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Chapter 15: Q3SE (page 835)

Muscateer Corp. reported the following revenues and net income amounts:

(In millions)2019 2018 2017 2016

Revenue \( 9,610 \) 9,355 \( 9,050 \) 8,950

Net Income 7,290 6,790 5,020 4,300

Requirements

1. Calculate Muscateer’s trend analysis for revenues and net income. Use 2016 as the

base year, and round to the nearest percent.

2. Which measure increased at a higher rate during 2017–2019?

Short Answer

Expert verified

Answer

Income Increases in 2019 as compared to past years

Step by step solution

01

Calculation


2019

2018

2017

2016

Revenue $

9,610

9,355

9,050

8,950


107%

105%

101%

100%






Net Income$

$7,290

6,790

5,020

4,300


170%

158%

117%

100%

02

Workings


2019

2018

2017

2016

Revenue $

9,610

9,355

9,050

8,950


9610/8950

9355/8950

9050/8950

8950/8950






Net Income$

$7,290

6,790

5,020

4,300


7290/4300

6790/4300

5020/4300

4300/4300

Net Income increased rapidly from 2016- 2019

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Most popular questions from this chapter

The financial statements of Ion Corporation include the following items:

Current Year Preceding Year

Balance Sheet:

Cash \( 6,000 \) 8,000

Short-term Investments 4,400 10,700

Net Accounts Receivable 21,600 29,200

Merchandise Inventory 30,800 27,600

Prepaid Expenses 6,000 3,600

Total Current Assets 68,800 79,100

Total Current Liabilities 53,200 37,200

Income Statement:

Net Sales Revenue $ 184,800

Cost of Goods Sold 126,000

Compute the following ratios for the current year:

7. Current ratio

8. Acid-test ratio

9. Inventory turnover

10. Gross profit percentage

Measuring ability to pay liabilities

Requirements

1. Compute the debt ratio and the debt-to-equity ratio at May 31, 2018, for Accel’s

Companies.

2. Is Accel’s ability to pay its liabilities strong or weak? Explain your reasoning.

Ross’s Lipstick Company’s long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders’ equity, and the current ratio may not fall below 1.50. If Ross fails to meet any of these requirements, the company’s lenders have the authority to take over management of the company.Changes in consumer demand have made it hard for Ross to attract customers.

Current liabilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Ross’s management is scrambling to improve the current ratio. The controller points out that an investment can be classified as either long-term or short-term, depending on management’s intention. By deciding to convert an investment to cash within one year, Ross can classify the investment as short-term—a current asset. On the controller’s recommendation, Ross’s board of directors votes to reclassify long-term investments as short-term.

Requirements

1. What effect will reclassifying the investments have on the current ratio? Is Ross’s true financial position stronger as a result of reclassifying the investments?

2. Shortly after the financial statements are released, sales improve; so, too, does the current ratio. As a result, Ross’s management decides not to sell the investments it had reclassified as short-term. Accordingly, the company reclassified the investments as long-term. Has management behaved unethically? Give the reasoning underlying of your answer.

The financial statements of Valerie’s Natural Foods include the following items:

Compute the following ratios for the current year:

  1. Current ratio

  2. Cash ratio

  3. Acid-test ratio

  4. Inventory turnover

  5. Day’s sales in inventory

  6. Day’s sales in receivables

  7. Gross profit percentage

Computing inventory, gross profit, and receivables ratios

Requirements

1. Compute the inventory turnover, days’ sales in inventory, and gross profit

percentage for Accel’s Companies for 2018.

2. Compute days’ sales in receivables during 2018. Round intermediate calculations to

three decimal places. Assume all sales were on account.

3. What do these ratios say about Accel’s Companies’ ability to sell inventory and

collect receivables?
See all solutions

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