chapter 21 financial statements - university of...
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Chapter 21 181
Chapter 21 Financial Statements
Section Exercises21-1, p. 7341.
See Exercise 9 for completed balance sheet for MissMuffins’ Bakery.
2.
$7,583Total liabilities and owner’s equity = $5,052 + $2,531 =
Total liabilities = $3,631 + $1,421 = $5,052Total assets = $1,762 + $3,785 + $2,036 = $7,583
$8,716 Total liabilities and owner’s equity = $5,179 + $3,537 =
Total liabilities = $3,483 + $1,696 = $5,179Total assets = $1,985 + $4,219 + $2,512 = $8,716
3.
See Exercise 10 for completed balance sheet forO’Dell’s Nursery.
4.
$26,045 = $37,595Total liabilities and owner’s equity = $11,550 +
Total liabilities = $8,968 + $2,582 = $11,550Total assets = $12,842 + $5,836 + $18,917 = $37,595
$34,264Total liabilities and owner’s equity = $13,931+ $20,333 =
Total liabilities = $10,215 + $3,716 = $13,931Total assets = $8,917 + $7,521 + $17,826 = $34,264
5. 6.
$7,583
$7,583 (100%) = 100%
Total liabilitiesand owner’s equity
=
Owner’s equity: $2,531
$7,583 (100%) = 33.4%
Total liabilities: $5,052
$7,583 (100%) = 66.6%
Wages payable: $1,421
$7,583 (100%) = 18.7%
Accounts payable: $3,631
$7,583 (100%) = 47.9%
Total assets: $7,583
$7,583 (100%) = 100%
Merchandise inventory: $2,036
$7,583 (100%) = 26.8%
Accounts receivable: $3,785
$7,583 (100%) = 49.9%
Cash: $1,762
$7,583 (100%) = 23.2%
$8,716
$8,716 (100%) = 100%
Total liabilitiesand owner’s equity
=
Owner’s equity: $3,537
$8,716 (100%) = 40.6%
Total liabilities: $5,179
$8,716 (100%) = 59.4%
Wages payable: $1,696
$8,716 (100%) = 19.5%
Accounts payable: $3,483
$8,716(100%) = 40.0%
$8,716
$8,716 (100%) = 100%
Total assets percentof total assets
=
$2,512
$8,716(100%) = 28.8%
Merchandise inventorypercent of total assets
=
$4,219
$8,716 (100%) = 48.4%
Accounts receivable
percent of total assets=
Cash percent of total assets =
$1,985
$8,716 (100%) = 22.8%
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7. 8.
$37,595
$37,595 (100%) = 100%
Total liabilitiesand owner’s equity
=
Owner’s equity =
$26,045
$37,595 (100%) = 69.3%
Total liabilities =
$11,550
$37,595 (100%) = 30.7%
Wages payable =
$2,582
$37,595 (100%) = 6.9%
Accounts payable =
$8,968
$37,595 (100%) = 23.9%
Total assets =
$37,595
$37,595 (100%) = 100%
Merchandise inventory: $18,917
$37,595 (100%) = 50.3%
Accounts receivable: $5,836
$37,595 (100%) = 15.5%
Cash: $12,842
$37,595 (100%) = 34.2%
$34,264
$34,264 (100%) = 100%
Total liabilitiesand owner’s equity:
Owner’s equity: $20,333
$34,264 (100%) = 59.3%
Total liabilities: $13,931
$34,264 (100%) = 40.7%
Wages payable: $3,716
$34,264(100%) = 10.8%
Accounts payable: $10,215
$34,264 (100%) = 29.8%
Total assets: $34,264
$34,264 (100%) = 100%
Merchandise inventory: $17,826
$34,264 (100%) = 52.0%
Accounts receivable: $7,521
$34,264 (100%) = 22.0%
Cash: $8,917
$34,264 (100%) = 26.0%
9.
= ($148) Accounts payable decrease = $3,483 - $3,631
Percent of increase =
$1,133
$7,583 (100%) = 14.9%
Total assets increase = $8,716 - $7,583 = $1,133
Percent of increase =
$476
$2,036 (100%) = 23.4%
= $476 Merchandise inventory increase = $2,512 - $2,036
Percent of increase =
$434
$3,785 (100%) = 11.5%
= $434 Accounts receivable increase = $4,219 - $3,785
Percent of increase =
$223
$1,762 (100%) = 12.7%
Cash increase = $1,985 - $1,762 = $223
Percent of increase =
$1,133
$7,583 (100%) = 14.9%
$7,583 = $1,133$8,716 -
Total liabilities and owner’s equity increase =
Percent of increase =
$1,006
$2,531 (100%) = 39.7%
Owner’s equity increase = $3,537 - $2,531 = $1,006
Percent of increase =
$127
$5,052 (100%) = 2.5%
Total liabilities increase = $5,179 - $5,052 = $127
Percent of increase =
$275
$1,421 (100%) = 19.4%
Wages payable increase = $1,696 - $1,421 = $275
Percent of increase =
($148)
$3,631 (100%) = (4.1%)
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Chapter 21 183
Solutions for Exercises 1, 2, 5, 6, 9Miss Muffins’ Bakery
Comparative Balance SheetDecember 31, 2011 and 2012
Percent of Increase (Decrease) Total Assets
2012 2011 Amount Percent 2012 2011AssetsCurrent assetsCash $1,985 $1,762 $223 12.7 22.8 23.2Accounts receivable 4,219 3,785 434 11.5 48.4 49.9Merchandise inventory 2,512 2,036 476 23.4 28.8 26.8Total assets $8,716 $7,583 $1,133 14.9 100.0 100.0LiabilitiesCurrent liabilitiesAccounts payable $3,483 $3,631 ($148) (4.1) 40.0 47.9Wages payable 1,696 1,421 275 19.4 19.5 18.7Total liabilities 5,179 5,052 127 2.5 59.4 66.6Owner’s EquityMildred Galloway, capital 3,537 2,531 1,006 39.7 40.6 33.4Total liabilities and owner’s equity $8,716 $7,583 $1,133 14.9 100.0 100.0
10.
