6 377.8 311.1 311.1 100.0 Long-term investments 0.0 0.0 0.0 100.0 100.0 100.0 100.0 Plant assets, net 278.6 277.8 241.7 130.2 134.9 118.6 100.0 Total assets 246.8 % 222.3 % 195.4 % 144.4 % 138.6 % 124.0 % 100.0 % Liabilities and Equity Current liabilities 432.6 % 369.5 % 254.6 % 217.7 % 193.6 % 185.1 % 100.0 % Long-term liabilities 323.5 285.0 278.0 142.5 145.0 155.0 100.0 Common stock 153.8 153.8 153.8 130.8 130.8 100.0 100.0 Other paid-in capital 166.7 166.7 166.7 113.3 113.3 100.0 100.0 Retained earnings 213.2 179.2 137.7 124.5 109.4 91.2 100.0 Total liabilities & equity 246.8 % 222.3 % 195.4 % 144.4 % 138.6 % 124.0 % 100.0 %

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Questions 7-9

[The following information applies to the questions displayed below.]

Selected comparative financial statements of Korbin Company follow.

   

KORBIN COMPANY
Comparative Income Statements
For Years Ended December 31, 2015, 2014, and 2013
			2015				2014				2013
Sales		$	555,000			$	340,000			$	278,000
Cost of goods sold			283,500				212,500				153,900
Gross profit			271,500				127,500				124,100
Selling expenses			102,900				46,920				50,800
Administrative expenses			50,668				29,920				22,800
Total expenses			153,568				76,840				73,600
Income before taxes			117,932				50,660				50,500
Income taxes			40,800				10,370				15,670
Net income		$	77,132			$	40,290			$	34,830

    

KORBIN COMPANY
Comparative Balance Sheets
December 31, 2015, 2014, and 2013
			2015				2014				2013
Assets
Current assets		$	52,390			$	37,924			$	51,748
Long-term investments			0				500				3,950
Plant assets, net			100,000				96,000				60,000
Total assets		$	152,390			$	134,424			$	115,698
Liabilities and Equity
Current liabilities		$	22,800			$	19,960			$	20,300
Common stock			72,000				72,000				60,000
Other paid-in capital			9,000				9,000				6,000
Retained earnings			48,590				33,464				29,398
Total liabilities and equity		$	152,390			$	134,424			$	115,698

7.

Required:
1.	Complete the below table to calculate each year's current ratio.

	Current Ratio Choose Numerator: / Choose Denominator: = Current ratio Current assets / Current liabilities = Current ratio 2015: $52,390 / $22,800 = 2.3 to 1 2014: $37,924 / $19,960 = 1.9 to 1 2013: $51,748 / $20,300 = 2.5 to 1

8.

2.	Complete the below table to calculate income statement data in common-size percents. (Round your percentage answers to 2 decimal places.)

KORBIN COMPANY Common-Size Comparative Income Statements For Years Ended December 31, 2015, 2014, and 2013 2015 2014 2013 Sales 100.00 % 100.00 % 100.00 % Cost of goods sold 51.08 1 62.50 1 55.36 1 Gross profit 48.92 37.50 44.64 Selling expenses 18.54 1 13.80 1 18.27 1 Administrative expenses 9.13 1 8.80 1 8.20 1 Total expenses 27.67 22.60 26.47 Income before taxes 21.25 1 14.90 1 18.17 1 Income taxes 7.35 1 3.05 1 5.64 1 Net income 13.90 % 11.85 % 12.53 %

9.

3.	Complete the below table to calculate the balance sheet data in trend percents with 2013 as the base year. (Round your percentage answers to 2 decimal places.)

KORBIN COMPANY Balance Sheet Data in Trend Percents December 31, 2015, 2014, 2013 2015 2014 2013 Assets Current assets 101.24 % 73.29 % 100.00 % Long-term investments 12.66 100.00 Plant assets, net 166.67 160.00 100.00 Total assets 131.71 % 116.19 % 100.00 % Liabilities and Equity Current liabilities 112.32 % 98.33 % 100.00 % Common stock 120.00 120.00 100.00 Other paid-in capital 150.00 150.00 100.00 Retained earnings 165.28 113.83 100.00 Total liabilities and equity 131.71 % 116.19 % 100.00 %

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10.

