Surveys of Accounting Chapter 9 Problem 4

The comparative financial statements of Tec Solutions Inc. are as follows. The market price of Tec Solutions Inc. common stock was $89.75 on December 31, 20Y8.

Tec Solutions Inc. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7

20Y8

Sales $1,940,000

Sales returns and allowances 15,000

Net sales $1,925,000

Cost of goods sold 780,000

Gross profit $1,145,000

Selling expenses $ 385,000

Administrative expenses 215,000

Total operating expenses $ 600,000

Income from operations $ 545,000

Other income 25,000

$ 570,000

Other expense (interest) 115,000

Income before income tax $ 455,000

Income tax expense 91,000

Net income $ 364,000

20Y7

Sales $1,450,000

Sales returns and allowances 10,000

Net sales $1,440,000

Cost of goods sold 575,000

Gross profit $ 865,000

Selling expenses $ 365,000

Administrative expenses 200,000

Total operating expenses $ 565,000

Income from operations $ 300,000

Other income 43,000

$ 343,000

Other expense (interest) 75,000

Income before income tax $ 268,000

Income tax expense 40,000

Net income $ 228,000

Tec Solutions Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 20Y8 and 20Y7

20Y8

Retained earnings, January 1 $381,000

Add net income for year 364,000

Total $745,000

Deduct dividends:

On preferred stock $ 5,000

On common stock 40,000

Total $ 45,000

Retained earnings, December 31 $700,000

20Y7

Retained earnings, January 1 $168,000

Add net income for year 228,000

Total $396,000

Deduct dividends:

On preferred stock 5,000

On common stock 10,000

Total 15,000

Retained earnings, December 31 $381,000

TEc Solutions Inc. Comparative Balance Sheet December 31, 20Y8 and 20Y7

20Y8

Assets

Current assets:

Cash $ 175,000

Temporary investments 250,000

Accounts receivable (net) 190,000

Inventories 300,000

Prepaid expenses 50,000

Total current assets $ 965,000

Long-term investments 400,000

Property, plant, and equipment (net) 1,135,000

Total assets $2,500,000

Liabilities

Current liabilities $ 200,000

Long-term liabilities:

Mortgage note payable, 8%, due in 15 years $ 500,000

Bonds payable, 10%, due in 20 years 750,000

Total long-term liabilities $1,250,000

Total liabilities $1,450,000

Stockholders Equity

Preferred $5 stock, $100 par 100,000

Common stock, $5 par 250,000

Retained earnings 700,000

Total stockholders equity $1,050,000

Total liabilities and stockholders equity $2,500,000

20Y7

Assets

Current assets:

Cash $ 200,000

Temporary investments 292,000

Accounts receivable (net) 160,000

Inventories 260,000

Prepaid expenses 13,000

Total current assets $ 925,000

Long-term investments 100,000

Property, plant, and equipment (net) 875,000

Total assets $1,900,000

Liabilities

Current liabilities $ 419,000

Long-term liabilities:

Mortgage note payable, 8%, due in 15 years $ 0

Bonds payable, 10%, due in 20 years 750,000

Total long-term liabilities $750,000

Total liabilities $1,169,000

Stockholders Equity

Preferred $5 stock, $100 par 100,000

Common stock, $5 par 250,000

Retained earnings 381,000

Total stockholders equity $731,000

Total liabilities and stockholders equity $1,900,000

Instructions Determine the following measures for 20Y8, rounding to one decimal place:

1. Working capital

2. Current ratio

3. Quick ratio

4. Accounts receivable turnover

5. Number of days sales in receivables

6. Inventory turnover

7. Number of days sales in inventory 8. Ratio of fixed assets to long-term liabilities

9. Ratio of liabilities to stockholders equity

10. Number of times interest charges earned

11. Number of times preferred dividends 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. Price-earnings ratio

18. Dividends per share of common stock

19. Dividend yield