Chapter 24: Question 26Q (page 1446)
What is the relationship of the asset turnover to the return on assets?
An increase in asset turnover while maintaining a stable profit margin leads to an increase in relation to returning on resources and vice versa.
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(Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.
GILMOUR COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2018 AND 2017 | ||
December 31 | ||
2018 | 2017 | |
Assets | ||
Cash | \( 180,000 | \) 275,000 |
Accounts receivable (net) | 220,000 | 155,000 |
Short-term investments | 270,000 | 150,000 |
Inventories | 1,060,000 | 980,000 |
Prepaid expenses | 25,000 | 25,000 |
Plant & equipment | 2,585,000 | 1,950,000 |
Accumulated depreciation | (1,000,000) | (750,000) |
\(3,340,000 | (2,785,000) | |
Liabilities and Stockholders’ Equity | ||
Accounts payable | \) 50,000 | \( 75,000 |
Accrued expenses | 170,000 | 200,000 |
Bonds payable | 450,000 | 190,000 |
Common stock | 2,100,000 | 1,770,000 |
Retained earnings | 570,000 | 550,000 |
\)3,340,000 | (2,785,000) |
Instructions
(Round to two decimal places.)
Identify the segment information that is required to be disclosed by GAAP.
(Dividend Policy Analysis) Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc.’s operations.
(\(000 omitted) | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Sales revenue | \)20,000 | \(16,000 | \)14,000 | \(6,000 | \)4,000 |
Net income | 2,400 | 14,000 | 800 | 700 | 250 |
Average total assets | 22,000 | 19,000 | 11,500 | 4,200 | 3,000 |
Current assets | 8,000 | 6,000 | 3,000 | 1,200 | 1,000 |
Working capital | 3,600 | 3,200 | 1,200 | 500 | 400 |
Common shares: Number of shares Outstanding (000) Average market price | 2,000 \(9 | 2,000 \)6 | 2,000 $4 | 20 - | 20 - |
Instructions
Explain the meaning of the following terms: (a) common size analysis, (b) vertical analysis, (c) horizontal analysis, and (d) percentage analysis.
What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported.
a) Collection of a note written off in a prior period.
b) Issuance of a large preferred stock offering.
c) Acquisition of a company in a different industry.
e) Destruction of a major plant in a flood.
f) Death of the company’s chief executive officer (CEO).
g) Additional wage costs associated with settlement of a four-week strike.
h) Settlement of a federal income tax case at considerably more tax than anticipated at year-end.
Change in the product mix from consumer goods to industrial goods.
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