Management Accounting

Due Tues., May 2- 7 questions

Big Time Picture Frames has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2009. To answer this question, you gather the following data: ______________________________________________2009__________2008 Cash $52, 000 51, 000 Short-term investments 30,000 -- Net receivables 110,000 120, 000 Inventory 217,000 262,000 Total assets 540,000 490,000 Total current liabilities 265,000 202,000 Long-term note payable 44,000 54,000 Income from operations 165,000 153,000 Interest expense 44,000 37,000 Requirement 1. Compute the following ratios for 2009 and 2008: a. Current ratio b. Acid-test ratio c. Debt ratio d. Times-interest-earned ratio

a. Calculate the current ratio for both years. (Round your answers to two decimal places.)

2009: nothing

2008: nothing

The Variline Inc., comparative income statement follows. 2010 data are given as needed.

Variline, Inc.

Comparative Income Statement

Years Ended December 31, 2012 and 2011

(Dollars in thousands) 2012 2011 2010

Net sales $176,000 $160,000

Cost of goods sold 93,600 86,000

Selling and general expenses 46,800 41,400

Interest expense 9,600 10,900

Income tax expense 10,200 9,200

Net income $15,800 $12,500

Additional data:

Total assets $201,000 $192,000 $174,000

Common stockholders' equity $96,900 $89,800 $79,500

Preferred dividends $3,400 $3,400 $0

Common shares outstanding during the

year 20,000 20,000 18,000

Requirements

1. Calculate the rate of return on net sales.

2. Calculate the rate of return on total assets.

3. Calculate the rate of return on common stockholders' equity.

4. Calculate the EPS.

5. Did the company's operating performance improve or deteriorate during 2012?

Requirement 1. Calculate the rates of return on net sales for 2012 and 2011. (Round your answers to three decimal places.) 2012:

nothing

2011: nothing

The Specialty 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 industry average data for retailers.

Specialty Department Stores, Inc.

Income Statement Compared with Industry Average

Year Ended December 31, 2010

Industry

Specialty Average

Net sales $782,000 100.0 %

Cost of goods sold 526,286 65.8

Gross profit 255,714 34.2

Operating expenses 164,220 19.7

Operating income 91,494 14.5

Other expenses 6,256 0.4

Net income $85,238 14.1 %

Specialty Department Stores, Inc.

Balance Sheet Compared with Industry Average

December 31, 2010

Industry

Specialty Average

Current assets $324,960 70.9 %

Fixed assets, net 123,840 23.6

Intangible assets, net 8,160 0.8

Other assets 23,040 4.7

Total assets $480,000 100.0 %

Current liabilities $221,760 48.1 %

Long-term liabilities 106,560 16.6

Stockholders' equity 151,680 35.3

Total liabilities and stockholders'

equity $480,000 100.0 %

Requirements

1. Prepare a common-size income statement and balance sheet for Specialty. The first column of each statement should present Specialty common-size statement, and the second column, the industry averages.

2. For the profitability analysis, compute Specialty'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 Specialty's profit performance better or worse than the industry average?

3. For the analysis of financial position, compute Specialty'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 Specialty's financial position better or worse than the industry averages?

Requirement 1. Prepare a common-size income statement for Specialty Department Stores. (Round your answers to one decimal place.)

Specialty Department Stores, Inc.

Common-Size Income Statement Compared to Industry Average

Year Ended December 31, 2010

Specialty Industry

(%) Average (%)

Net sales 100.0

Cost of goods sold 65.8

Gross profit 34.2

Operating expenses 19.7

Operating income 14.5

Other expenses 0.4

Net income 14.1

Financial statement data of Modern Traveler Magazine include the following items (dollars in thousands):

Cash. . . . . . . . . . . . . . . . . . . . .

. . . $24,000

Accounts receivable, net. . . . .

. . . $78,000

Inventories. . . . . . . . . . . . . . . .

. $187,000

Total assets. . . . . . . . . . . . . . .

. . . $639,000

Short-term notes payable. . . .

. . . $48,000

Accounts payable. . . . . . . . . .

. . . . $102,000

Accrued liabilities. . . . . . . . . .

. . . . $37,000

Long-term liabilities. . . . . . . .

. . . . $225,000

Net income. . . . . . . . . . . . . . .

. . . . $73,000

Common shares outstanding. .

. . . 20,000

Requirements

1. Compute Modern Traveler's current ratio, debt ratio, and earnings per share. Round all ratios to two decimal places.

2. Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction separately.

a. Purchased inventory of $48,000 on account

b. Borrowed $125,000 on a long-term note payable

c. Issued 2,000 shares of common stock, receiving cash of $105,000

d. Received cash on account, $8,000

Requirement 1. Compute Modern TravelerModern Traveler's current ratio, debt ratio, and earnings per share. Round all ratios to two decimal places.

