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Description / Instructions: Week 10-chapter 13 Homework Assignment

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Exercise 13-13

The condensed financial statements of Elliott Company for the years 2013 and 2014 are presented below.

ELLIOTT COMPANY Balance Sheets December 31 (in thousands)
	2014	2013
Current assets
Cash and cash equivalents	$330	$360
Accounts receivable (net)	534	464
Inventory	629	559
Prepaid expenses	130	160
Total current assets	1,623	1,543
Property, plant, and equipment (net)	410	380
Investments	74	74
Intangibles and other assets	530	510
Total assets	$2,637	$2,507
Current liabilities	$884	$854
Long-term liabilities	649	549
Stockholders’ equity—common	1,104	1,104
Total liabilities and stockholders’ equity	$2,637	$2,507

ELLIOTT COMPANY Income Statements For the Year Ended December 31 (in thousands)
	2014	2013
Sales revenue	$3,969	$3,629
Costs and expenses
Cost of goods sold	1,034	954
Selling & administrative expenses	2,400	2,330
Interest expense	10	20
Total costs and expenses	3,444	3,304
Income before income taxes	525	325
Income tax expense	210	130
Net income	$ 315	$ 195

Compute the following ratios for 2014 and 2013. (Round all answers to 2 decimal places, e.g. 1.83 or 12.61%.)

(a)		Current ratio.
(b)		Inventory turnover. (Inventory on December 31, 2012, was $410.)
(c)		Profit margin.
(d)		Return on assets. (Assets on December 31, 2012, were $2,870.)
(e)		Return on common stockholders’ equity. (Equity on December 31, 2012, was $920.)
(f)		Debt to assets ratio.
(g)		Times interest earned.

	2014		2013
Current ratio.		:1		:1
Inventory turnover.
Profit margin.		%		%
Return on assets.		%		%
Return on common stockholders’ equity.		%		%
Debt to assets ratio.		%		%
Times interest earned.		times		times

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Exercise 13-2

The Wall Street Journal routinely publishes summaries of corporate quarterly and annual earnings reports in a feature called the “Earnings Digest.” A typical “digest” report takes the following form.

ENERGY ENTERPRISES (A)
	Quarter ending July 31
	2014	2013
Sales revenue	$2,049,000,000	$1,754,000,000
Net income	97,000,000	(a) 68,750,000
EPS: Net income	1.28	0.93

	12 months ending July 31
	2014	2013
Sales revenue	$5,578,500,000	$5,065,300,000
Extraordinary item	(b) 1,900,000
Net income	102,700,000	(a) 33,250,000
EPS: Net income	1.36	0.48

(a)		Includes a net charge of $26,000,000 from loss on the sale of electrical equipment
(b)		Extraordinary gain on Middle East property expropriation

The letter in parentheses following the company name indicates the exchange on which Energy Enterprises’ stock is traded—in this case, the American Stock Exchange. Answer the following questions.

(a)		How was the loss on the electrical equipment reported on the income statement? Was it reported in the fourth quarter of 2013? How can you tell?
(b)		Why did the Wall Street Journal list the extraordinary item separately?
(c)		What is the extraordinary item? Was it included in income for the fourth quarter? How can you tell?
(d)		Did Energy Enterprises have an operating loss in any quarter of 2013? Of 2014? How do you know?
(e)		Approximately how many shares of stock were outstanding in 2014? Did the number of outstanding shares change from July 31, 2013 to July 31, 2014?
(f)		As an investor, what numbers should you use to determine Energy Enterprises’ profit margin? Calculate the profit margin for 2013 and 2014 that you consider most useful. Explain your decision.

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Exercise 13-7

Nordstrom, Inc. operates department stores in numerous states. Suppose selected financial statement data (in millions) for 2014 are presented below.

	End of Year	Beginning of Year
Cash and cash equivalents	$ 792	$ 80
Accounts receivable (net)	1,932	1,852
Inventory	899	918
Other current assets	652	426
Total current assets	$4,275	$3,276
Total current liabilities	$2,065	$1,630

For the year, net credit sales were $8,259 million, cost of goods sold was $5,297 million, and net cash provided by operating activities was $1,349 million. Compute the current ratio, current cash debt coverage , accounts receivable turnover, average collection period, inventory turnover and days in inventory at the end of the current year. (Round all answers to 2 decimal places, e.g. 1.83.)

Current ratio			:1
Current cash debt coverage
Accounts receivable turnover			times
Average collection period			days
Inventory turnover			times
Days in inventory			days

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Exercise 13-9

Kinder Company has these comparative balance sheet data:

KINDER COMPANY Balance Sheets December 31
	2014	2013
Cash	$ 19,845	$ 39,690
Accounts receivable (net)	92,610	79,380
Inventory	79,380	66,150
Plant assets (net)	264,600	238,140
	$456,435	$423,360
Accounts payable	$ 66,150	$ 79,380
Mortgage payable (15%)	132,300	132,300
Common stock, $10 par	185,220	158,760
Retained earnings	72,765	52,920
	$456,435	$423,360

Additional information for 2014:

1.		Net income was $35,500.
2.		Sales on account were $394,000. Sales returns and allowances amounted to $26,600.
3.		Cost of goods sold was $220,600.
4.		Net cash provided by operating activities was $57,500.
5.		Capital expenditures were $29,200, and cash dividends were $14,100.

Compute the following ratios at December 31, 2014. (Round all answers to 2 decimal places, e.g. 1.83.)

(a)	Current ratio.		:1
(b)	Accounts receivable turnover.		times
(c)	Average collection period.		days
(d)	Inventory turnover.		times
(e)	Days in inventory.		days
(f)	Cash debt coverage ratio.		times
(g)	Current cash debt coverage ratio.		times
(h)	Free cash flow.	$

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