Prepare a vertical analysis of the income statement for

Question

Part -1

1. Horizontal Analysis

The comparative accounts payable and long­term debt balances of a company are provided below.

	2014	2013
Accounts payable	$72,960	$64,000
Long­term debt	31,679	40,100

Based on this information, what is the amount and percentage of increase or decrease that would be shown in a balance sheet with horizontal analysis? Enter all answers as positive numbers.

                                   Amount of Change            Increase/Decrease                  Percentage

Accounts payable   $     _________________          _________________             _________________   %

Long­term debt     $       ________________             _________________            ________________   %

Amount of Change Increase/Decrease Percentage

Accounts payable $       _________________           _________________             _________________ %

Long­term debt $           _________________            _________________            _________________ %

2. Vertical Analysis

Income statement information for Sheaf Corporation is provided below.

Sales	$511,000
Cost of goods sold	178,850
Gross profit	332,150

Prepare a vertical analysis of the income statement for Sheaf Corporation. If required, round percentage answers to the nearest whole number.

Sheaf Corporation

Vertical Analysis of the Income Statement

	Amount				Percentage
Sales	$ 511,000				%
Cost of goods sold	178,850				%
Gross profit	$	332,150			%

3. Current Position Analysis

The following items are reported on a company's balance sheet:

Cash	$516,800
Temporary investments	403,800
Accounts receivable (net)	500,600
Inventory	193,800
Accounts payable	646,000

Determine (a) the current ratio and (b) the quick ratio. Round to one decimal place.

a. Current ratio

b. Quick ratio

4. Accounts Receivable Analysis

A company reports the following:

Net sales                                                         $1,443,940

Average accounts receivable (net)                             62,780

Determine (a) the accounts receivable turnover and (b) the number of days' sales in receivables. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume a 365­day year.

a. Accounts receivable turnover _________________

b. Number of days' sales in receivables _________________ days

5. Inventory Analysis

A company reports the following:

Cost of goods sold                                               $564,655

Average inventory                                                  66,430

Determine (a) the inventory turnover and (b) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year.

a. Inventory turnover _________________

b. Number of days' sales in inventory _________________ days

6. Long­Term Solvency Analysis

The following information was taken from Celebrate Company's balance sheet:

Fixed assets (net)	$566,800
Long­term liabilities	218,000
Total liabilities	457,800
Total stockholders' equity	763,000

Determine the company's (a) ratio of fixed assets to long­term liabilities and (b) ratio of liabilities to stockholders' equity. If required, round your answers to one decimal place.

a. Ratio of fixed assets to long­term liabilities _________________

b. Ratio of liabilities to stockholders' equity _________________

7. Times Interest Charges are Earned

A company reports the following:

Income before income tax               $904,700

Interest expense                             109,000

Determine the number of times interest charges are earned. If required, round the answer to one decimal place.

8. Net Sales to Assets

A company reports the following:

Net sales                                   $1,140,300

Average total assets                        633,500

Determine the ratio of net sales to assets. If required, round your answer to one decimal place.

9. Rate Earned on Total Assets

A company reports the following income statement and balance sheet information for the current year:

Net income	$164,730
Interest expense	29,070
Average total assets	3,230,000

Determine the rate earned on total assets. If required, round the answer to one decimal place.

10. Common Stockholders' Profitability Analysis

A company reports the following:

Net income	$270,000
Preferred dividends	10,800
Average stockholders' equity	1,956,522
Average common stockholders' equity	1,336,082

Determine (a) the rate earned on stockholders' equity and (b) the rate earned on common stockholders' equity. If required, round your answers to one decimal place.

a. Rate earned on stockholders' equity _________________ %

b. Rate earned on common stockholders' equity _________________ %

11. Earnings per Share and Price­Earnings Ratio Animated Example Exercise

A company reports the following:

Net income	$1,261,000
Preferred dividends	$71,000
Shares of common stock outstanding	85,000
Market price per share of common stock	$189.00

a. Determine the company's earnings per share on common stock. Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.

b. Determine the company's price­earnings ratio. Round to one decimal place.

Part -2

1. Vertical Analysis of Income Statement

The following comparative income statement (in thousands of dollars) for the two recent fiscal years was adapted from the annual report of Calvin Motorsports, Inc., owner and operator of several major motor speedways, such as the Atlanta, Texas, and Las Vegas Motor Speedways.