Percent of decrease =
($3,331)
$37,595 (100%) = (8.9%)
$37,595 = ($3,331)Total liabilities and owner’s equity increase = $34,264 -
Percent of decrease =
($5,712)
$26,045 (100%) = (21.9%)
Owner’s capital decrease = $20,333 - $26,045 = ($5,712)
Percent of increase =
$2,381
$11,550 (100%) = 20.6%
Total liabilities increase = $13,931 - $11,550 = $2,381
Percent of increase =
$1,134
$2,582 (100%) = 43.9%
Wages payable increase = $3,716 - $2,582 = $1,134
Percent of increase =
$1,247
$8,968 (100%) = 13.9%
Accounts payable increase = $10,215 - $8,968 = $1,247
Percent of decrease =
($3,331)
$37,595 (100%) = (8.9%)
Total assets decrease = $34,264 - $37,595 = ($3,331)
Percent of decrease =
($1,091)
$18,917 (100%) = (5.8%)
$18,917 = ($1,091)
Merchandise inventory decrease = $17,826 -
Percent of increase =
$1,685
$5,836 (100%) = 28.9%
$1,685
Accounts receivable increase = $7,521 - $5,836 =
Percent of decrease =
($3,925)
$12,842 (100%) = (30.6%)
Cash decrease = $8,917 - $12,842 = ($3,925)
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11. 12. Total debt to total assets =
$5,052
$7,583 (100%) = 66.6%Total debt to total assets =
$5,179
$8,716 (100%) = 59.4%
21-2, p. 7421.
Net income for 2011 = $19,302 - $3,951 = $15,351 = $19,302
Gross profit for 2011 = $92,196 - $72,894Net income for 2012 = $15,227 - $4,783 = $10,444Gross profit for 2012 = $97,384 - $82,157 = $15,227
Sitha Ros's Oriental GroceriesIncome Statement
for the Years Ending June 30, 2011 and 2012
Net sales 82,157 72,894 Cost of goods sold 15,227 19,302 Gross profit
$97,384 $92,196
2011 2012
4,783 3,951 Operating expenses $10,444 $15,351 Net income
Miss Muffins’ BakeryComparative Income Statement for the Months Ending
July 31, 2010 and July 31, 2011
2011 2010Gross sales $35,403 $32,596Returns and allowances 342 296Net sales 35,061 32,300
Cost of beginning inventory 17,403 16,872Cost of purchases 27,983 33,596Cost of ending inventory 22,583 21,843Cost of goods sold 22,803 28,625Gross profit 12,258 3,675Total operating expenses 3,053 1,894Net income $ 9,205 $ 1,781
2. 3.
Net income = $12,258 - $3,053 = $9,205Gross profit = $35,061 - $22,803 = $12,258
= $22,803 Cost of goods sold = $17,403 + $27,983 - $22,583Net sales = $35,403 - $342 = $35,061
Net income = $3,675 - $1,894 = $1,781Gross profit = $32,300 - $28,625 = $3,675$28,625Cost of goods sold = $16,872 + $33,596 - $21,843 =
Net sales = $32,596 - $296 = $32,300
Solutions for Exercises 3, 4, 7, 8, 10 O’Dell’s NurseryComparative Balance Sheet
December 31, 2011 and 2012Percent of
Increase (Decrease) Total Assets
2012 2011 Amount Percent 2012 2011AssetsCurrent assetsCash $8,917 $12,842 ($3,925) (30.6) 26.0 34.2Accounts receivable 7,521 5,836 1,685 28.9 22.0 15.5Merchandise inventory 17,826 18,917 (1,091) (5.8) 52.0 50.3Total assets $34,264 $37,595 ($3,331) (8.9) 100.0 100.0LiabilitiesCurrent liabilitiesAccounts payable $10,215 $8,968 $1,247 13.9 29.8 23.9Wages payable 3,716 2,582 1,134 43.9 10.8 6.9Total liabilities 13,931 11,550 2,381 20.6 40.7 30.7Owner’s EquityJanelle O’Dell, capital 20,333 26,045 (5,712) (21.9) 59.3 69.3Total liabilities and owner’s equity $34,264 $37,595 ($3,331) (8.9) 100.0 100.0
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4.Sitha Ros’s Oriental Groceries
Income Statement for Years EndingJune 30, 2011 and 2012
Percent of Percent of2012 Net Sales 2011 Net Sales
Net sales $97,384 100.0 $92,196 100.0Cost of goods sold 82,157 84.4 72,894 79.1Gross profit 15,227 15.6 19,302 20.9Operating expenses 4,783 4.9 3,951 4.3Net income $10,444 10.7 $15,351 16.7
Percentages for 2011 are found similarly.