Current Ratio Debt Ratio Earnings Per Share

The Arborists provide tree-spraying services in the company's home county John Renkas, the owner, incurred the following operating costs for the month of August 2012:

Salaries and wages. . . . . . . . . . . . . . . . .

. . . . $6,000

Chemicals. . . . . . . . . . . . . . . . . . . . . . . .

. . . . . 4,900

Depreciation on truck. . . . . . . . . . . . . . .

. . . . . 450

Depreciation on building and

equipment. . . . . 700

Supplies expense. . . . . . . . . . . . . . . . . . .

. . . . 400

Gasoline and utilities. . . . . . . . . . . . . . . .

. . . . 5,590

The Arborists earned $22,000 in revenues for the month of August by spraying trees totaling 25,000 feet in height.

Requirements

1. Prepare an income statement for the month of August. Compute the ratio of total operating expense to total revenue and operating income to total revenue.

2. Compute the unit operating cost of spraying one foot of tree height.

3. The manager of The Arborists must keep unit operating cost below $0.50 per foot in order to get his bonus. Did he meet the goal?

4. What kind of system could The Arborists use to integrate all its data?

Requirement 1. Prepare an income statement for the month of August. Compute the ratio of total operating expense to total revenue and operating income to total revenue. (Round the ratios to the nearest whole number.)

The Arborists

Income Statement

Month Ended August 31, 2012

Chemicals, Depreciation on bldg. &

equip, Depreciation on truck, Gasoline &

utilities, Net operating income, Net

operating loss, Salaries 7 wages, Sales

revenue, Supplies expense, Total

operating expenses %

%

%

Choose from any list or enter any number in the input fields and then click Check Answer.

In 2011 Chris Gonzales opened Chris' Pets, a small retail shop selling pet supplies. On December, 31, 2011, Chris's accounting records showed the following:

Inventory on December 31, 2011 $10,250

Inventory on January 1, 2011 15,400

Sales revenue 52,000

Utilities for shop 3,300

Rent for shop 4,100

Sales commissions 2,550

Purchases of merchandise 24,000

Requirement 1. Prepare an income statement for Chris' Pets, a merchandiser, for the year ended December 31, 2011.

Chris' Pets

Income Statement

Year Ended December 31, 2011

Advert. Expense, Beginning inventory, Cost of goods

avail. for sale, Cost of goods sold, Ending inventory,

Gross profit, Operating profit, Operating loss, Purchases

of merch., Rent exp., Sales commissions exp., Sales Rev.,

Utilities exp.

Cost of goods sold:

Cost of goods sold

Gross profit

Operating expenses:

Craig’s Pets succeeded so well that Craig decided to manufacture his own brand of chewing bone—Fido TreatsFido Treats. At the end of December 2011, his accounting records showed the following:

Inventories: Beginning Ending

Materials $13,500

$9,000

Work in process 0

1,250

Finished goods 0 5,200

Other information:

Direct material purchases $31,000

Utilities for plant $1,100

Plant janitorial services 500

Rent on plant 13,000

Sales salaries expense 5,800

Customer service hotline

expense 1,700

Delivery expense 1,400

Direct labor 17,000

Sales revenue 111,000

Requirements

1. Prepare a schedule of cost of goods manufactured for Fido Treats for the year ended December 31, 2011.

2. Prepare an income statement for Fido Treatsfor the year ended December 31, 2011.

3. How does the format of the income statement for Fido Treats differ from the income statement of a merchandiser?

4. Fido Treats manufactured 17,800 units of its product in 2011. Compute the company's unit product cost for the year.

Requirement 1. Prepare the schedule of cost of goods manufactured for Fido Treats. (For accounts with a $0 balance, make sure to enter "0" in the appropriate column.)

Fido Treats

Schedule of Cost of Goods Manufactured

Year Ended December 31, 2011

Avail. For use, Begin materials invent., Begin work

in progress invent., Cost of goods manfac., Deprec.,

exp. on plant equip., Direct labor, Direct materials

used., Ending materials invent., Ending work in

process invent., Plant janitorial serv., Purch., of direct

materials, Rent on plant., Total manfac. cost incurred

during year., Total manfac. cost to account for,

Utilities for plant

Add: Direct materials used

Direct materials used

Manufacturing overhead:

Total manufacturing costs incurred during the year

Total manufacturing costs to account for

Less:

Cost of goods manufactured