Accounting Lab Module 1 Assignment Problems

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1.  The Verifine Department Stores Inc., chief executive officer (CEO) has asked you to compare the company’s profit performance and financial position with the average for the industry.  The CEO has given you the company’s income statement and balance sheet as well as the industries average data for retailers.

Provided information

Income Statement
Verifine Department Stores, Inc.    
Income Statement Compared with Industry Average    
Year Ended December 31, 2010    
    Industry
   Verifine Average
  Net sales $778,000 100.0 %
  Cost of goods sold 524,372 65.8
  Gross profit 253,628 34.2
  Operating expenses 159,490 19.7
  Operating income 94,138 14.5
  Other expenses 5,446 0.4
  Net income $88,692 14.1 %

Verifine Department Stores, Inc.    
Balance Sheet Compared with Industry Average    
December 31, 2010    
    Industry
   Verifine Average
  Current assets $285,180 70.9 %
  Fixed assets, net 109,200 23.6
  Intangible assets, net 3,360 0.8
  Other assets 22,260 4.7
  Total assets $420,000 100.0 %
  Current liabilities $192,360 48.1 %
  Long−term liabilities 94,080 16.6
  Stockholders' equity 133,560 35.3
  Total liabilities and stockholders' equity $420,000 100.0 %

 

 

Requirements

1. Prepare a common-size income statement and balance sheet for Verifine.  The first column of each statement should present Verifine’s common-size statement, and the second column, the industry averages.

2. For the profitability analysis, compute Verifine’s (a) ratio of gross profit to net sales, (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is Verifine’s profit performance better or worse than the industry average?

3. For the analysis of financial position, compute Verifine’s (a) ratio of current assets to total assets and (b) ratio of stockholders’ equity to total assets.  Compare these ratios with the industry averages.  Is Verifine’s financial position better or worse than the industry averages?

2.)  Financial Statement Data of Modern Traveler Magazine include the following items (dollars in thousands)

Cash $22,000
Accounts receivable, net $80,000
Inventories $185,000
Total assets $636,000
Short−term notes payable $50,000
Accounts payable $102,000
Accrued liabilities $39,000
Long−term liabilities $222,000
Net income $72,000
Common shares outstanding 50,000

Requirements

1. Compute Modern Travelers current ratio, debt ratio and earnings per share. Round all ratios to 2 decimal places.

2. Compute the 3 ratios after evaluating the effect of each transaction as follows. Consider each transaction separately.

a. Purchased inventory of $48,000 on account.
b. Borrowed $123,000 on a long-term note payable.
c. Issued 5,000 shares of common stock, receiving cash of $102,000.
d. Received cash on account $2,000.

3.)  Tree Time provide tree-spraying services in the company’s home county.  George Smith, the owner, incurred the following operating costs for the month of  May 2012.

Tree Time earned $26,000 in revenues for the month of May by spraying trees totaling 20,000 feet in height.

Provide information

Salaries and wages $10,000
Chemicals 4,900
Depreciation on truck 300
Depreciation on building and equipment 800
Supplies expense 600
Gasoline and utilities 1,080

Requirements

1. Prepare an income statement for the month of May.  Compute the ratio of total operating expense to total revenue and operating income to total revenue.
2. Compute the unit operating cost of spraying one foot of tree height.
3. The manager of Tree Time must keep unit operating cost below $0.70 per foot in order to get his bonus.  Did he meet the goal?
4. What kind of system could Tree Time use to integrate all it’s data?

4.)  In 2011 Cam Gonzales opened Cam’s Pets, a small retail shop selling pet supplies.  On December 31, 2011, Cams accounting records showed the following:

Inventory on December 31, 2011 $10,600
Inventory on January 1, 2011 15,200
Sales revenue 56,000
Utilities for shop 3,100
Rent for shop 4,400
Sales commissions 2,150
Purchases of merchandise 29,000

Requirements

1. Prepare an income statement for Cam’s Pet’s, a merchandiser, for the year ended December 31st 2011.

5.)  Charlie’s Pet’s succeeded so well that Charlie decided to manufacture it’s own brand of chewing bone - Denim Bone.  At the end of 2011 his accounting records showed the following:
Inventories: Beginning   Ending
Materials $13,800   $7,500
Work in process 0   3,500
Finished goods 0   6,000
    
Other information:    
Direct material purchases $37,000  Utilities for plant $1,300
Plant janitorial services 300  Rent on plant 16,000
Sales salaries expense 5,100  Customer service hotline expense 1,700
Delivery expense 1,600  Direct labor 21,000
Sales revenue 105,000   

Requirements

1. Prepare a schedule of cost’s of goods manufactured for Denim Bones for the year ended December 31, 2011.
2. Prepare an income statement for Denim Bones for the year ended December 31, 2011.
3. How does the format for the income statement of Denim Bones differ from the income statement of a merchandiser?
4. Denim Bones manufactured 17,300 units of it’s product in 2011.  Compute the company’s unit product cost for the year.

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    Accounting Lab Module 1 Assignment Problems Solution
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