Net income percent of net sales =
$10,444
$97,384 (100%) = 10.7%
Operating expenses percent of net sales =
$4,783
$97,384 (100%) = 4.9%
Gross profit percent of net sales =
$15,227
$97,384 (100%) = 15.6%
Cost of goods sold percent of net sales =
$82,157
$97,384 (100%) = 84.4%
5.Miss Muffins’ Bakery
Vertical Analysis of Income Statement for the Months EndingJuly 31, 2010 and July 31, 2011
Percent of Percent of2011 Net Sales 2010 Net Sales
Gross sales $35,403 101.0 $32,596 100.9Returns and allowances 342 1.0 296 0.9Net sales 35,061 100.0 32,300 100.0
Cost of beginning inventory 17,403 49.6 16,872 52.2Cost of purchases 27,983 79.8 33,596 104.0Cost of ending inventory 22,583 64.4 21,843 67.6Cost of goods sold 22,803 65.0 28,625 88.6Gross profit 12,258 35.0 3,675 11.4Total operating expenses 3,053 8.7 1,894 5.9Net income $ 9,205 26.3 $ 1,781 5.5
Remaining percentages for 2011 and percentages for 2012 are found similarly.
Cost of beginning inventory percent of net sales =
$17,403
$35,061 (100%) = 49.6%
Returns and allowances percent of net sales =
$342
$35,061 (100%) = 1.0%
Gross sales percent of net sales =
$35,403
$35,061 (100%) = 101.0%
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6.Sitha Ros’s Oriental Groceries
Horizontal Analysis of Income Statement for Years EndingJune 30, 2011 and 2012
Increase Percent Increase 2012 2011 (Decrease) (Percent Decrease)
Net sales $97,384 $92,196 $5,188 5.6Cost of goods sold 82,157 72,894 9,263 12.7Gross profit 15,227 19,302 (4,075) (21.1)Operating expenses 4,783 3,951 832 21.1Net income $10,444 $15,351 ($4,907) (32.0)
Gross profit decrease = $19,302 - $15,227 = ($4,075)
Percent of increase =
$9,263
$72,894 (100%) = 12.7%
Cost of goods sold increase = $82,157 - $72,894 = $9,263
Percent of increase =
$5,188
$92,196 (100%) = 5.6%
Net sales increase = $97,384 - $92,196 = $5,188
Percent of decrease =
($4,907)
$15,351= (32.0%)
Net income decrease = $15,351 - $10,444 = ($4,907)
Percent of increase =
$832
$3,951 (100%) = 21.1%
Operating expenses increase = $4,783 - $3,951 = $832
Percent of decrease =
($4,075)
$19,302 (100%) = (21.1%)
7.
Net sales increase = $35,061 - $32,300 = $2,761
Percent of increase =
$46
$296 (100%) = 15.5%
= $46 Returns and allowances increase = $342 - $296
Percent of increase =
$2,807
$32,596 (100%) = 8.6%
Gross sales increase = $35,403 - $32,596 = $2,807
Remaining increases or decreases and percentages are found similarly.
Percent of increase =
$531
$16,872 (100%) = 3.1%
= $531 Cost of beginning inventory increase = $17,403 - $16,872
Percent of increase =
$2,761
$32,300 (100%) = 8.5%
Miss Muffins’ BakeryHorizontal Analysis of Income Statement for the Months Ending
July 31, 2010 and July 31, 2011
Increase (Decrease)
2011 2010 Amount PercentGross sales $35,403 $32,596 $2,807 8.6Returns and allowances 342 296 46 15.5Net sales 35,061 32,300 2,761 8.5Cost of beginning inventory 17,403 16,872 531 3.1Cost of purchases 27,983 33,596 (5,613) (16.7)Cost of ending inventory 22,583 21,843 740 3.4Cost of goods sold 22,803 28,625 (5,822) (20.3)Gross profit 12,258 3,675 8,583 233.6Total operating expenses 3,053 1,894 1,159 61.2Net income $ 9,205 $ 1,781 $7,424 416.8
21-3, p. 7511. 2.
=
$378,759
$597,064= 0.634 to 1
Operating ratio =
$315,842 + $62,917
$597,064Current ratio =
$148,947
$103,537= 1.44 to 1
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3. 4. Asset turnover ratio =
$289,512
$145,753= 1.98 to 1
=
$212,539
$392,054= 0.542 to 1
Gross profit margin ratio =
$392,054 - $179,515
$392,054
5. 6.
= 2.03 or 2.03 to 1
=
$45,026
$22,178
=
$32,981 + $12,045
$22,178
Acid-test ratio =
quick current assets
current liabilities
José’s current ratio =
$840,000
$819,000= 1.03 or 1.03 to 1
=
$28,000
$7,000= 4 or 4 to 1
George’s current ratio =
current assets
current liabilities
7.
