Managerial accounting

Exercise 1

Identify each of the following as (a) an underlying concept, (b) an objective of financial statement analysis, (c) a standard for financial statement analysis, (d) a source of information for financial statement analysis, or an executive compensation issue:

  1.  Past Ratios of the company
  2. Linking performance to shareholder value
  3. Average ratios of other companies in the same industry
  4. Assessment of the future potential of an investment
  5. Timeliness
  6. Interim financial statements
  7. SEC Form 10-K
  8. Assessment of rick
  9. Comparability
  10. A company’s annual report

Exercise 7

Elm Company had total assets of $640,000 in 2012. $680,000 in 2013, and $760.000 in 2014.  In 2013, Elm had net income of $77,112 on revenues of $1,224,000.  In 2014, it had net income of $98,952 on revenues of $1,596,000.  Compute the profit margin, asset turnover, and return on assets for 2013 and 2014.  Comment on the apparent cause of the increase or decrease in profitability.  (Round to one decimal place).

Exercise 12

Components of Van Corporation’s income statement for the year ended December 31, 2014 follow.  Recast the income statement in multiple step form, including allocating income taxes to appropriate items (assume a 30 percent income tax rate) and showing earnings per share figures (200,000 shares outstanding).  (Round earnings per share figures to the nearest cent.)

                                Sales                                                                                                      $1,110,000

                                Cost of goods sold                                                                            (550,000)

                                Operating expenses                                                                      (225,000)

                                Restructuring                                                                                    (110,000)

                                Total income taxes expense for period                   (179,000)

                                Income from discontinued operations                                    160,000

                                Gain on disposal of discontinued operations        140,000

                                Extraordinary gain                                                                              72,000

                                Net income                                                                                         $417,900

                                Earnings per share                                                                           $      2.09

Problem 1

Obras Corporation’s condensed comparative income statements and comparative balance sheets for 2014 and 2013 follow.

Obras Corporation

Comparative Income Statements

For the Years Ended December 31, 2014 and 2013

                                                                                                                2014                                       2013

Net sales                                                                                              $3,276,800                           $3,146,400

Cost of goods sold                                                                            2,088,800                            2,008,400

Gross margin                                                                                      $1,188,000                           $1,138,000

Operating expenses:

                Selling expenses                                                           $476,800                                $518,000

                Administrative expenses                                                447,200                                 423,200

                    Total operating expenses                                         $924,000                              $941,200

Income from operations                                                               $264,000                              $196,800

Interest expense                                                                                   65,600                                  39,200

Interest before income taxes                                                      $198,400                              $157,600

Income taxes expense                                                                       62,400                                    56,800

Net income                                                                                         $136,000                              $100,800

Earnings per share                                                                           $     3.40                                $      2.52

Obras Corporation

Comparative Balance Sheets

December 31, 2014 and 2013

                                                                                                                2014                                       2013

                                                                                Assets

Cash                                                                                                      $81,200                                 $40,800

Accounts receivable (net)                                                             235,600                                 229,200

Inventory                                                                                            574,800                                 594,800                

Property, plants and equipment (net)                                     750,000                                 720,000

Total assets                                                                               $1,641,600          $1,584,800

                                                                                Liabilities and Stockholders’ Equity

Accounts payable                                                                       $267,000                   $477,200

Notes payable (short-term)                                                         200,000                                 400,000

Bonds payable                                                                                   400,000                                 —

Common stock, $10 par value                                     400,000                                 400,000

Retained earnings                                                                            374,000                                 307,600

Total liabilities and stockholders’ equity          $ 1,641,600                        $1,584,800                

REQUIRED:

  1.  Prepare schedules showing the amount and percentage changes from 2013 to 2014 for the comparative income statements and the balance sheets (Round to the one decimal place.)
  2. Prepare common-size income statements and balance sheets for 2013 and 2014.  (Round to the one decimal place).
  3. Comment on the results in requirements 1 and 2 by identifying favorable and unfavorable changes in the components and composition of the statements.

Problem 3

Tuxedo Corporation’s condensed comparative income statements and balance sheets follow.  All figures are given in thousands of dollars, except for earnings per share.

Tuxedo Corporation

Comparative Income Statements

For the Years Ended December 31, 2014 and 2013 

                                                                                                                                2014                                       2013

Net sales                                                                                                              $800,400                              $742,600       

Cost of goods sold                                                                                              454,100                                396,200

Gross margin                                                                                                      $346,300                              $346,400

Operating expenses: 

   Selling expenses                                                                                           $130,100                              $104,600

   Administrative expenses                                                                             140,300                                115,500

      Total operating expenses                                                                      $270,400                              $220,100

Income from operations                                                                               $  75,900                              $126,300

Interest expense                                                                                                  25,000                                   20,000

Income before income taxes                                                                       $  50,900                              $106,300

Income taxes expense                                                                                       14,000                                   35,000

Net income                                                                                                         $  36,900                              $  71,300

Earnings per share                                                                                           $     2.46              $      4.76

Tuxedo Corporation

Comparative Balance Sheets

December 31, 2014 and 2013

                                                                                                                                2014                                       2013

                                                                Assets

Cash                                                                                                                      $  31,100                              $  27,200

Accounts receivable (net)                                                                                 72,500                                   42,700

Inventory                                                                                                              122,600                                107,800

Property, plant, and equipment (net)                                                       577,700                                507,500

Total assets                                                                                                        $803,900                              $685,200

                                Liabilities and Stockholders’ Equity

Accounts payable                                                                                             $104,700                              $  72,300

Notes payable (short-term)                                                                             50,000                                   50,000

Bonds payable                                                                                                     200,000                                110,000

Common stock, $10 par value                                                       300,000                                300,000

Retained earnings                                                                                              149,200                                152,900

Total liabilities and stockholders’ equity                                $803,900                              $685,200

Additional data for Tuxedo in 2014 and 2013 follow:

                                                                                                                                2014                                       2013

Net cash flows from operating activities                                 $  64,000                              $  99,000

Net capital expenditures                                                                              $119,000                              $  38,000

Dividends paid                                                                                   $31,400                                 $35,000

Number of common shares                                                                         30,000                                   30,000

Market price per share                                                                  $80                                         $120

Balances of selected accounts at the end of 2012 were accounts receivable (net), $52,700; inventory, $99,300; accounts payable, $64,800; total assets, $647,800; and stockholders’ equity, $376,600.  All of the bonds payable were long-term liabilities.

REQUIRED:

Perform the following analyses.  (Round to one decimal place.)

  1.  Prepare an operating asset management analysis by calculating for each year the (a) current ratio, (b) quick ratio, (c) receivables turnover, (d) days’ sales uncollected, (e) inventory turnover, (f) days’ inventory on hand, (g) payables turnover, (h) days’ payable, and (i) financing period.
  2. Prepare a profitability and total asset management analysis by calculating for each year the (a) profit margin, (b) asset turnover, and (c) return on assets.
  3. Prepare a financial risk analysis by calculating for each year the (a) debt to equity ratio, (b) return on equity, and (c) interest coverage ratio.
  4. Prepare a liquidity analysis by calculating for each year the (a) cash flow yield, (b) cash flows to sales, (c) cash flows to assets, and (d) free cash flow.
  5. Prepare an analysis of market strength by calculating for each year the (a) price/earnings (P/E) ratio and (b) dividend yield.
  6. Accounting connection: After making the calculations, indicate whether each ratio improved or deteriorated from 2013 to 2014 (use F for favorable and U for unfavorable and consider changes of 0.1 or less to be neutral).
 
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