accounting exercises
mkrmerExercise 12-5 Evaluate risk ratios [LO3]
The 2012 income statement of Adrian Express reports sales of $16 million, cost of goods sold of $9.6 million, and net income of $1.6 million. Balance sheet information is provided in the following table. All amounts are in thousands. |
ADRIAN EXPRESS Balance Sheets December 31, 2012 and 2011 |
||||
($ in 000s) |
2012 |
2011 |
||
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash |
$ |
600 |
$ |
760 |
Accounts receivable |
|
1,400 |
|
1,000 |
Inventory |
|
1,800 |
|
1,400 |
Long-term assets |
|
4,800 |
|
4,240 |
|
|
|
|
|
Total assets |
$ |
8,600 |
$ |
7,400 |
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
Current liabilities |
$ |
2,020 |
$ |
1,660 |
Long-term liabilities |
|
2,300 |
|
2,400 |
Common stock |
|
2,000 |
|
2,000 |
Retained earnings |
|
2,280 |
|
1,340 |
|
|
|
|
|
Total liabilities and stockholders' equity |
$ |
8,600 |
$ |
7,400 |
|
|
|
|
|
|
Industry averages for the following four risk ratios are as follows: |
|
||
Average collection period |
25 days |
|
Average days in inventory |
60 days |
|
Current ratio |
2 to 1 |
|
Debt to equity ratio |
50% |
|
|
|
Required: |
1. |
Calculate the four risk ratios listed above for Adrian Express in 2012. (Use 365 days in a year. Round your answers to 1 decimal place. Omit the "%" sign in your response.) |
Risk Ratios |
||
Average collection period |
|
days |
Average days in inventory |
|
days |
Current ratio |
|
to 1 |
Debt to equity ratio |
|
% |
|
2. |
Do you think the company is more risky or less risky than the industry averages? |
|
|
|
|
The 2012 income statement of Adrian Express reports sales of $16 million, cost of goods sold of $9.6 million, and net income of $1.6 million. Balance sheet information is provided in the following table. All amounts are in thousands. |
ADRIAN EXPRESS Balance Sheet December 31, 2012 and 2011 |
||||
($ in 000s) |
2012 |
2011 |
||
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash |
$ |
600 |
$ |
760 |
Accounts receivable |
|
1,400 |
|
1,000 |
Inventory |
|
1,800 |
|
1,400 |
Long-term assets |
|
4,800 |
|
4,240 |
|
|
|
|
|
Total assets |
$ |
8,600 |
$ |
7,400 |
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
Current liabilities |
$ |
2,020 |
$ |
1,660 |
Long-term liabilities |
|
2,300 |
|
2,400 |
Common stock |
|
2,000 |
|
2,000 |
Retained earnings |
|
2,280 |
|
1,340 |
|
|
|
|
|
Total liabilities and stockholders' equity |
$ |
8,600 |
$ |
7,400 |
|
|
|
|
|
|
Industry averages for the following four risk ratios are as follows: |
|
||
Gross profit ratio |
45 |
% |
Return on assets |
25 |
% |
Profit margin |
15 |
% |
Asset turnover |
2.5 |
times |
Return on equity |
35 |
% |
|
Required: |
1. |
Calculate the five profitability ratios listed above for Adrian Express. (Round your answers to the nearest whole number. Omit the "%" sign in your response.) |
Profitability Ratios |
|
Gross profit ratio |
% |
Return on assets |
% |
Profit margin |
% |
Asset turnover |
times |
Return on equity |
% |
|
2. |
Do you think the company is more profitable or less profitable than the industry averages? |
|
|
|
|
The balance sheet for Plasma Screens Corporation and additional information are provided below. |
PLASMA SCREENS CORPORATION Balance Sheet December 31, 2012 and 2011 |
||||
|
2012 |
2011 |
||
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash |
$ |
112,000 |
$ |
120,000 |
Accounts receivable |
|
78,000 |
|
92,000 |
Inventory |
|
95,000 |
|
80,000 |
Investments |
|
4,000 |
|
2,000 |
Long-term assets: |
|
|
|
|
Land |
|
480,000 |
|
480,000 |
Equipment |
|
90,000 |
|
670,000 |
Less: Accumulated depreciation |
|
(428,000) |
|
(268,000) |
|
|
|
|
|
Total assets |
$ |
1,131,000 |
$ |
1,176,000 |
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
99,000 |
$ |
85,000 |
Interest payable |
|
6,000 |
|
12,000 |
Income tax payable |
|
8,000 |
|
5,000 |
Long-term liabilities: |
|
|
|
|
Notes payable |
|
100,000 |
|
200,000 |
Stockholders' equity: |
|
|
|
|
Common stock |
|
700,000 |
|
700,000 |
Retained earnings |
|
218,000 |
|
174,000 |
|
|
|
|
|
Total liabilities and stockholders' equity |
$ |
1,131,000 |
$ |
1,176,000 |
|
|
|
|
|
|
Additional information for 2012: |
|
1. |
Net income is $69,000. |
2. |
Sales on account are $1,520,000. |
3. |
Cost of goods sold is $1,160,000. |
Section Break |
Exercise 12-7 Calculate risk ratios [LO3] |
|
3.