= 0.709677 or 71.0%
=
$7,500 + $3,500
$15,500=
$11,000
$15,500
=
cost of goods sold + operating expenses
net sales Operating ratio
8.
= 0.516129 or 51.6%
=
$8,000
$15,500
=
$15,500 - $7,500
$15,500
Gross profit margin ratio =
net sales - cost of goods sold
net sales
Exercises Set A, p. 7571. Fawcett’s Plumbing Supplies
Balance Sheet March 31, 2011
AssetsCurrent assetsCash $1,724.00Office supplies 173.00Accounts receivable 9,374.00Total current assets 11,271.00Plant and equipmentEquipment 12,187.00Total plant and equipment 12,187.00Total assets $23,458.00
LiabilitiesCurrent liabilitiesAccounts payable $2,174.00Wages payable 674.00Property and taxes payable 250.00Total current liabilities 3,098.00Total liabilities 3,098.00
Owner’s equityD. W. Fawcett, capital 20,360.00Total liabilities and owner’s equity $23,458.00
= $23,458 Total liabilities and owner’s equity = $3,098 + $20,360Total current liabilities = $2,174 + $674 + $250 = $3,098Total assets = $11,271 + $12,187 = $23,458Total current assets = $1,724 + $173 + $9,374 = $11,271
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Seymour’s Videos, Inc.Comparative Balance Sheet
December 31, 2010 and 2011Increase Percent of
(decrease) total assets
2011 2010 Amount Percent 2011 2010AssetsCurrent assetsCash $2,374 $2,184 $190 8.7 10.2 9.7Accounts receivable 5,374 4,286 1,088 25.4 23.0 19.0Merchandise inventory 15,589 16,107 (518) (3.2) 66.8 71.3Total assets $23,337 $22,577 $760 3.4 100.0 100.0LiabilitiesCurrent liabilitiesAccounts payable $7,384 $6,118 $1,266 20.7 31.6 27.1Wages payable 1,024 964 60 6.2 4.4 4.3Total liabilities 8,408 7,082 1,326 18.7 36.0 31.4Owner’s equityJames Seymour, capital 14,929 15,495 (566) (3.7) 64.0 68.6Total liabilities and owner’s equity $23,337 $22,577 $760 3.4 100.0 100.0
2.
Remaining table values for increases/decreases and percent of increases/decreases are calculated in a similar manner.
Remaining percents for 2011 and percents of total assets for 2010 are calculated similarly. For 2010 use $22,577 asdenominator.
Total assets percent of total assets for 2011 =
$23,337
$23,337(100%) = 100%
Merchandise inventory percent of total assets for 2011 =
$15,589
$23,337(100%) = 66.8%
Accounts receivable percent of total assets for 2011 =
$5,374
$23,337(100%) = 23.0%
Cash percent of total assets for 2011 =
$2,374
$23,337(100%) = 10.2%
Present decrease =
($518)
$16,107(100%) = -3.2% or (3.2%)
Merchandise inventory decrease = $16,107 - $15,589 = ($518)
Percent increase =
$1,088
$4,286(100%) = 25.4%
Accounts receivable increase = $5,374 - $4,286 = $1,088
Percent increase =
$190
$2,184(100%) = 8.7%
Cash increase = $2,374 - $2,184 = $190$15,495 = $22,577Total liabilities and owner’s equity for 2010 = $7,082 +
$14,929 = $23,337Total liabilities and owner’s equity for 2011 = $8,408 +
Total liabilities for 2010 = $6,118 + $964 = $7,082Total liabilities for 2011 = $7,384 + $1,024 = $8,408Total assets for 2010 = $2,184 + $4,286 + $16,107 = $22,577Total assets for 2011 = $2,374 + $5,374 + $15,589 = $23,337
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3. Marten’s Family Store Income Statement
For Year Ending December 31, 2011Percent of net sales
Revenue:Gross sales $238,923 106.1Sales returns and allowances 13,815 6.1Net sales 225,108 100.0Cost of goods sold:Beginning inventory, January 1, 2011 25,814 11.5Purchases 109,838 48.8Ending inventory, December 31, 2011 23,423 10.4Cost of goods sold 112,229 49.9Gross profit from sales 112,879 50.1Operating expenses:Salary 42,523 18.9Rent 8,640 3.8Utilities 1,484 0.7Insurance 2,842 1.3Fees 860 0.4Depreciation 1,920 0.9Miscellaneous 3,420 1.5Total operating expenses 61,689 27.4Net income $51,190 22.7
Remaining percents of net sales are calculated similarly.
