Preparing Annual Accounting Reports Documents
AC499: Bachelors Capstone in Accounting | Unit 4
Unit 4 Practice Activity: Financial Report Analysis – Rainbow Paint Co. Note: This is a practice activity to be performed before completing the assignment for this unit. Also, this is the
data to be used as the basis for your Unit 9 final project. The solutions for the Unit 4 practice activity are
located here.
Rainbow Paint Co.'s comparative financial statements for the years ending December 31, 2013 and 2012 are
as follows. The market price of Rainbow Paint Co.'s common stock was $30 on December 31, 1999 and $25
on December 31, 2013.
Rainbow Paint Co.
Comparative Income Statement
For the Years Ended December 31, 2013 and 2012 2013 2012
2013 2012
Sales $ 5,125,000 $ 3,257,600
Sales returns and allowances 125,000 57,600
Net sales $ 5,000,000 $ 3,200,000
Cost of goods sold 3,400,000 2,080,000
Gross profit $ 1,600,000 $ 1,120,000
Selling expenses 650,000 464,000
Administrative expenses 325,000 224,000
Total operating expenses $ 975,000 $ 688,000
Income from operations $ 625,000 $ 432,000
Other income 25,000 19,200
Income before interest & taxes $ 650,000 $ 451,200
Other expense (interest) 105,000 64,000
Income before income tax $ 545,000 $ 387,200
Income tax expense 300,000 176,000
Net income $ 245,000 $ 211,200
AC499: Bachelors Capstone in Accounting | Unit 4
Rainbow Paint Co.
Comparative Retained Earnings Statement
For the Years Ended December 31, 2013 and 2012
2013 2012
Retained earnings, January 1 $ 723,000 $ 581,800
Add net income for year 245,000 211,200
Total $ 968,000 $ 793,000
Deduct dividends: $ 40,000 $ 40,000
On preferred stock 45,000 30,000
On common stock
Total $ 85,000 $ 70,000
Retained earnings, December 31 $ 883,000 $ 723,000
Paint C0,
Comparative Balance Sheet
December 31, 2013 and 2012
Assets 2013 2012
Current assets:
Cash $ 175,000 $ 125,000
Marketable securities 150,000 50,000
Accounts receivable (net) 425,000 325,000
Inventories 720,000 480,000
Prepaid expenses 30,000 20,000
Total current assets $ 1,500,000 $ 1,000,000
Long-term investments 250,000 225,000
Property, plant, and equipment (net) 2,093,000 1,948,000
Total assets $ 3,843,000 $ 3,173,000
Liabilities
Current liabilities $ 750,000 $ 650,000
Long-term liabilities:
Mortgage note payable, 10%, due 2016 $ 410,000 -
Bonds payable, 8%, due 2017 800,000 $ 800,000
Total long-term liabilities $ 1,210,000 $ 800,000
Total liabilities $ 1,960,000 $ 1,450,000
Stockholders' Equity
Preferred 8% stock, $100 par $ 500,000 $ 500,000
Common stock, $10 par 500,000 500,000
AC499: Bachelors Capstone in Accounting | Unit 4
Retained earnings 883,000 723,000
Total stockholders' equity $ 1,883,000 $ 1,723,000
Total liabilities and stockholders' equity $ 3,843,000 $ 3,173,000
Instructions: Determine the following measures for 2013:
1. Working capital
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables
6. Inventory turnover
7. Number of days' sales in inventory
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders' equity
10. Number of times interest charges earned
11. Number of times preferred dividends earned
12. Ratio of net sales to assets
13. Rate earned on total assets
14. Rate earned on stockholders' equity
15. Rate earned on common stockholders' equity
16. Earnings per share on common stock
17. Price-earnings ratio
18. Dividends per share of common stock
19. Dividend yield