Chapter 13: 6DQ (page 614)
Why is working capital given special attention in the process of analyzing balance sheets?
Working capital is the relation between the current assets and current liabilities which are the major parts of the balance sheet.
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Express the following comparative income statements in common-size percents and assess whether or not this company’s situation has improved in the most recent year (round the percents to one decimal)
GOMEZ CORPORATION Comparative Income Statements For Years Ended December 31, 2017 and 2016 | ||
2017 | 2016 | |
Sales | \(740,000 | \)625,000 |
Cost of goods sold | 560,300 | 290,800 |
Gross profit | 179,700 | 334,200 |
Operating expenses | 128,200 | 218,500 |
Net income | \( 51,500 | \)115,700 |
Simon Company’s year-end balance sheets follow. Express the balance sheets in common-size percents. Round amounts to the nearest one-tenth of a percent. Analyze and comment on the results.
At December 31 | 2017 | 2016 | 2015 |
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 |
What does a relatively high accounts receivable turnover indicate about a company’s short-term liquidity?
Answer each of the following related to international accounting and analysis.
a. Identify a limitation to using ratio analysis when examining companies reporting under different accounting systems such as IFRS versus U.S. GAAP.
b. Identify an advantage to using horizontal and vertical analyses when examining companies reporting under different currencies.
In 2017, Randa Merchandising, Inc., sold its interest in a chain of wholesale outlets, taking the company completely out of the wholesaling business. The company still operates its retail outlets. A listing of the major sections of an income statement follows:
A. Net sales less operating expense section
B. Other unusual and/or infrequent gains (losses)
C. Taxes reported on income (loss) from continuing operations
D. Income (loss) from operating a discontinued segment, or gain (loss) from its disposal
Indicate where each of the following income-related items for this company appears on its 2017 income statement by writing the letter of the appropriate section in the blank beside each item.
Section Item Debit Credit
_______ 1. Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(2,900,000
_______ 2. Gain on state’s condemnation of company property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000
_______ 3. Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)1,480,000
_______ 4. Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,000
_______ 5. Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,000
_______ 6. Gain on sale of wholesale business segment, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775,000
_______ 7. Loss from operating wholesale business segment, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,000
_______ 8. Loss of assets from meteor strike . . . . . . . . . . . . . . . . . . . . 640,000
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