Sales returns and allowances percent of net sales =
$13,815
$225,108(100%) = 6.1%
Gross sales percent of net sales =
$238,923
$225,108(100%) = 106.1%
Net income = $112,879 - $61,689 = $51,190Gross profit from sales = $225,108 - $112,229 = $112,879Net sales = $238,923 - $13,815 = $225,108
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4. Alonzo’s Auto Parts Comparative Income Statement
For years ending June 30, 2011 and 2012
Increase (decrease)2012 2011 Amount Percent
Revenue:Gross sales $291,707 $275,873 15,834 5.7Sales returns and allowances 5,895 6,821 (926) (13.6)Net sales 285,812 269,052 16,760 6.2Cost of goods sold:Beginning inventory, July 1 35,892 32,587 3,305 10.1Purchases 157,213 146,999 10,214 6.9Ending inventory, June 30 32,516 30,013 2,503 8.3Cost of goods sold 160,589 149,573 11,016 7.4Gross profit from sales 125,223 119,479 5,744 4.8Operating expenses:Salary 42,000 40,000 2,000 5.0Insurance 3,800 3,800 0 0Utilities 1,986 2,097 (111) (5.3)Rent 3,600 3,300 300 9.1Depreciation 4,000 4,500 (500) (11.1)Total operating expenses 55,386 53,697 1,689 3.1Net income $69,837 $65,782 4,055 6.2
Similar calculations are used for 2011.
Remaining increases/decreases and percent increases/decreases are calculated similarly.
Percent of decrease =
($926)
$6,821 (100%) = (13.6%)
Sales returns and allowances decrease = $6,821 - $5,895 = ($926)
Percent of increase =
$15,834
$275,873 (100%) = 5.7%
Gross sales increase = $291,707 - $275,873 = $15,834
Net income = $125,223 - $55,386 = $69,837Total operating expenses = $42,000 + $3,800 + $1,986 + $3,600 + $4,000 = $55,386Gross profit from sales = $285,812 - $160,589 = $125,223Cost of goods sold for 2012 = $35,892 + $157,213 - $32,516 = $160,589Net sales for 2012 = $291,707 - $5,895 = $285,812
5. 6. Current ratio =
$174,316
$125,342= 1.39 to 1Current ratio =
$1,231,704
$784,184= 1.57 to 1
7. 8.
=
$35,800
$27,800= 1.29 to 1
Acid-test ratio =
$23,500 + $12,300
$27,800
=
$12,295
$14,205= 0.87 to 1
Acid-test ratio =
$2,345 + $5,450 + $4,500
$6,748 + $7,457
9. 10.
=
$154,700
$173,200= 0.893187067, or 89.3%
Operating ratio =
$138,400 + $16,300
$173,200
= 0.25, or 25%
Gross profit margin =
$25,000 - $18,750
$25,000
Operating ratio: $18,750 + $3,750
$25,000= 0.9, or 90%
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11. 12.
= 0.3054311624, or 30.5%
=
$87,302
$285,832
Gross profit margin ratio =
$285,832 - $198,530
$285,832
= 0.8225915923, or 82.3%
Operating ratio =
$198,530 + $36,593
$285,832
= 0.2009237875, or 20.1%
=
$34,800
$173,200
Gross profit margin ratio =
$173,200 - $138,400
$173,200
Chapter 21 191
Exercises Set B, p. 761
Rooter CompanyBalance SheetJune 30, 2012
AssetsCurrent assetsCash $2,350.00Supplies 175.00Accounts receivable 8,956.00Total current assets 11,481.00Plant and equipmentEquipment 11,375.00Total plant and equipment 11,375.00Total assets $22,856.00LiabilitiesCurrent liabilitiesAccounts payable $1,940.00Wages payable 855.00Rent payable 775.00Total current liabilities 3,570.00Total liabilities 3,570.00Owner’s equityWilson Rooter, capital 19,286.00Total liabilities and owner’s equity $22,856.00
= $22,856 Total liabilities and owner’s equity = $3,570 + $19,286
= $3,570 Total current liabilities = $1,940 + $855 + $775Total assets = $11,481 + $11,375 = $22,856
= $11,481 Total current assets = $2,350 + $175 + $8,956
1.
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Miller’s Model ShipsComparative Balance SheetDecember 31, 2010 and 2011
Increase Percent of(decrease) total assets
2011 2010 Amount Percent 2011 2010AssetsCurrent assetsCash $2,176 $1,948 $228 11.7 21.9 21.3Accounts receivable 2,789 1,742 1,047 60.1 28.0 19.1Merchandise inventory 4,985 5,450 (465) (8.5) 50.1 59.6Total assets $9,950 $9,140 $810 8.9 100.0 100.0LiabilitiesCurrent liabilitiesAccounts payable $901 $872 $29 3.3 9.1 9.5Wages payable 1,342 1,224 118 9.6 13.5 13.4Insurance payable 690 680 10 1.5 6.9 7.4Total liabilities 2,933 2,776 157 5.7 29.5 30.4Owner’s equityKathy Miller, capital 7,017 6,364 653 10.3 70.5 69.6Total liabilities and owner’s equity $9,950 $9,140 $810 8.9 100.0 100.0
2.
Remaining table values for increases/decreases and percent of increases/decreases are calculated in a similar manner.
Remaining percents for 2010 and 2011 are calculated similarly. For 2010 use $9,140 as denominator.
