Financial Statements
5.
A
ange the following income statement items so they are in the proper order of an income statement:
Taxes
Earnings per share
Shares outstanding
Earnings before taxes
Interest expense
Cost of goods sold
Depreciation expense
Earnings after taxes
Prefe
ed stock dividends
Earnings available to common
Operating profit
stockholders
Sales
Selling and administrative expense
Gross profit
6.
Given the following information prepare in good form an income statement for the Oil Drilling Company ($million).
Selling and administrative expense
$ 60,000
Depreciation expense
70,000
Sales
470,000
Interest expense
40,000
Cost of goods sold
140,000
Taxes
45,000
9.
Prepare in good form an income statement. Take your calculations all the way to computing earnings per share.
Sales
$600,000
Shares outstanding
100,000
Cost of goods sold
200,000
Interest expense
30,000
Selling and administrative expense
40,000
Depreciation expense
20,000
Prefe
ed stock dividends
80,000
Taxes
100,000
14.
Fill in the blank spaces with categories 1 through 7:
1.
Balance sheet (BS)
5.
Cu
ent liabilities (CL)
2.
Income statement (IS)
6.
Long-term liabilities (LL)
3.
Cu
ent assets (CA)
7.
Stockholders’ equity (SE)
4.
Fixed assets (FA)
Indicate Whethe
Item Is on Balance
Sheet (BS) o
Income
Statement (IS)
If on Balance
Sheet, Designate
Which
Category
Item
_____
_____
Accounts receivable
_____
_____
Retained earnings
_____
_____
Income tax expense
_____
_____
Accrued expenses
_____
_____
Cash
_____
_____
Selling and administrative expenses
_____
_____
Plant and equipment
_____
_____
Operating expenses
_____
_____
Marketable securities
_____
_____
Interest expense
_____
_____
Sales
_____
_____
Notes payable (6 months)
_____
_____
Bonds payable, maturity 2019
_____
_____
Common stock
_____
_____
Depreciation expense
_____
_____
Inventories
_____
_____
Capital in excess of par value
_____
_____
Net income (earnings after taxes)
_____
_____
Income tax payable
15.
A
ange the following items in proper balance sheet presentation:
Accumulated depreciation.............................
$300,000
Retained earnings....................................
96,000
Cash.................................................
10,000
Bonds payable........................................
136,000
Accounts receivable..................................
48,000
Plant and equipment—original cost....................
680,000
Accounts payable.....................................
35,000
Allowance for bad debts..............................
6,000
Common stock, $1 par, 100,000 shares outstanding.....
100,000
Inventory............................................
66,000
Prefe
ed stock, $50 par, 1,000 shares outstanding...
50,000
Marketable securities................................
20,000
Investments..........................................
20,000
Notes payable........................................
33,000
Capital paid in excess of par (common stock).........
88,000
Ratio analysis
6.
Diagnostics Corp. income statements for 2013 is as follows:
Sales
$2,000,000
Cost of goods sold
1,400,000
Gross profit
600,000
Selling and administrative expense
300,000
Operating profit
300,000
Interest expense
50,000
Income before taxes
250,000
Taxes (30%)
75,000
Income after taxes
$ 175,000
a.
Compute the profit margin for 2013.
.
Assume in 2014, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Once again, assume a tax rate of 30 percent on income before taxes. What are income after taxes and the profit margin for 2014?
12.
Trucking Co. has the following ratios compared to its industry for 2014.
Trucking
Industry
Return on sales………..
3%
8%
Return on assets………
15%
10%
Explain why the return-on-assets ratio is so much more favorable than the return-on-sales ratio compared to the industry. No numbers are necessary; a one-sentence answer is all that is required.
16.
Du Pont Grain Stores has $4,000,000 in yearly sales. The firm earns 3.5 percent on each dollar of sales and turns over its assets 2.5 times per year. It has $100,000 in cu
ent liabilities and $300,000 in long-term liabilities.
a. What is its return on stockholders’ equity?
. If the asset base remains the same as computed in part a, but total asset turnover goes up to 3, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do cu
ent and long-term liabilities.
17.
Assume the following data for Corporation and Media, Inc.
Corporation
Media, Inc.
Net income
$ 30,000
$ 100,000
Sales
300,000
2,000,000
Total assets
400,000
900,000
Total debt
150,000
450,000
Stockholders’ equity
250,000
450,000
a. Compute return on stockholders’ equity for both firms using ratio 3a. Which firm has the higher return?
. Compute the following additional ratios for both firms.
Net income/Sales
Net income/Total assets
Sales/Total assets
Debt/Total assets
c. Discuss the factors from part b that added or detracted from one firm having a higher return on stockholders’ equity than the other firm as computed in Part a.
20.
Corporation has the following financial data for the years 2013 and 2014:
2013
2014
Sales…………………………
$4,000,000
$5,000,000
Cost of goods sold……………
3,000,000
4,500,000
Inventory……………………..
400,000
500,000
a.
Compute inventory turnover based on ratio number 6, Sales/Inventory, for each year.
.
Compute inventory turnover based on an alternative calculation that is used by many financial analysts, Cost of goods sold/Inventory, for each year.
c.
What conclusions can you draw from part a and part b?