Final Project: Preparing Annual Report Documents

Unit 4 [AC499: Bachelor’s Capstone in Accounting]

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

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 ========

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:

On preferred stock $ 40,000 $ 40,000

On common stock 45,000 30,000

Total $ 85,000 $ 70,000 Retained earnings, December 31 $ 883,000

========

$ 723,000

========

Unit 4 [AC499: Bachelor’s Capstone in Accounting]

Rainbow 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 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

Unit 4 [AC499: Bachelor’s Capstone in Accounting]

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