Instructions In addition to recording and reporting information, accountants often need to explain information to internal and external stakeholders. Dan's Dependable Delivery needs your help in understanding some accounting concepts. Dan's Dependable D
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attachment_16.xlsxAAA Inc and ZZZ Inc Financials
| AAA Inc. and ZZZ Inc. operate in the same manufacturing type industry. The financial statements and notes are below. | ||||||
| Year one is the current year and year two is the previous year. | ||||||
| AAA Inc. | ZZZ Inc. | |||||
| Income Statement (in 000) | Year 1 | Year 2 | Income Statement (in 000) | Year 1 | Year 2 | |
| Sales Revenue | $ 590,000 | $ 600,000 | Sales Revenue | $ 507,000 | $ 487,000 | |
| Cost of Goods Sold | 300,000 | 295,000 | Product Cost of Goods Sold | 150,000 | 162,000 | |
| Total Gross Margin | 290,000 | 305,000 | Total Gross Margin | 357,000 | 325,000 | |
| Selling and Marketing Expense | 83,000 | 81,000 | Selling and Marketing Expense | 44,000 | 44,000 | |
| Admisnistrative Expense | 123,000 | 115,600 | Admisnistrative Expense | 70,000 | 6,800 | |
| Depreciation Expense | 24,000 | 28,000 | Depreciation Expense | 9,000 | 9,000 | |
| Earnings from Operations | 60,000 | 80,400 | Earnings from Operations | 234,000 | 265,200 | |
| Interest Expense | 7,000 | 7,000 | Interest Expense | 42,000 | 20,000 | |
| Income Taxes | 15,000 | 18,000 | Income Taxes | 47,000 | 46,000 | |
| Net Earnings | 38,000 | 55,400 | Net Earnings | 145,000 | 199,200 | |
| E.P.S. | 1.92 | 3.30 | E.P.S. | 2.08 | 4.02 | |
| Balance Sheet (in 000) | Year 1 | Year 2 | Balance Sheet (in 000) | Year 1 | Year 2 | |
| Cash and Cash Equivalents | 17,000 | 12,000 | Cash and Cash Equivalents | 55,000 | 33,000 | |
| Accounts Receivable | 63,000 | 42,000 | Accounts Receivable | 23,000 | 31,000 | |
| Inventory | 87,000 | 72,000 | Inventory | 17,000 | 10,000 | |
| Total Current Assets | 167,000 | 126,000 | Total Current Assets | 95,000 | 74,000 | |
| Property, Plant and Equipment net of $60,000 and $48,000 accumulated depreciation | 140,000 | 112,000 | Property, Plant and Equipment net of $14000 and 6000 accumulated depreciation | 286,000 | 64,000 | |
| Intangibles | 50,000 | 50,000 | Intangibles | 17,000 | 0 | |
| Total Assets | 357,000 | 288,000 | Total Assets | 398,000 | 138,000 | |
| Accounts Payable | 35,000 | 40,000 | Accounts Payable | 28,000 | 12,000 | |
| Accrued Liabilities | 25,000 | 16,000 | Accrued Liabilities | 6,000 | 8,000 | |
| Total Current Liabilities | 60,000 | 56,000 | Total Current Liabilities | 34,000 | 20,000 | |
| Bonds Payable | 90,000 | 64,000 | Bonds Payable | 130,000 | 20,000 | |
| Total liabilities | 150,000 | 120,000 | Total liabilities | 164,000 | 40,000 | |
| Common Stock $5 Par 100,000 shares authorized, 20,000 and 17,000 shares respectively issued | 100,000 | 85,000 | Common Stock $1 Par 500,000 shares authorized, 70,000 and 50,000 shares respectively issued | 70,000 | 50,000 | |
| Retained Earnings | 112,000 | 88,000 | Retained Earnings | 168,000 | 52,000 | |
| Treasury Stock 200 shares | (5,000) | (5,000) | Treasury Stock 400 shares | (4,000) | (4,000) | |
| Total Equity | 207,000 | 168,000 | Total Equity | 234,000 | 98,000 | |
| Total liabilities and Shareholders Equity | 357,000 | 288,000 | Total liabilities and Shareholders Equity | 398,000 | 138,000 | |
| Statement of Cash FLows (in 000) | Year 1 | Year 2 | Statement of Cash Flows (in 000) | Year 1 | Year 2 | |
| Net Income | 38,000 | 55,400 | Net Income | 145,000 | 199,200 | |
| Add/subtract noncash Expenses/Gains/Losses | 14,000 | 18,000 | Add noncash Expenses | 12,000 | 8,000 | |
| Changes in current assets and liabilities: | Changes in current assets and liabilities: | |||||
| Accounts Receivable | -20,000 | -15,000 | Accounts Receivable | 10,000 | 12,000 | |
| Inventory | -14,000 | -14,100 | Inventory | -5,000 | -9,000 | |
| Accounts Payable | -5,000 | -7,000 | Accounts Payable | 16,000 | -20,000 | |
| Accrued Liabilities | 7,000 | -8,000 | Accrued Liabilities | -6,000 | -4,000 | |
| Net Cash Provided by Operations | 20,000 | 29,300 | Net Cash Provided by Operations | 172,000 | 186,200 | |
| Purchase of Equipment | -10,000 | -38,000 | Purchase of Equipment | -145,000 | -160,000 | |
| Sale of non-current assets | 12,000 | 12,000 | Sale of non-current assets | 4,000 | 10,000 | |
| Net Cash Used by Investing | 2,000 | -26,000 | Net Cash Used by Investing | -141,000 | -150,000 | |
| Issuance of Bonds | -3,000 | 13,000 | Issuance of Bonds | 20,000 | 20,000 | |
