Assignment Instructions
1. Open the Guidance Report and rework the problem with the changed numbers and place your answers on the guidance report. Do not alter the guidance report.
2. Submit the guidance report using the Assignment Submission tab below.
3. Complete the following problems and exercises:
Chapter Nine, Exercises 3 and 4
Chapter Nine, Problems 1, 2 and 3
Chapter 9 exercise 3. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
________________________________________Edison Stagg Thornton
Cash $4,000 $2,500 $1,000
Short-Term Investments 3,000 2,500 2,000
Accounts Receivable 2,000 2,500 3,000
Inventory 1,000 2,500 4,000
Prepaid Expenses 800 800 800
Accounts Payable 200 200 200
Notes Payable: Short-Term 3,100 3,100 3,100
Accrued Payables 300 300 300
Long-Term Liabilities 3,800 3,800 3,800
a. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
b. Suppose Thornton is using FIFO for inventory valuation and Edison is using LIFO. Comment on the comparability of information between these two companies.
c. If all short-term notes payable are due on July 11 at 8 a.m., comment on each company's ability to settle its obligation in a timely manner
Chapter 9 exercise 4.Computation and evaluation of activity ratios. The following data relate to Alaska Products Inc.
________________________________________________20X5 20X4____
Net Credit Sales $832,000 $760,000
Cost of Goods Sold 440,000 350,000
Cash, Dec. 31 125,000 110,000
Accounts Receivable, Dec. 31 180,000 140,000
Inventory, Dec. 31 70,000 50,000
Accounts Payable, Dec. 31 115,000 108,000
The company is planning to borrow $300,000 via a 90-day bank loan to cover short-term operating needs.
a. Compute the accounts-receivable and inventory-turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.
b. Study the ratios from part (a) and comment on the company's ability to repay a bank loan in 90 days.
c. Suppose that Alaska's major line of business involves the processing and distribution of fresh and frozen fish throughout the United States. Do you have any concerns about the company'sinventory-turnover ratio? Briefly discuss.
Problems 1. Horizontal and vertical analysis. The following financial statements pertain to Waterloo Corporation:
WATERLOO CORPORATION
Comparative Balance Sheets
___________December 31,20X5 and 20X4______
________________________________________________20X5 _______________20X4____
Assets
Current Assets
Cash $11,250 $12,500
Accounts Receivable (net) 18,500 25,000
Inventories 38,500 35,000
Prepaid Expense __3,750 3,750
Total Current Assets $72,000 $76,250
Property, Plant, and Equipment
Buildings (net) $102,750 $101,250
Equipment (net) 28,500 30,000
Vehicles (net) 32,000 40,000
Total Property, Plant, and Equipment $163,250 $171,250
Trademarks (net) $14,750 $2,500
Total assets $250,000 $250,000
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $49,000 $70,000
Notes Payable 13,500 40,000
Federal Taxes Payable 2,500 25,000
Total Current Liabilities $65,000 $135,000
Long-Term Debt $50,000 $25,000
Total Liabilities $115,000 $160,000
Stockholders' Equity
Common Stock, $10 par $25,000 $25,000
Retained Earnings 110,000 65,000
Total Stockholders' Equity $135,000 $90,000
Total Liabilities and Stockholders' Equity $250,000 $250,000
Instructions
a. Prepare a horizontal analysis of the balance sheet, showing dollar and percentage changes. Round all calculations in parts (a) and (b) to two decimal places.
b. Prepare a vertical analysis of the income statement by relating each item to net sales.
c. Briefly comment on the results of your analysis.
Chapter 9 Problem 2. Ratio computation. The financial statements of the Lone Pine Company follow.
LONE PINE COMPANY
Comparative Balance Sheets
_______________________December 31, 20X2 and 20X1 ($000 Omitted)_____________________
20X2 20X1
Assets
Current Assets
Cash and Short-Term Investments $400 $600
Accounts Receivable (net) 3,000 2,400
Inventories 2,000 2,200
Total Current Assets $5,400 $5,200
Property, Plant, and Equipment
Land $1,700 $600
Buildings and Equipment (net) 1,500 1,000
Total Property, Plant, and Equipment $3,200 $1,600
Total Assets $8,600 $6,800
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $1,800 $1,700
Notes Payable 1,100 1,900
Total Current Liabilities $2,900 $3,600
Long-Term Liabilities
Bonds Payable 4,100 2,100
Total Liabilities $7,000 $5,700
Stockholders' Equity
Common Stock $200 $200
Retained Earnings 1,400 900
Total Stockholders' Equity $1,600 $1,100
Total Liabilities and Stockholders' Equity $8,600 $6,800
LONE PINE COMPANY
Statement of Income and Retained Earnings
For the Year Ending December 31,20X2 ($000 Omitted)
Net Sales* $36,000
Less: Cost of Goods Sold $20,000
Selling Expense 6,000
Administrative Expense 4,000
Interest Expense 400
Income Tax Expense 2,000 32,400
Net Income $3,600
Retained Earnings, Jan. 1 900
$4,500
Cash Dividends Declared and Paid 3,100
Retained Earnings, Dec. 31 $1,400
*All sales are on account.
Instructions
Compute the following items for Lone Pine Company for 20X2, rounding all calculations to two decimal places when necessary:
a. Quick ratio
b. Current ratio
c. Inventory-turnover ratio
d. Accounts-receivable-turnover ratio
e. Return-on-assets ratio
f. Net-profit-margin ratio
g. Return-on-common-stockholders' equity
h. Debt-to-total assets
i. Number of times that interest is earned
j. Dividend payout rate
Chapter 9 problem 3. Financial statement construction via ratios. Incomplete financial statements of
Lock Box Inc. are presented as follows:
LOCK BOX INC.
Income Statement
For the Year Ending December 31, 20X3
Sales $ ?
Cost of Goods Sold ?
Gross Profit $ 15,000,000
Operating Expenses and Interest ?
Income Before Taxes $ ?
Income taxes, 40% ?
Net income $ ?
LOCK BOX, INC.
Balance Sheet
December 31, 20X3
Assets
Cash $ ?
Accounts Receivable ?
Inventory ?
Property, Plant, and Equipment 8,000,000
Total assets $24,000,000
Liabilities and Stockholders' Equity
Accounts Payable $ ?
Notes Payable: Short-Term 600,000
Bonds Payable 4,600,000
Common Stock 2,000,000
Retained Earnings ?
Total Liabilities and Stockholders' Equity $24,000,000
Further information is the following:
- Cost of goods sold is 60% of sales. All sales are on account.
- The company's beginning inventory is $5 million; inventory-turnover ratio is 4.
- The debt-to-total-assets ratio is 70%.
- The profit margin on sales is 6%.
- The firm's accounts-receivable-turnover ratio is 5. Receivables increased by $400,000 during the year.
Instructions
Using the preceding data, complete the income statement and the balance sheet.
Attachment:- Guidance Report Spreadsheet.xlsx