	Current Year		Previous Year
Revenues:
Admissions	$216,972		$219,480
Event­related revenue	233,208		213,816
NASCAR broadcasting revenue	237,636		211,692
Other operating revenue	50,184		63,012
Total revenue	$738,000		$708,000

Expenses and other:

Direct expense of events	$112,176		$113,280
NASCAR purse and sanction fees	123,984		112,572
Other direct expenses	163,836		142,308
General and administrative	91,512		85,668
Total expenses and other	$491,508		$453,828
Income from continuing operations	$246,492		$254,172

a. Prepare a comparative income statement for these two years in vertical form, stating each item as a percent of revenues. Round to one decimal place. Enter all amounts as positive numbers.

b. Overall revenue _________________ some between the two years. In addition, the overall mix of revenue sources changed somewhat. The NASCAR broadcasting revenue _________________ as a percent of total revenue by 2.3 percentage points, while the percent of admissions revenue to total revenue 2%.

2. Vertical Analysis of Balance Sheet

Balance sheet data for Hanes Company on December 31, the end of the fiscal year, are shown below.

	2014	2013
Current assets	$376,600	$234,030
Property, plant, and equipment	559,520	500,340
Intangible assets	139,880	72,630
Current liabilities	247,480	153,330
Long­term liabilities	365,840	266,310

Common stock	129,120	121,050
Retained earnings	333,560	266,310

Prepare a comparative balance sheet for 2014 and 2013, stating each asset as a percent of total assets and each liability and stockholders' equity item as a percent of the total liabilities and stockholders' equity. If required, round percentages to one decimal place.

3. Horizontal Analysis of the Income Statement

Income statement data for Boone Company for the years ended December 31, 2014 and 2013, are as follows:

	2014		2013
Sales	$421,600		$340,000
Cost of goods sold	366,000		300,000
Gross profit	$55,600		$40,000
Selling expenses	$15,960		$14,000
Administrative expenses	14,640		12,000
Total operating expenses	$30,600		$26,000
Income before income tax	$25,000		$14,000
Income tax expenses	10,000		5,600
Net income	$15,000		$8,400

 

a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for 2014 when compared with 2013. If required, round to one decimal place. Enter all amounts as positive numbers.

b. The net income for Boone Company increased by 78.6% from 2013 to 2014. This increase was the combined result of an _________________ in sales of 24% and _________________ percentage _________________ in total operating expenses.

4. Current Position Analysis

The following data were taken from the balance sheet of Bock Suppliers Company:

	Dec. 31, 2014	Dec. 31, 2013
Cash	$701,500	$545,600
Temporary investments	812,200	613,800
Accounts and notes receivable (net)	332,300	204,600
Inventories	796,600	529,500
Prepaid expenses	410,400	338,500
Total current assets	$3,053,000	$2,232,000
Accounts and notes payable   (short­term)	$411,800	$434,000
Accrued liabilities	298,200	186,000
Total current liabilities	$710,000	$620,000

a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.

b. The liquidity of Bock Suppliers has _________________ from the preceding year to the current year. The working capital, current ratio, and quick ratio have all _________________ . Most of these changes are the result of an _________________ in current assets relative to current liabilities.

5. Accounts Receivable Analysis

Shelby Stores Company and Landon Stores, Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (all numbers are in millions):

	Shelby	Landon
Merchandise sales	$262,800	$368,650
Credit card receivables­beginning	29,744	72,587
Credit card receivables­ending	24,832	55,885

a. Determine the (1) accounts receivable turnover and (2) the number of days' sales in receivables for both companies. Round answers to one decimal place. Assume 365 days a year.

                                                               Shelby                         Landon

1. Accounts receivable turnover             _________________          _________________

2. Number of days' sales in receivables    _________________ days   _________________ days

b. Shelby's accounts receivable turnover is _________________ than Landon's. The number of days' sales in receivables is _________________ for Shelby than for Landon. These differences indicate that Shelby is able to turn over its receivables

_________________ quickly than Landon. As a result, it takes Shelby _________________ time to collect its receivables.

6. Inventory Analysis

Corporal Inc. and Admiral Company compete with each other in the personal computer market. Corporal's primary strategy is to assemble computers to customer orders, rather than for inventory. Thus, for example, Corporal will build and deliver a computer within four days of a customer entering an order on a Web page. Admiral, on the other hand, builds some computers prior to receiving an order, then sells from this inventory once an order is received. Below is selected financial information for both companies from a recent year's financial statements (in millions):

	Corporal Inc.	Admiral Company
Sales	$83,220	$108,300
Cost of goods sold	69,350	102,200
Inventory, beginning of period	2,916	12,104

a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year.

