Chapter 13: 7DQ (page 614)
What does the number of days’ sales uncollected indicate.
The number of days sales are uncollected indicates the time period for which sales remain uncollected.
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Match the ratio to the building block of financial statement analysis to which it best relates.
A. Liquidity and efficiency B. Solvency C. Profitability D. Market prospects
1 | Equity ratio | 6 | Accounts receivable turnover |
2 | Return on total assets | 7 | Debt-to-equity ratio |
3 | Dividend yield | 8 | Times interest earned |
4 | Book value per common share | 9 | Gross margin ratio |
5 | Day’s sales in inventory | 10 | Acid test ratio |
Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, 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, 2017
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, 2017
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,
Round to one decimal place; for part 6, round to two decimals.
Selected comparative financial statements of Korbin Company follow.
KORBIN COMPANY
Comparative Income Statements
For Years Ended December 31, 2017, 2016, and 2015
2017 2016 2015
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, 2017, 2016, and 2015
2017 2016 2015
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
Required
Refer to the Simon Company information in Exercise 13-6. The company’s income statements for the years ended December 31, 2017, and 2016, follow. Assume that all sales are on credit and then compute:
(1) days’ sales uncollected,
(2) accounts receivable turnover,
(3) inventory turnover, and
(4) days’ sales in inventory.
Comment on the changes in the ratios from 2016 to 2017. (Round amounts to one decimal.)
For Year Ended December 31 | 2017 | 2016 | ||
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 |
Where on the income statement does a company report an unusual gain not expected to occur more often than once every two years or so?
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