Total assets percent of total assets for 2011 =
$9,950
$9,950 (100%) = 100%
Merchandise inventory percent of total assets for 2011 =
$4,985
$9,950 (100%) = 50.1%
Accounts receivable percent of total assets for 2011 =
$2,789
$9,950 (100%) = 28.0%
Cash percent of total assets for 2011 =
$2,176
$9,950 (100%) = 21.9%
Percent of decrease =
($465)
$5,450 (100%) = (8.5%)
Merchandise inventory decrease = $5,450 - $4,985 = ($465)
Percent of increase =
$1,047
$1,742 (100%) = 60.1%
Accounts receivable increase = $2,789 - $1,742 = $1,047
Percent of increase =
$228
$1,948 (100%) = 11.7%
Cash increase = $2,176 - $1,948 = $228$2,776 + $6,364 = $9,140Total liabilities and owner’s equity for 2010 =
$2,933 + $7,017 = $9,950Total liabilities and owner’s equity for 2011 =
Total liabilities for 2010 = $872 + $1,224 + $680 = $2,776Total liabilities for 2011 = $901 + $1,342 + $690 = $2,933Total assets for 2010 = $1,948 + $1,742 + $5,450 = $9,140Total assets for 2011 = $2,176 + $2,789 + $4,985 = $9,950
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3.
Chapter 21 193
Serpa’s GiftsIncome Statement
For Year Ending December 31, 2010
Percent ofnet sales
Revenue:Gross sales $148,645 106.4Sales returns and allowances 8,892 6.4Net sales 139,753 100.0Cost of goods sold:Beginning inventory, January 1, 2010 12,100 8.7Purchases 47,800 34.2Ending inventory, December 31, 2010 11,950 8.6Cost of goods sold 47,950 34.3Gross profit from sales 91,803 65.7Operating expenses:Salary 25,500 18.2Rent 4,500 3.2Utilities 1,445 1.0Insurance 2,100 1.5Fees 225 0.2Depreciation 1,240 0.9Miscellaneous 750 0.5Total operating expenses 35,760 25.6Net income $56,043 40.1
Remaining percents of net sales are similarly calculated.
$8,892
$139,753 (100%) = 6.4%
Sales returns and allowancespercent of net sales =
= 106.4%
Gross sales percent of net sales =
$148,645
$139,753 (100%)
Net income = $91,803 - $35,760 = $56,043$2,100 + $225 + $1,240 + $750 = $35,760Total operating expenses = $25,500 + $4,500 + $1,445 +
Gross profit from sales = $139,753 - $47,950 = $91,803 = $47,950
Cost of goods sold = $12,100 + $47,800 - $11,950Net sales = $148,645 - $8,892 = $139,753
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194 Chapter 21
Designer CraftsComparative Income Statement
For Years Ending December 31, 2011 and 2012
Increase (decrease)
2012 2011 Amount PercentRevenue:Gross sales $239,873 $236,941 $2,932 1.2Sales returns and allowances 12,815 13,895 (1,080) (7.8)Net sales 227,058 223,046 4,012 1.8Cost of goods sold:Beginning inventory, January 1 27,814 25,887 1,927 7.4Purchases 123,213 112,604 10,609 9.4Ending inventory, December 31 24,482 23,838 644 2.7Cost of goods sold 126,545 114,653 11,892 10.4Gross profit from sales 100,513 108,393 (7,880) (7.3)
Operating expenses:Salary 44,772 42,640 2,132 5.0Insurance 3,006 2,863 143 5.0Utilities 1,597 1,521 76 5.0Rent 3,600 3,600 0 0.0Depreciation 4,100 3,400 700 20.6Total operating expenses 57,075 54,024 3,051 5.6Net income $43,438 $54,369 ($10,931) (20.1)
4.
Similar calculations are used for 2011. Remaining increases/decreases and percent increases/de-creases are calculated similarly.
Percent of decrease =
($1,080)
$13,895 (100%) = (7.8%)
$12,815 = ($1,080)Sales returns and allowances decrease = $13,895 -
Percent of increase =
$2,932
$236,941 (100%) = 1.2%
Gross sales increase = $239,873 - $236,941 = $2,932
Net income = $100,513 - $57,075 = $43,438$3,600 + $4,100 = $57,075Total operating expenses = $44,772 + $3,006 + $1,597 +
Gross profit from sales = $227,058 - $126,545 = $100,513$24,482 = $126,545Cost of goods sold for 2012 = $27,814 + $123,213 -
Net sales for 2012 = $239,873 - $12,815 = $227,058
5. 6.
Current ratio =
$724,987
$334,169= 2.17 to 1
$334,169Current assets = $724,987; current liabilities =
Current ratio =
$32,194
$38,714= 0.83 to 1
Current assets = $32,194; current liabilities = $38,714
7. 8.
=
$19,456
$18,345= 1.06 to 1
Acid-test ratio =
$6,700 + $12,756
$18,345
=
$18,241
$10,475= 1.74 to 1
Acid-test ratio =
$5,745 + $12,496
$10,475
9. 10.
or 30.1%
=
$7,065
$23,500= 0.3006382979,
Gross profit margin ratio =
$23,500 - $16,435
$23,500
=
$19,535
$23,500= 0.8312765957, or 83.1%
Operating ratio =
$16,435 + $3,100
$23,500
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Practice Test, p. 765 1.