| Payment of Dividend | -14,000 | -14,000 | Payment of Dividend | -29,000 | -29,000 | |
| Net Cash Provided by Financing | -17,000 | -1,000 | Net Cash Provided by Financing | -9,000 | -9,000 | |
| Net Change in Cash | 5,000 | 2,300 | Net Change in Cash | 22,000 | 27,200 | |
| Add Beginning Cash Balance | 12,000 | 9,700 | Add Beginning Cash Balance | 33,000 | 5,800 | |
| Ending Cash Balance | 17,000 | 12,000 | Ending Cash Balance | 55,000 | 33,000 |
Notes: Inventory: The cost of inventory is determined using LIFO The company's principle market in in the United States. Revenue Recognition: Revenue is recognized when the product is delivered to the customer. Fixed Assets: For financial reporting purposes an accelerated depreciation is used for property, plant and equipment. Older equipment is sold and existing equipment is updated to increase capacity and useful life. Estimates: Estimates are used for determining sales discounts, depreciation, amortization, allowances for uncollectibles Intangible Assets: Include goodwill and trademarks. No impairments found Liabilities: Accrued liabilities include taxes, advertising, employee compensation and benefits. The company has been advised the employee pension fund will be running a deficiency in two years. The Company's participation depends on future union negoitations. Therefore the company is unable to determine the effect of this deficiency on the financial statements. Long Term Debt (Bonds) Called in a portion of the bond payable Bond interest and amortization is recorded annually on bonds payable. Equity Two hundred shares of common stock were purchased three years ago. 200 shares at $25. Treasury stock is recorded at cost. Payment of Divdends Dividends are paid semi-annually Noncash Investing and FInancing Activities Cash paid for interest was $7,000 Bonds were issued for the purchase of equipment 10 year, 2% annual, bond issued at par
Notes: Inventory: The cost of the inventory is determined using FIFO. The company's principle market is in the United States. It manufactures and sells some items in Canada. Revenue Recognition: Revenue is recorded when the customer takes possession of the product. Fixed Assets: For financial reporting purposes straight line depreciation is used for property, plant and equipment. Used equipment is sold and new state of the art equipment is purchased for a new product line. Estimates: Estimates are used for determining sales discounts, warranty liabilities, depreciation, amortization, allowances for uncollectibles. Warranty costs are estimated at the time of the sale at 1% of sales and adjusted as needed. Intangible Assets: Include patents for new products. Liabilities: Accrued liabilities include warranties, compensation and employee benefits, taxes and promotions.Warranties are estimated at the time of sale at 1%. Long Term Debt (Bonds) Issued 20 year 4% bond when the market was 3% Interest and amortization is recorded semi annually on bonds payable. Equity: In the previous year 400 shares of common stock were purchased at $10. Treasury stock is recorded at cost. Payment of Divdends: Dividends are paid quarterly Noncash Investing and FInancing Activities Common Stock was issued for the purchase of euipment. Cash paid for interest was $42,000.
Tab 2 ratios
| AAA Inc. | ZZZ Inc. | ||||
| Ratio | Yr. 1 | Yr. 2 | Yr. 1 | Yr. 2 | |
| Gross Margin Ratio | Gross Margin/Sales | ||||
| Profit Margin | Net Profit/Sales | ||||
| Current Ratio | Current Assets/Current Liabilites | ||||
| Quick Ratio | Current Assets-Inventory/Current Liabilities | ||||
| Return on Assets | Net earnings/Assets | ||||
| Debt Ratio | Total Liabilities/Total Assets | ||||
| Return on Equity | Net Earnings/Equity |
Tab 3 Income Statement
| AAA Inc. | ZZZ Inc. | |||||||||
| Income Statement (in 000) | Pro Forma | Year 1 | Vertical Analysis Pro Forma | Vertical Analysis Year 1 | Income Statement (in 000) | Pro Forma | Year 1 | Vertical Analysis Pro Forma | Vertical Analysis Year 1 | |
| Sales Revenue | Sales Revenue | |||||||||
| Cost of Goods Sold | Product Cost of Goods Sold | |||||||||
| Total Gross Margin | Total Gross Margin | |||||||||
| Selling and Marketing Expense | Selling and Marketing Expense | |||||||||
| Admisnistrative Expense | Admisnistrative Expense | |||||||||
| Depreciation Expense | Depreciation Expense | |||||||||
| Earnings from Operations | Earnings from Operations | |||||||||
| Interest Expense | Interest Expense | |||||||||
| Income Taxes | Income Taxes | |||||||||
| Net Earnings | Net Earnings | |||||||||
| E.P.S. | E.P.S. |
