homework
Financial Statements 5. Arrange the following income statement items so they are in the proper order of an income statement: Taxes Earnings per share Shares outstanding Earnings before taxes Interest expense Cost of goods sold Depreciation expense Earnings after taxes Preferred stock dividends Earnings available to common Operating profit stockholders Sales Selling and administrative expense Gross profit 6. Given the following information prepare in good form an income statement for the Oil Drilling Company ($million). Selling and administrative expense $ 60,000 Depreciation expense 70,000 Sales 470,000 Interest expense 40,000 Cost of goods sold 140,000 Taxes 45,000 9. Prepare in good form an income statement. Take your calculations all the way to computing earnings per share. Sales $600,000 Shares outstanding 100,000 Cost of goods sold 200,000 Interest expense 30,000 Selling and administrative expense 40,000 Depreciation expense 20,000 Preferred stock dividends 80,000 Taxes 100,000 14. Fill in the blank spaces with categories 1 through 7: 1. Balance sheet (BS) 5. Current liabilities (CL) 2. Income statement (IS) 6. Long-term liabilities (LL) 3. Current assets (CA) 7. Stockholders’ equity (SE) 4. Fixed assets (FA) Indicate Whether Item Is on Balance Sheet (BS) or Income Statement (IS) If on Balance Sheet, Designate Which Category Item _____ _____ Accounts receivable _____ _____ Retained earnings _____ _____ Income tax expense _____ _____ Accrued expenses _____ _____ Cash _____ _____ Selling and administrative expenses _____ _____ Plant and equipment _____ _____ Operating expenses _____ _____ Marketable securities _____ _____ Interest expense _____ _____ Sales _____ _____ Notes payable (6 months) _____ _____ Bonds payable, maturity 2019 _____ _____ Common stock _____ _____ Depreciation expense _____ _____ Inventories _____ _____ Capital in excess of par value _____ _____ Net income (earnings after taxes) _____ _____ Income tax payable 15. Arrange the following items in proper balance sheet presentation: Accumulated depreciation............................. $300,000 Retained earnings.................................... 96,000 Cash................................................. 10,000 Bonds payable........................................ 136,000 Accounts receivable.................................. 48,000 Plant and equipment—original cost.................... 680,000 Accounts payable..................................... 35,000 Allowance for bad debts.............................. 6,000 Common stock, $1 par, 100,000 shares outstanding..... 100,000 Inventory............................................ 66,000 Preferred stock, $50 par, 1,000 shares outstanding... 50,000 Marketable securities................................ 20,000 Investments.......................................... 20,000 Notes payable........................................ 33,000 Capital paid in excess of par (common stock)......... 88,000 Ratio analysis 6. Diagnostics Corp. income statements for 2013 is as follows: Sales $2,000,000 Cost of goods sold 1,400,000 Gross profit 600,000 Selling and administrative expense 300,000 Operating profit 300,000 Interest expense 50,000 Income before taxes 250,000 Taxes (30%) 75,000 Income after taxes $ 175,000 a. Compute the profit margin for 2013. b. Assume in 2014, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Once again, assume a tax rate of 30 percent on income before taxes. What are income after taxes and the profit margin for 2014? 12. Trucking Co. has the following ratios compared to its industry for 2014. Trucking Industry Return on sales……….. 3% 8% Return on assets……… 15% 10% Explain why the return-on-assets ratio is so much more favorable than the return-on-sales ratio compared to the industry. No numbers are necessary; a one-sentence answer is all that is required. 16. Du Pont Grain Stores has $4,000,000 in yearly sales. The firm earns 3.5 percent on each dollar of sales and turns over its assets 2.5 times per year. It has $100,000 in current liabilities and $300,000 in long-term liabilities. a. What is its return on stockholders’ equity? b. If the asset base remains the same as computed in part a, but total asset turnover goes up to 3, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities. 17. Assume the following data for Corporation and Media, Inc. Corporation Media, Inc. Net income $ 30,000 $ 100,000 Sales 300,000 2,000,000 Total assets 400,000 900,000 Total debt 150,000 450,000 Stockholders’ equity 250,000 450,000 a. Compute return on stockholders’ equity for both firms using ratio 3a. Which firm has the higher return? b. Compute the following additional ratios for both firms. Net income/Sales Net income/Total assets Sales/Total assets Debt/Total assets c. Discuss the factors from part b that added or detracted from one firm having a higher return on stockholders’ equity than the other firm as computed in Part a. 20. Corporation has the following financial data for the years 2013 and 2014: 2013 2014 Sales………………………… $4,000,000 $5,000,000 Cost of goods sold…………… 3,000,000 4,500,000 Inventory…………………….. 400,000 500,000 a. Compute inventory turnover based on ratio number 6, Sales/Inventory, for each year. b. Compute inventory turnover based on an alternative calculation that is used by many financial analysts, Cost of goods sold/Inventory, for each year. c. What conclusions can you draw from part a and part b?