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Chapter 2: 2-5DQ (page 46)
How is the income statement related to the balance sheet?
Income statement and balance sheet of a company are directly related to each other
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The balance sheet for Stud Clothiers is shown below. Sales for the year were \(2,400,000, with 90 percent of sales sold on credit.
Stud Clothier | |||
Balance sheet 20X1 | |||
Assets | Liabilities and Equity | ||
Cash | \)60,000 | Account payable | \(220,000 |
Account receivable | 240,000 | Accrued taxes | 30,000 |
Inventory | 350,000 | Bonds payable (long term) | 150,000 |
Plant and equipment | 410,000 | Common stock | 80,000 |
Paid in capital | 200,000 | ||
Retained earnings | 380,000 | ||
Total assets | \)1,060,000 | Total LIbilities and Equity | $1,060,000 |
Compute the following:
d. Assets turnover ratio.
Why is trend analysis helpful in analyzing ratios?
Assume the following data for Cable Corporation and Multi-Media Inc.
Capable corporation | Muli-media inc | |
Net income | \(31,200 | \)140,000 |
Sales | 317,000 | 2,700,000 |
Total assets | 402,000 | 965,000 |
Total debts | 163,000 | 542,000 |
Stockholder’s equity | 239,000 | 423,000 |
Compute the return on stockholders’ equity for both firms using Ratio 3a. Which firm has the higher return?
The Lancaster Corporation’s income statement is given below.
b. What would be the fixed-charge-coverage ratio?
Lancaster corporation | |
Sales | \(246,000 |
Cost of goods sold | 122,000 |
Gross profit | \)124,000 |
Fixed charges (other than interest) | 27,500 |
Income before interest and taxes | \(96,500 |
Interest | 21,800 |
Income before taxes | \)74,700 |
Taxes (35%) | 26,145 |
Income after taxes | $48,555 |
In January 2007, the Status Quo Company was formed. Total assets were \(544,000, of which \)306,000 consisted of depreciable fixed assets. Status
Quo uses straight-line depreciation of \(30,600 per year, and in 2007 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been \)29,000 per year each of the last 10 years. Other assets have not changed since 2007.
a. Compute return on assets at year-end for 2007, 2009, 2012, 2014, and 2016.
(Use $29,000 in the numerator for each year.)
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