                                                       Corporal                             Admiral

1. Inventory turnover                       _________________            ________________

2. Number of days' sales in inventory   _________________ days     _________________ days

b. Corporal has a _________________ inventory turnover ratio than does Admiral Company. Likewise, Corporal has a _________________ number of days' sales in inventory.

7. Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Olvideo Enterprises Inc. for the current fiscal year.

Property, plant, and equipment (net)					$1,320,000
Liabilities:
Current liabilities			$120,000
Mortgage note payable, 8%, issued 2003, due 2019			600,000
Total liabilities					$720,000
Stockholders' equity:
Preferred $2 stock, $100 par (no change during year)			$1,080,000
Common stock, $10 par (no change during year)			1,080,000
Retained earnings:
Balance, beginning of year	$1,152,000
Net income	384,000		$1,536,000
Preferred dividends	$21,600
Common dividends	74,400		96,000
Balance, end of year					1,440,000
Total stockholders' equity					$3,600,000
Net sales					$13,338,000
Interest expense					$48,000

Assuming that long­term investments totaled $2,160,000 throughout the year and that total assets were $4,104,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a. Ratio of fixed assets to long­term liabilities _________________

b. Ratio of liabilities to stockholders' equity _________________

c. Ratio of net sales to assets _________________

d. Rate earned on total assets _________________ %

e. Rate earned on stockholders' equity _________________ %

f. Rate earned on common stockholders' equity _________________ %

8. Nineteen Measures of Solvency and Profitability

The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $64 on December 31, 2014.

Blige Inc.

Comparative Retained Earnings Statement

	2014		2013
Retained earnings, January 1	$1,795,025		$1,524,075
Add net income for year	431,200		312,200
Total	$2,226,225		$1,836,275
Deduct dividends On preferred stock	$13,300		$13,300
On common stock	27,950		27,950
Total	$41,250		$41,250
Retained earnings, December 31	$2,184,975		$1,795,025

Blige Inc.

Comparative Income Statement

Sales	$2,752,650		$2,532,400
Sales returns and allowances	13,690		8,900
Net sales	$2,738,960		$2,523,500
Cost of goods sold	973,820		895,910
Gross profit	$1,765,140		$1,627,590
Selling expenses	$599,210		$749,770
Administrative expenses	510,430		440,340
Total operating expenses	1,109,640		1,190,110
Income from operations	$655,500		$437,480
Other income	34,500		27,920
	$690,000		$465,400
Other expense (interest)	200,000		110,400
Income before income tax	$490,000		$355,000
Income tax expense	58,800		42,800
Net income	$431,200		$312,200

Blige Inc.

		Dec. 31, 2014		Dec. 31, 2013
	Assets
Current assets
Cash		$584,440		$461,210
Temporary investments		884,560		764,300
Accounts receivable (net)		503,700		474,500
Inventories		379,600		292,000
Prepaid expenses		110,566		92,240
Total current assets		$2,462,866		$2,084,250
Long­term investments		1,076,582		524,275
Property, plant, and equipment (net)		2,750,000		2,475,000
Total assets		$6,289,448		$5,083,525
	Liabilities
Current liabilities		$794,473		$1,098,500
Long­term liabilities
Mortgage note payable, 8%, due 2019		$1,120,000		$0
Bonds payable, 8%, due 2015		1,380,000		1,380,000

Required:

Determine the following measures for 2014, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

1. Working capital $ _________________

2. Current ratio  _________________

3. Quick ratio  _________________

4. Accounts receivable turnover  _________________

5. Number of days' sales in receivables  _________________  days

6. Inventory turnover  _________________

7. Number of days' sales in inventory  _________________  days

8. Ratio of fixed assets to long­term liabilities  _________________

9. Ratio of liabilities to stockholders' equity  _________________

10. Number of times interest charges are earned  _________________

11. Number of times preferred dividends are earned  _________________

12. Ratio of net sales to assets  _________________

13. Rate earned on total assets  _________________ 

14. Rate earned on stockholders' equity  ________________ 

15. Rate earned on common stockholders' equity  _________________ %

16. Earnings per share on common stock  $ _________________

17. Price­earnings ratio  _________________

18. Dividends per share of common stock  $ _________________

19. Dividend yield _________________ %