Chapter 21 195
O’Toole’s Hardware StoreComparative Balance SheetDecember 31, 2011 and 2012
Increase (Decrease)
2012 2011 Amount PercentAssetsCurrent assetsCash $7,318 $5,283 $2,035 38.5Accounts receivable 3,147 3,008 139 4.6Merchandise inventory 63,594 60,187 3,407 5.7Total current assets 74,059 68,478 5,581 8.2Plant and equipmentBuilding 36,561 37,531 (970) (2.6)Equipment 8,256 4,386 3,870 88.2Total plant and equipment 44,817 41,917 2,900 6.9Total assets $118,876 $110,395 $8,481 7.7LiabilitiesCurrent liabilitiesAccounts payable $5,174 $4,563 $ 611 13.4Wages payable 780 624 156 25.0Total current liabilities 5,954 5,187 767 14.8Long-term liabilitiesMortgage note payable 34,917 36,510 (1,593) (4.4)Total long-term liabilities 34,917 36,510 (1,593) (4.4)Total liabilities 40,871 41,697 (826) (2.0)Owner’s EquityJames O’Toole, capital 78,005 68,698 9,307 13.5Total liabilities and owner’s equity $118,876 $110,395 $8,481 7.7
Similar calculations are used for 2011.
Remaining increases/decreases and percent increases/decreases are calculated similarly.
Percent of increase =
$3,407
$60,187 (100%) = 5.7%
= $3,407 Merchandise inventory increase = $63,594 - $60,187
Percent of increase =
$139
$3,008 (100%) = 4.6%
= $139 Accounts receivable increase = $3,147 - $3,008
Percent of increase =
$2,035
$5,283 (100%) = 38.5%
Cash increase = $7,318 - $5,283 = $2,035
= $118,876Total liabilities and owner’s equity for 2012 = $40,871 + $78,005Total liabilities for 2012 = $5,954 + $34,917 = $40,871Total long-term liabilities for 2012 = $34,917
= $5,954 Total current liabilities for 2012 = $5,174 + $780Total assets for 2012 = $74,059 + $44,817 = $118,876
= $44,817 Total plant and equipment for 2012 = $36,561 + $8,256= $74,059 Total current assets for 2012 = $7,318 + $3,147 + $63,594
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196 Chapter 21
2. 3.
= 1.76 to 1
Acid-test ratio for 2012 =
$7,318 + $3,147
$5,954Current ratio for 2012 =
$74,059
$5,954= 12.44 to 1
4. 5.
= 1.60 to 1
Acid-test ratio for 2011 =
$5,283 + $3,008
$5,187Current ratio for 2011 =
$68,478
$5,187= 13.20 to 1
6.
Similar calculations are used for 2010. Remaining increases/decreases and percent increases/decreases are calculated similarly.
Percent of increase =
$529
$7,983 (100%) = 6.6%
= $529 Sales returns and allowances increase = $8,512 - $7,983
Percent of increase =
$13,975
$205,852 (100%) = 6.8%
Gross sales increase = $219,827 - $205,852 = $13,975
Net income = $114,158 - $37,040 = $77,118$3,600 + $2,000 = $37,040Total operating expenses = $28,940 + $800 + $1,700 +
Gross profit from sales = $211,315 - $97,157 = $114,158$43,182 = $97,157Cost of goods sold for 2011 = $42,816 + $97,523 -
Net sales for 2011 = $219,827 - $8,512 = $211,315
Mile Wide Woolens, Inc.Comparative Income Statement
For Years Ending December 31, 2010 and 2011
Increase (decrease)
2011 2010 Amount PercentRevenueGross sales $219,827 $205,852 $13,975 6.8Sales returns and allowances 8,512 7,983 529 6.6Net sales 211,315 197,869 13,446 6.8Cost of goods soldBeginning inventory, January 1 42,816 40,512 2,304 5.7Purchases 97,523 94,812 2,711 2.9Ending inventory, December 31 43,182 42,521 661 1.6Cost of goods sold 97,157 92,803 4,354 4.7Gross profit from sales 114,158 105,066 9,092 8.7Operating expensesSalary 28,940 27,000 1,940 7.2Insurance 800 750 50 6.7Utilities 1,700 1,580 120 7.6Rent 3,600 3,000 600 20.0Depreciation 2,000 2,400 (400) (16.7)Total operating expenses 37,040 34,730 2,310 6.7Net income $77,118 $70,336 $6,782 9.6
7.
8.
= 0.540 or 54.0%=
$211,315 - $97,157
$211,315
Gross profit margin ratio for 2011
= 0.531 or 53.1%=
$197,869 - $92,803
$197,869Gross profit margin ratio for 2010
=
$134,197
$211,315= 0.635, or 63.5% Operating ratio for 2011 =
$97,157 + $37,040
$211,315
=
$127,533
$197,869= 0.645, or 64.5% Operating ratio for 2010 =
$92,803 + $34,730
$197,869
9. 10. Asset turnover ratio =
$211,315
$138,057= 1.53Asset turnover ratio =
$197,869
$126,432= 1.56
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Critical Thinking, p. 767
Chapter 21 197
1. Step 5 states that Step 1d states that
. Becausetotal liabilities and owner’s equity and
both equal totalassets, then they should equal each other.
