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ACCO 230 Lecture Notes - Lecture 1: Retained Earnings, Income Statement

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purpleferret538
26 Oct 2016
School
Concordia University
Department
Accountancy
Course
ACCO 230
Professor
k

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Document Summary

Four basic financial statements: balance sheet financial position at a point in time. Assets listed in order of decreasing liquidity (ease of conversion to cash) Liabilities listed by maturity date (due date: income statement (aka statement of income, statement of earnings, or statement of operations) measures financial performance for a period of time. Revenues expenses = net income: statement of retained earnings reports the way net income and payment of dividends affected the company"s financial position for a period of time. Beginning retained earnings + net income dividends = Shows the relationship between the income statement and the balance sheet. Ending retained earnings is one of the components of stockholders" equity on the balance sheet: statement of cash flows reports cash inflows and outflows for a period of time.

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Related Questions

Measures of liquidity, Solvency and Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall Inc. common stock was $ 56 on December 31, 20Y2.

Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
20Y2 20Y1
Retained earnings, January 1 $ 1,942,900 $ 1,649,000
Net income 438,000 337,700
Total $ 2,293,300 $ 1,986,700
Dividends
On preferred stock $ 7,000 $ 7,000
On common stock 36,800 36,800
Total dividends $ 43,800 $ 43,800
Retained earnings, December 31 $ 2,337,100 $ 1,942,900


Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
20Y2 20Y1
Sales $ 2,609,750 $ 2,404,520
Cost of goods sold 899,360 827,410
Gross profit $ 1,710,390 $ 1,577,110
Selling expenses $ 578,010 $ 708,850
Administrative expenses 492,370 416,310
Total operating expenses 1,070,380 1,125,160
Income from operations $ 640,010 $ 451,950
Other income 33,690 28,850
$ 673,700 $ 480,800
Other expense (interest) 176,000 96,800
Income before income tax $ 497,700 $ 384,000
Income tax expense 59,700 46,300
Net income $ 438,000 $ 337,700


Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
Dec. 31, 20Y2 Dec. 31, 20Y1
Assets
Current assets
Cash $ 536,140 $ 416,030
Marketable securities 811,450 689,410
Accounts receivable (net) 489,100 459,900
Inventories 365,000 277,400
Prepaid expenses 101,436 83,210
Total current assets $ 2,303,126 $ 1,925,950
Long-term investments 1,131,364 395,490
Property, plant, and equipment (net) 2,640,000 2,376,000
Total assets $ 6,074,490 $ 4,697,440
Liabilities
Current liabilities $ 677,390 $ 684,540
Long-term liabilities
Mortgage note payable, 8 % $ 990,000 $ 0
Bonds payable, 8 % 1,210,000 1,210,000
Total long-term liabilities $ 2,200,000 $ 1,210,000
Total liabilities $ 2,877,390 $ 1,894,540
Stockholders' Equity
Preferred $ 0.70 stock, $ 40 par $ 400,000 $ 400,000
Common stock, $ 10 par 460,000 460,000
Retained earnings 2,337,100 1,942,900
Total stockholders' equity $ 3,197,100 $ 2,802,900
Total liabilities and stockholders' equity $ 6,074,490 $ 4,697,440

Required:

Determine the following measures for 20Y2, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

1. Working capital $
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables days
6. Inventory turnover
7. Number of days' sales in inventory days
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders' equity
10. Times interest earned
11. Asset turnover
12. Return on total assets %
13. Return on stockholders’ equity %
14. Return on common stockholders’ equity %
15. Earnings per share on common stock $
16. Price-earnings ratio
17. Dividends per share of common stock $
18. Dividend yield %

Measures of liquidity, Solvency and Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall Inc. common stock was $ 56 on December 31, 20Y2.

Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
20Y2 20Y1
Retained earnings, January 1 $ 1,942,900 $ 1,649,000
Net income 438,000 337,700
Total $ 2,293,300 $ 1,986,700
Dividends
On preferred stock $ 7,000 $ 7,000
On common stock 36,800 36,800
Total dividends $ 43,800 $ 43,800
Retained earnings, December 31 $ 2,337,100 $ 1,942,900
Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
20Y2 20Y1
Sales $ 2,609,750 $ 2,404,520
Cost of goods sold 899,360 827,410
Gross profit $ 1,710,390 $ 1,577,110
Selling expenses $ 578,010 $ 708,850
Administrative expenses 492,370 416,310
Total operating expenses 1,070,380 1,125,160
Income from operations $ 640,010 $ 451,950
Other income 33,690 28,850
$ 673,700 $ 480,800
Other expense (interest) 176,000 96,800
Income before income tax $ 497,700 $ 384,000
Income tax expense 59,700 46,300
Net income $ 438,000 $ 337,700
Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
Dec. 31, 20Y2 Dec. 31, 20Y1
Assets
Current assets
Cash $ 536,140 $ 416,030
Marketable securities 811,450 689,410
Accounts receivable (net) 489,100 459,900
Inventories 365,000 277,400
Prepaid expenses 101,436 83,210
Total current assets $ 2,303,126 $ 1,925,950
Long-term investments 1,131,364 395,490
Property, plant, and equipment (net) 2,640,000 2,376,000
Total assets $ 6,074,490 $ 4,697,440
Liabilities
Current liabilities $ 677,390 $ 684,540
Long-term liabilities
Mortgage note payable, 8 % $ 990,000 $ 0
Bonds payable, 8 % 1,210,000 1,210,000
Total long-term liabilities $ 2,200,000 $ 1,210,000
Total liabilities $ 2,877,390 $ 1,894,540
Stockholders' Equity
Preferred $ 0.70 stock, $ 40 par $ 400,000 $ 400,000
Common stock, $ 10 par 460,000 460,000
Retained earnings 2,337,100 1,942,900
Total stockholders' equity $ 3,197,100 $ 2,802,900
Total liabilities and stockholders' equity $ 6,074,490 $ 4,697,440

Required:

Determine the following measures for 20Y2, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

1. Working capital $
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables days
6. Inventory turnover
7. Number of days' sales in inventory days
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders' equity
10. Times interest earned
11. Asset turnover
12. Return on total assets %
13. Return on stockholders’ equity %
14. Return on common stockholders’ equity %
15. Earnings per share on common stock $
16. Price-earnings ratio
17. Dividends per share of common stock $
18. Dividend yield %

Measures of liquidity, Solvency and Profitability

The comparative financial statements of Marshall Inc. are asfollows. The market price of Marshall Inc. common stock was $ 71 onDecember 31, 20Y2.

Marshall Inc.
Comparative Retained EarningsStatement
For the Years Ended December 31, 20Y2 and20Y1
20Y2 20Y1
Retained earnings, January 1 $ 2,461,325 $ 2,069,975
Net income 570,000 424,000
Total $ 2,966,025 $ 2,493,975
Dividends
On preferred stock $ 7,000 $ 7,000
On common stock 25,650 25,650
Total dividends $ 32,650 $ 32,650
Retained earnings, December 31 $ 2,998,675 $ 2,461,325


Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and20Y1
20Y2 20Y1
Sales $ 3,919,370 $ 3,611,160
Cost of goods sold 1,312,540 1,207,540
Gross profit $ 2,606,830 $ 2,403,620
Selling expenses $ 935,880 $ 1,140,250
Administrative expenses 797,240 669,670
Total operating expenses 1,733,120 1,809,920
Income from operations $ 873,710 $ 593,700
Other income 45,990 37,900
$ 919,700 $ 631,600
Other expense (interest) 272,000 149,600
Income before income tax $ 647,700 $ 482,000
Income tax expense 77,700 58,000
Net income $ 570,000 $ 424,000


Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
Dec. 31,20Y2 Dec. 31,20Y1
Assets
Current assets
Cash $ 750,890 $ 607,950
Marketable securities 1,136,480 1,007,460
Accounts receivable (net) 686,200 642,400
Inventories 511,000 394,200
Prepaid expenses 142,059 121,590
Total current assets $ 3,226,629 $ 2,773,600
Long-term investments 897,589 13,273
Property, plant, and equipment (net) 4,420,000 3,978,000
Total assets $ 8,544,218 $ 6,764,873
Liabilities
Current liabilities $ 1,075,543 $ 1,363,548
Long-term liabilities
Mortgage note payable, 8 % $ 1,530,000 $ 0
Bonds payable, 8 % 1,870,000 1,870,000
Total long-term liabilities $ 3,400,000 $ 1,870,000
Total liabilities $ 4,475,543 $ 3,233,548
Stockholders' Equity
Preferred $ 0.70 stock, $ 50 par $ 500,000 $ 500,000
Common stock, $ 10 par 570,000 570,000
Retained earnings 2,998,675 2,461,325
Total stockholders' equity $ 4,068,675 $ 3,531,325
Total liabilities and stockholders' equity $ 8,544,218 $ 6,764,873

Required:

Determine the following measures for 20Y2, rounding to onedecimal place, except for dollar amounts, which should be roundedto the nearest cent. Use the rounded answer of the requirement forsubsequent requirement, if required. Assume 365 days a year.

Return on stockholders’ equity %
Return on common stockholders’ equity %
Earnings per share on common stock $
Price-earnings ratio
Dividends per share of common stock $
Dividend yield