Question
1. Horizontal Analysis of the Income Statement Income statement data for Winthrop Company for two recent years ended December 31, are as follows: Current Year
1.
Horizontal Analysis of the Income Statement
Income statement data for Winthrop Company for two recent years ended December 31, are as follows:
Current Year | Previous Year | ||||
Sales | $406,100 | $310,000 | |||
Cost of goods sold | 335,400 | 260,000 | |||
Gross profit | $70,700 | $50,000 | |||
Selling expenses | $21,780 | $18,000 | |||
Administrative expenses | 19,350 | 15,000 | |||
Total operating expenses | $41,130 | $33,000 | |||
Income before income tax | $29,570 | $17,000 | |||
Income tax expenses | 11,800 | 6,800 | |||
Net income | $17,770 | $10,200 |
a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.
Winthrop Company | ||||
Comparative Income Statement | ||||
For the Years Ended December 31 | ||||
Current year Amount | Previous year Amount | Increase (Decrease) Amount | Increase (Decrease) Percent | |
Sales | $406,100 | $310,000 | $ | % |
Cost of goods sold | 335,400 | 260,000 | % | |
Gross profit | $70,700 | $50,000 | $ | % |
Selling expenses | $21,780 | $18,000 | $ | % |
Administrative expenses | 19,350 | 15,000 | % | |
Total operating expenses | $41,130 | $33,000 | $ | % |
Income before income tax | $29,570 | $17,000 | $ | % |
Income tax expense | 11,800 | 6,800 | % | |
Net income | $17,770 | $10,200 | $ | % |
b. The net income for Winthrop Company increased between years. This increase was the combined result of an in sales and percentage in cost of goods sold. The cost of goods sold increased at a rate than the increase in sales, thus causing the percentage increase in gross profit to be than the percentage increase in sales.
2.
Current Position Analysis
The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:
Current Year | Previous Year | |||||||
Current assets: | ||||||||
Cash | $377,000 | $302,400 | ||||||
Marketable securities | 436,500 | 340,200 | ||||||
Accounts and notes receivable (net) | 178,500 | 113,400 | ||||||
Inventories | 900,200 | 592,900 | ||||||
Prepaid expenses | 463,800 | 379,100 | ||||||
Total current assets | $2,356,000 | $1,728,000 | ||||||
Current liabilities: | ||||||||
Accounts and notes payable | ||||||||
(short-term) | $359,600 | $378,000 | ||||||
Accrued liabilities | 260,400 | 162,000 | ||||||
Total current liabilities | $620,000 | $540,000 |
a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.
Current Year | Previous Year | |||||
1. Working capital | $ | $ | ||||
2. Current ratio | ||||||
3. Quick ratio |
b. The liquidity of Nilo 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.
3.
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Six Measures of Solvency or Profitability
The following data were taken from the financial statements of Gates Inc. for the current fiscal year.
Property, plant, and equipment (net) $1,281,600 Liabilities: Current liabilities $213,000 Note payable, 6%, due in 15 years 1,068,000 Total liabilities $1,281,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $960,750 Common stock, $10 par (no change during year) 960,750 Retained earnings: Balance, beginning of year $1,024,000 Net income 472,000 $1,496,000 Preferred dividends $38,430 Common dividends 176,570 215,000 Balance, end of year 1,281,000 Total stockholders' equity $3,202,500 Sales $28,850,250 Interest expense $64,080 Assuming that total assets were $4,259,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.
a. Ratio of fixed assets to long-term liabilities b. Ratio of liabilities to stockholders' equity c. Asset turnover d. Return on total assets % e. Return on stockholders equity % f. Return on common stockholders' equity %
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