ACC 557 Problems $20

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Problems:

Problem 14-4A

Financial information for Ernie Bishop Company is presented below.

ERNIE BISHOP COMPANY Balance Sheets December 31
Assets	2013	2012
Cash	$ 137,900	$ 128,050
Short-term investments	102,440	78,800
Receivables (net)	193,060	157,600
Inventory	246,250	265,950
Prepaid expenses	57,130	45,310
Land	256,100	256,100
Building and equipment (net)	330,960	344,750
	$1,323,840	$1,276,560
Liabilities and Stockholders’ Equity
Notes payable	$197,000	197,000
Accounts payable	94,560	82,740
Accrued liabilities	86,680	78,800
Bonds payable, due 2016	295,500	295,500
Common stock, $10 par	394,000	394,000
Retained earnings	256,100	228,520
	$1,323,840	$1,276,560

ERNIE BISHOP COMPANY Income Statement For the Years Ended December 31
	2013	2012
Net sales	$1,690,260	$1,572,060
Cost of goods sold	1,203,670	1,132,750
Gross profit	486,590	439,310
Operating expenses	402,865	356,570
Net income	$ 83,725	$ 82,740

Additional information:

1.		Inventory at the beginning of 2012 was $232,460.
2.		Total assets at the beginning of 2012 were $1,245,040.
3.		No common stock transactions occurred during 2012 or 2013.
4.		All sales were on account.
5.		Receivables (net) at the beginning of 2012 were $173,360.

(a) Indicate, by using ratios, the change in liquidity and profitability of Ernie Bishop Company from 2012 to 2013. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all others to 1 decimal place, e.g. 6.8 or 6.8% .)

	2012		2013		Change
LIQUIDITY
Current		:1			:1
Acid-test		:1			:1
Receivables turnover		times			times
Inventory turnover		times			times
PROFITABILITY
Profit margin		%			%
Asset turnover		times			times
Return on assets		%			%
Earnings per share	$			$

(b) Given below are three independent situations and a ratio that may be affected. For each situation, compute the affected ratio (1) as of December 31, 2013, and (2) as of December 31, 2014, after giving effect to the situation. Net income for 2014 was $98,500. Total assets on December 31, 2014, were $1,379,000.

Situation	Ratio
(1)	35,460 shares of common stock were sold at par on July 1, 2014.	Return on common stockholders’ equity
(2)	All of the notes payable were paid in 2014. The only change in liabilities was that the notes payable were paid.	Debt to total assets
(3)	Market price of common stock was $18 on December 31, 2013, and $24.63 on December 31, 2014.	Price-earnings ratio

	2013		2014	Change
Return on common stockholders’ equity		%		%
Debt to total assets		%		%
Price-earnings ratio		times		times

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Toby Zed Company Income Statement For the Year Ended November 30, 2014
Sales revenue		$7,432,500
Cost of goods sold
Beginning inventory	$1,907,200
Purchases	4,312,100
Goods available for sale	6,219,300
Ending inventory	1,301,100
Total cost of goods sold		4,918,200
Gross profit		2,514,300
Operating expenses		1,067,700
Net income		$1,446,600

1.		Accounts receivable increased $195,800 during the year, and inventory decreased $606,100.
2.		Prepaid expenses increased $176,200 during the year.
3.		Accounts payable to suppliers of merchandise decreased $342,900 during the year.
4.		Accrued expenses payable decreased $106,800 during the year.
5.		Operating expenses include depreciation expense of $85,100.

TOBY ZED COMPANY Partial Statement of Cash Flows For the Year Ended November 30, 2014

		$
Adjustments to reconcile net income to

	$






		$

Rajesh Company Comparative Balance Sheets December 31
Assets	2014		2013
Cash	$37,710			$19,220
Accounts receivable	32,530			18,280
Inventory	30,850			20,350
Equipment	59,320			77,250
Accumulated depreciation—equipment	(29,550	)		(23,910	)
Total	$130,860			$111,190

Liabilities and Stockholders’ Equity
Accounts payable	$28,310			$ 16,070
Income taxes payable	7,440			8,460
Bonds payable	27,310			32,960
Common stock	18,730			14,590
Retained earnings	49,070			39,110
Total	$130,860			$111,190

Rajesh Company Income Statement For the Year Ended December 31, 2014
Sales revenue		$242,430
Cost of goods sold		175,030
Gross profit		67,400
Operating expenses		24,190
Income from operations		43,210
Interest expense		3,680
Income before income taxes		39,530
Income tax expense		8,920
Net income		$30,610

1.		Depreciation expense is 13,840.
2.		Dividends declared and paid were $20,650.
3.		During the year equipment was sold for $9,730 cash. This equipment cost $17,930 originally and had accumulated depreciation of $8,200 at the time of sale.

RAJESH COMPANY Statement of Cash Flows For the Year Ended December 31, 2014

		$
Adjustments to reconcile net income to

	$


















		$

Accounts payable		$239,220
Accounts receivable		139,920
Accumulated depreciation—buildings		179,190
Accumulated depreciation—equipment		52,720
Allowance for doubtful accounts		6,760
Bonds payable (10%, due 2020)		499,040
Buildings		950,390
Cash		41,330
Common stock ($10 par value; 501,710 shares authorized, 149,650 shares issued)		1,496,500
Dividends payable		80,750
Equipment		275,960
Fair value adjustment—non-trading securities (Dr)		8,880
Goodwill		199,750
Income taxes payable		120,390
Inventory		170,480
Investment in Mara common stock (30% ownership), at equity		379,920
Investment in Sasse common stock (10% ownership), at cost		277,700
Land		389,730
Notes payable (due 2015)		70,960
Paid-in capital in excess of par—common stock		132,860
Premium on bonds payable		40,470
Prepaid insurance		15,680
Retained earnings		102,950
Short-term investment, at fair value (and cost)		180,950
Unrealized gain—non-trading securities		8,880

RADAR CORPORATION Balance Sheet December 31, 2014
Assets

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Liabilities and Stockholders' Equity

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