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2014, were inventory, $48,900; total assets, $189,400; common stock, $90,000; and retained earnings, $22,748.)

CABOT CORPORATION Income Statement For Year Ended December 31, 2015
Sales	$	448,600
Cost of goods sold		297,250
Gross profit		151,350
Operating expenses		98,600
Interest expense		4,100
Income before taxes		48,650
Income taxes		19,598
Net income	$	29,052

  

CABOT CORPORATION Balance Sheet December 31, 2015
Assets				Liabilities and Equity
Cash	$	10,000		Accounts payable	$	17,500
Short-term investments		8,400		Accrued wages payable		3,200
Accounts receivable, net		29,200		Income taxes payable		3,300
Notes receivable (trade)*		4,500		Long-term note payable, secured
Merchandise inventory		32,150		by mortgage on plant assets		63,400
Prepaid expenses		2,650		Common stock		90,000
Plant assets, net		153,300		Retained earnings		62,800
Total assets	$	240,200		Total liabilities and equity	$	240,200

* These are short-term notes receivable arising from customer (trade) sales.

  

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.(Do not round intermediate calculations.)

	(1) Current Ratio Choose Numerator: / Choose Denominator: = Current Ratio Current assets / Current liabilities = Current Ratio 2015: $86,900 / $24,000 = 3.6 to 1

	(2) Acid-Test Ratio Choose Numerator: / Choose Denominator: = Acid-Test Ratio Quick assets / Current liabilities = Acid-Test Ratio 2015: $52,100 / $24,000 = 2.2 to 1

	(3) Days Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days Sales Uncollected Current receivables / Net sales x 365 = Days Sales Uncollected 2015: $33,700 / $448,600 x 365 = 27.4 days

	(4) Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover Cost of goods sold / Average inventory = Inventory Turnover 2015: $297,250 / $40,525 = 7.3 times

	(5) Days’ Sales in Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales in Inventory Merchandise inventory / Cost of goods sold x 365 = Days’ Sales in Inventory 2015: $32,150 / $297,250 x 365 = 39.5 days

	(6) Debt-to-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-to-Equity Ratio Total liabilities / Total equity = Debt-to-Equity Ratio 2015: $87,400 / $152,800 = 0.57 to 1

	(7) Times Interest Earned Choose Numerator: / Choose Denominator: = Times Interest Earned Income before tax + Interest expense / Interest expense = Times Interest Earned 2015: $48,650 + $4,100 / $4,100 = 12.9 times

	(8) Profit Margin Ratio Choose Numerator: / Choose Denominator: = Profit margin ratio Net income / Net sales = Profit margin ratio 2015: $29,052 / $448,600 = 6.5 %

	(9) Total Asset Turnover Choose Numerator: / Choose Denominator: = Total Asset Turnover Net sales / Average total assets = Total Asset Turnover 2015: $448,600 / $214,800 = 2.1 times

	(10) Return on Total Assets Choose Numerator: / Choose Denominator: = Return on Total Assets Net income / Average total assets = Return on Total Assets 2015: $29,052 / $214,800 = 13.5% %

	(11) Return on Common Stockholders' Equity Choose Numerator: / Choose Denominator = Return On Common Stockholders' Equity Net income - Preferred dividends / Average common stockholders' equity = Return On Common Stockholders' Equity 2015: $29,052 - / $132,774 = 21.9 %

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Questions 11-12

[The following information applies to the questions displayed below.]

Summary information from the financial statements of two companies competing in the same industry follows.

		Barco Company		Kyan Company				Barco Company		Kyan Company
Data from the current year-end balance sheets						Data from the current year’s income statement
Assets						Sales	$	770,000	$	880,200
Cash	$	19,500	$	34,000		Cost of goods sold		585,100		632,500
Accounts receivable, net		37,400		57,400		Interest expense		7,900		13,000
Current notes receivable (trade)		9,100		7,200		Income tax expense		14,800		24,300
Merchandise inventory		84,440		132,500		Net income		162,200		210,400
Prepaid expenses		5,000		6,950		Basic earnings per share		4.51		5.11
Plant assets, net		290,000		304,400		Cash dividends per share		3.81		3.93
Total assets	$	445,440	$	542,450
						Beginning-of-year balance sheet data
Liabilities and Equity						Accounts receivable, net	$	29,800	$	54,200
Current liabilities	$	61,340	$	93,300		Current notes receivable (trade)		0		0
Long-term notes payable		80,800		101,000		Merchandise inventory		55,600		107,400
Common stock, $5 par value		180,000		206,000		Total assets		398,000		382,500
Retained earnings		123,300		142,150		Common stock, $5 par value		180,000		206,000
Total liabilities and equity	$	445,440	$	542,450		Retained earnings		98,300		93,600