and equipmentassets + total planttotal current
and equipmenttotal planttotal current assets +
Total assets =owner’s equity.Total assets = total liabilities and 2. In the formula
, add cost of goods sold to both sides of the equalsign. The resulting formula will be
. The sides of the formula canbe interchanged to be written:
.cost of goods soldgross profit +Net sales =
net salesof goods sold =
Gross profit + cost sold
Gross profit = net sales - cost of goods
3. A rearranged formula would be . Then, .
4. Multiply both sides by net sales.
or
Amount of item = percent of net sales � net sales
Percent of net sales * net sales = amount of item
Percent of net sales * net sales =
amount of item
net sales* net sales
$25,982 + $150,986 = $176,968Gross profit =
profit + operating expensesGross profit = net
5. The amount of sales tax is comparable to the amount ofincrease. The amount of the item is the untaxed or origi-nal amount similar to the earlier year’s amount being theoriginal amount.
6. The rate, R, corresponds to the percent of increase (decrease) or rate of sales tax. The portion or percentage,P, corresponds to the amount of increase (decrease) orthe amount of sales tax. The base, B, corresponds to theearlier year’s amount or the amount of the item.
7. Different values may be given, but the same formula canbe used if any two out of the three values are given.
8. It means they are equal.
9. The current liabilities are higher. 10. The quick current assets are more than the current liabilities.
Challenge Problem, p. 767
= 3.833333333(100%) = 383.3%
=
$460,000
$120,000 (100%)
=
$580,000 - $120,000
$120,000 (100%)
Rate of change =
amount of change
original assets (100%)
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198 Chapter 21
Case Studies21.1, p. 7681. Contemporary Wood Furniture
Comparative Balance SheetDecember 31, 2010 and 2011
Increase Percent of(decrease) total assets
2011 2010 Amount Percent 2011 2010AssetsCurrent assetsCash $1,844 $3,278 ($1,434) (43.7) 1.0 1.9Accounts receivable 11,807 6,954 4,853 69.8 6.5 4.0Inventory 9,628 17,417 (7,789) (44.7) 5.3 10.1Plant and equipment 158,700 144,500 14,200 9.8 87.2 83.9
Total Assets $181,979 $172,149 $9,830 5.7 100.0 100.0LiabilitiesCurrent LiabilitiesAccounts payable $13,446 $9,250 $4,196 45.4 7.4 5.4Wages payable 650 1,110 (460) 41.4 0.4 0.6Property and taxes payable 4,124 3,650 474 13.0 2.3 2.1Long-term debt 92,800 75,800 17,000 22.45 51.0 44.0
Total Liabilities 111,020 89,810 21,210 23.6 61.1 52.1Owner’s EquityCharles Royston, capital 70,959 82,339 (11,380) (13.8) 39.0 47.8Total liabilities and owner’s equity $181,979 $172,149 $9,830 5.7 100.0 100.0
2.
3. In total, the trends are something to be concerned about. Total debt has increased from 2010 to 2011. The current ratio ismuch better in 2010, and is approaching the value of 1 for 2011, which is a major problem. The total debt to total assetsratio is approaching the high range for 2011, which could be a problem. It will be important to continue to monitor thebalance sheets for 2012 to make sure that these trends do not continue.
2010 total debt to total assets ratio =
$89,810
$172,149= 0.52
2011 total debt to total assets ratio =
$111,020
$181,979= 0.61
Total debt to total assets ratio =
total liabilities
total assets
2010 current ratio =
$27,649
$14,010= 1.97
2010 current ratio =
$3,278 + $6,954 + $17,417
$9,250 + $1,110 + $3,650
2011 current ratio =
$23,279
$18,220= 1.28
2011 current ratio =
$1,844 + $11,807 + $9,628
$13,446 + $650 + $4,124
Current ratio =
current assets
current liabilities
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Chapter 21 199
21.2, p. 7691. Balanced Books Bookkeeping
Balance SheetDecember 31, 2011
Assets Amount PercentCurrent assetsCash $4,000 10Accounts receivable 6,000 15Merchandise inventory 15,000 37.5Total current assets 25,000 62.5Plant and EquipmentEquipment 15,000 37.5
Total assets $40,000 100
Liabilities Amount PercentCurrent liabilitiesAccounts payable $3,500 8.75Wages payable 1,500 3.75Insurance payable 500 1.25Total liabilities 5,500 13.75
Owner’s equityCarlton, equity 34,500 86.25Total liabilities and equity $40,000 100
Balanced Books BookkeepingIncome Statement
For Year Ending December 31, 2011
Revenue Amount PercentNet sales $120,000 100
Cost of goods sold 85,000 70.8
Gross profit 35,000 29.2
Operating expenses
Rent 15,000 12.5Utilities 6,500 5.4Depreciation 2,000 1.7Wages 8,000 6.7Miscellaneous expenses 1,500 1.2Total operating expenses 33,000 27.5Net income $2,000 1.7
Ratio Analysis:
$10,000
$5,500= 1.82
Acid - test =
quick current assets
current liabilities
$25,000
$5,500= 4.54
Current ratio =
current assets
current liabilities
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