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.
Arjuna1. 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
- 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.
- 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?
- 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
- Compute Modern Travelers current ratio, debt ratio and earnings per share. Round all ratios to 2 decimal places.
- Compute the 3 ratios after evaluating the effect of each transaction as follows. Consider each transaction separately.
- Purchased inventory of $48,000 on account.
- Borrowed $123,000 on a long-term note payable.
- Issued 5,000 shares of common stock, receiving cash of $102,000.
- 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
- 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.
- Compute the unit operating cost of spraying one foot of tree height.
- 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?
- 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
- 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
- Prepare a schedule of cost’s of goods manufactured for Denim Bones for the year ended December 31, 2011.
- Prepare an income statement for Denim Bones for the year ended December 31, 2011.
- How does the format for the income statement of Denim Bones differ from the income statement of a merchandiser?
- Denim Bones manufactured 17,300 units of it’s product in 2011. Compute the company’s unit product cost for the year.
12 years ago
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