value: 2.00 points
Exercise 12-7 Part 1
Required: |
1. |
Calculate the following risk ratios for 2012 (Round your answers to 1 decimal place. Omit the "%" sign in your response): |
Risk Ratios |
|||
a. |
Receivables turnover ratio |
|
times |
b. |
Inventory turnover ratio |
|
times |
c. |
Current ratio |
|
to 1 |
d. |
Acid-test ratio |
|
to 1 |
e. |
Debt to equity ratio |
|
% |
|
check my work eBook Link View Hint #1 references
Worksheet |
Difficulty: Hard |
|
Exercise 12-7 Part 1 |
Learning Objective: 12-03 Use ratios to analyze a company’s risk. |
|
4.
value: 1.00 points
Exercise 12-7 Part 2
2. |
When we compare two companies, can one have a higher current ratio while the other has a higher acid-test ratio? |
|
Yes |
|
No |
Exercise 12-9 Calculate profitability ratios [LO4]
[The following information applies to the questions displayed below.]
The following condensed information is reported by Sporting Collectibles. |
|
2013 |
2012 |
||
Income Statement Information |
|
|
|
|
Sales revenue |
$ |
10,400,000 |
$ |
8,400,000 |
Cost of goods sold |
|
6,800,000 |
|
5,900,000 |
Net income |
|
360,000 |
|
248,000 |
|
|
|
|
|
Balance Sheet Information |
|
|
|
|
Current assets |
$ |
1,600,000 |
$ |
1,500,000 |
Long-term assets |
|
2,200,000 |
|
1,900,000 |
|
|
|
|
|
Total assets |
$ |
3,800,000 |
$ |
3,400,000 |
|
|
|
|
|
Current liabilities |
$ |
1,200,000 |
$ |
900,000 |
Long-term liabilities |
|
1,500,000 |
|
1,500,000 |
Common stock |
|
800,000 |
|
800,000 |
Retained earnings |
|
300,000 |
|
200,000 |
|
|
|
|
|
Total liabilities and stockholders' equity |
$ |
3,800,000 |
$ |
3,400,000 |
|
|
|
|
|
|
Section Break |
Exercise 12-9 Calculate profitability ratios [LO4] |
|
5.
value: 2.00 points
Exercise 12-9 Part 1
Required: |
1. |
Calculate the following profitability ratios for 2013 (Round your answers to 1 decimal place. Omit the "%" sign in your response): |
Profitability Ratios |
|
|
|
a. |
Gross profit ratio |
|
% |
b. |
Return on assets |
|
% |
c. |
Profit margin |
|
% |
d. |
Asset turnover |
|
times |
e. |
Return on equity |
|
% |
|
check my work eBook Link View Hint #1 references
Worksheet |
Difficulty: Hard |
|
Exercise 12-9 Part 1 |
Learning Objective: 12-04 Use ratios to analyze a companys profitability. |
|
6.
value: 1.00 points
Exercise 12-9 Part 2
2. |
Determine the amount of dividends paid to shareholders in 2013. (Omit the "$" sign in your response.) |
The amount of dividends paid |
$ |
check my work eBook Link View Hint #1 references
Worksheet |
Difficulty: Hard |
|
Exercise 12-9 Part 2 |
Learning Objective: 12-04 Use ratios to analyze a companys profitability. |
|