11.

Required:
1.1	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.(Do not round intermediate calculations.)

	(a) Current Ratio Company Choose Numerator: / Choose Denominator: = Current Ratio Current assets / Current liabilities = Current ratio Barco $155,440 / $61,340 = 2.5 to 1 Kyan $238,050 / $93,300 = 2.6 to 1

	(b) Acid-Test Ratio Company Choose Numerator: Choose Denominator: = Acid-Test Ratio Cash + Short-term investments + Current receivables / Current liabilities = Acid-test ratio Barco $19,500 + + $46,500 / $61,340 = 1.1 to 1 Kyan $34,000 + + $64,600 / $93,300 1.1 to 1

	(c) Accounts Receivable Turnover Company Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover Net sales / Average accounts receivable, net = Accounts receivable turnover Barco $770,000 / $38,150 = 20.2 times Kyan $880,200 / $59,400 = 14.8 times

	(d) Inventory Turnover Company Choose Numerator: / Choose Denominator: = Inventory Turnover Cost of goods sold / Average inventory = Inventory turnover Barco $585,100 / $70,020 = 8.4 times Kyan $632,500 / $119,950 = 5.3 times

	(e) Days’ Sales in Inventory Company Choose Numerator: / Choose Denominator: x Days = Days’ Sales in Inventory Merchandise inventory / Cost of goods sold x 365 = Days’ sales in inventory Barco $84,440 / $585,100 x 365 = 52.7 days Kyan $132,500 / $632,500 x 365 = 76.5 days

	(f) Days' Sales Uncollected Company Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected Current receivables, net / Net sales x 365 = Days' sales uncollected Barco $46,500 / $770,000 x 365 = 22.0 days Kyan $64,600 / $880,200 x 365 = 26.8 days

12.

2.1

For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders’ equity. Assuming that share and each company’s stock can be purchased at $75 per share, compute their (e) price-earnings ratios and (f) dividend yields. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	(a) Profit Margin Ratio Company Choose Numerator: / Choose Denominator: = Profit margin ratio Net income / Net sales = Profit margin ratio Barco $162,200 / $770,000 = 21.1 % Kyan $210,400 / $880,200 = 23.9 %

	(b) Total Asset Turnover Company Choose Numerator: / Choose Denominator: = Total Asset Turnover Net sales / Average total assets = Total asset turnover Barco $770,000 / $421,720 = 1.8 times Kyan $880,200 / $462,475 = 1.9 times

	(c) Return on Total Assets Company Choose Numerator: / Choose Denominator: = Return on Total Assets Net income / Average total assets = Return on total assets Barco $162,200 / $421,720 = 38.5 % Kyan $210,400 / $462,475 = 45.5 %

	(d) Return On Common Stockholders' Equity Company Choose Numerator: / Choose Denominator = Return On Common Stockholders' Equity Net income - Preferred dividends / Average common stockholders' equity = Return on common stockholders' equity Barco $162,200 - / $290,800 = 55.8 % Kyan $210,400 - / $323,875 = 65.0 %

	(e) Price-Earnings Ratio Company Choose Numerator: / Choose Denominator: = Price-Earnings Ratio Market price per common share / Earnings per share = Price-Earnings Ratio Barco $75 / $4.51 = 16.6 times Kyan $75 / $5.11 = 14.7 times

	(f) Dividend Yield Company Choose Numerator: / Choose Denominator: = Dividend Yield Annual cash dividends per share / Market price per share = Dividend Yield Barco $3.81 / $75 = 5.1 % Kyan $3.93 / $75 = 5.2 %