Survey of Accounting, 2nd by Edmonds Olds McNair Tsay

Author:Edmonds,Olds,McNair,Tsay [Edmonds,Olds,McNair,Tsay]
Language: eng
Format: epub, mobi
Published: 2011-10-01T16:55:30+00:00

edm79557_ch09_322-361.indd Page 344 12/5/08 5:08:35 AM user-s174

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344 Chapter

9

Balance Sheets as of December 31

2011 2010

Assets

Current assets

Cash

$ 6,500

$ 11,500

Accounts

receivable

51,000

49,000

Inventories

155,000

147,500

Total

current

assets

212,500

208,000

Plant and equipment (net)

187,500

177,000

Total assets

$400,000

$385,000

Liabilities and Stockholders’ Equity

Liabilities

Current liabilities

Accounts

payable

$

60,000

$

81,500

Other

25,000

22,500

Total

current

liabilities

85,000

104,000

Bonds payable

100,000

100,000

Total liabilities

185,000

204,000

Stockholders’ equity

Common stock (50,000 shares, $3 par)

150,000

150,000

Paid-in capital in excess of par value

20,000

20,000

Retained

earnings

45,000

11,000

Total

stockholders’

equity

215,000

181,000

Total liabilities and stockholders’ equity

$400,000

$385,000

Required

a. Use horizontal analysis to determine which expense item increased by the highest percentage from 2010 to 2011.

b. Use vertical analysis to determine whether the inventory balance is a higher percentage of total assets at the end of 2010 or 2011.

c. Calculate the following ratios for 2010 and 2011. When data limitations prohibit computing averages, use year-end balances in your calculations.

(1) Net margin

(2) Return on investment

(3) Return on equity

(4) Earnings per share

(5) Price-earnings ratio (market price per share at the end of 2011 and 2010 was $12.04

and $8.86, respectively)

(6) Book value per share of common stock

(7) Times interest earned

(8) Working capital

(9) Current ratio

(10) Acid-test ratio

(11) Accounts receivable turnover

(12) Inventory turnover

(13) Debt to equity

Solution to Requirement a

Income tax expense increased by the greatest percentage. Computations follow.

Cost of goods sold ($189,000 2 $154,000) 4 $154,000 5 22.73%

General, selling, and administrative ($54,000 2 $46,000) 4 $46,000 5 17.39%

Interest expense decreased.

Income tax expense ($27,200 2 $21,800) 4 $21,800 5 24.77%

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