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ACG 2021 Lecture Notes - Lecture 23: Retained Earnings, Net Income, Income Statement

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olivecattle778
11 Apr 2018
School
FIU
Department
Accounting
Course
ACG 2021
Professor
Alexander Sueiro

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Document Summary

Others include: inventory, liabilities (payables not including banks), receivables, net income, net loss. Income statement, retained earnings (or statement of stockholders equity), balance sheet, statement of cash flow. Measures a company"s financial performance over a specific period of time period. Revenue first amount on right (credit), expense second amounts on left (debit) If net income is negative it is called net loss. Net income will either go to dividends or retained earnings. Represents the portion of the net income that the firm has kept (as opposed to paying out in the form of dividends). If statement of stockholders equity then would include common stock: ere= bre + common stock (owner contribution) + ni- dividends. Reports assets and claims to assets (liability) at a specific point in time. Assets first then liabilities and stockholder equity. Assets- economic resources used to produce future benefit (items owned or owed to us) in order of liquidity.

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Related Questions

PROBLEM 15-15 Comprehensive Ratio Analysis (L015-2, L015-3, L015-4, L015-5, L015-6] You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety hel- mets. Your boss has asked you to perform a comprehensive analysis of the company's financial statements, including comparing Lydex's performance to its major competitors. The company's financial statements for the last two years are as follows: Lydex Company Comparative Balance Sheet This Year Last Year $ 960,000 0 2,700,000 3,900,000 240,000 7,800,000 9,300,000 $17,100,000 $ 1,260,000 300,000 1,800,000 2,400,000 180,000 5,940,000 8,940,000 $14,880,000 Assets Current assets: Cash .... Marketable securities ......... Accounts receivable, net ........ Inventory .......... Prepaid expenses.......... Total current assets. ........ Plant and equipment, net ..... Total assets ............. Liabilities and Stockholders' Equity Liabilities: Current liabilities. Note payable, 10% ................. Total liabilities .... .......... Stockholders' equity: Common stock, $78 par value ......... Retained earnings .................. Total stockholders' equity .............. Total liabilities and stockholders' equity.... $ 3,900,000 3,600,000 7,500,000 $2,760,000 3,000,000 5,760,000 7,800,000 1,800,000 9,600,000 $17,100,000 7,800,000 1,320,000 9,120,000 $14,880,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) ........... $15,750,000 $12,480,000 Cost of goods sold ...... 12,600,000 9,900,000 Gross margin ....................... 3,150,000 2,580,000 Selling and administrative expenses ...... 1,590,000 1,560,000 Net operating income.................. 1,560,000 1,020,000 Interest expense ...................... 360,000 300,000 Net income before taxes ............. 1,200,000 720,000 Income taxes (30%) .......... 360.000 216,000 Net income ....... 840,000 504,000 Common dividends .... 360,000 252,000 Net income retained. 480,000 252,000 Beginning retained earnings ............ 1,320,000 1,068,000 Ending retained earnings .......... $ 1,800,000 $ 1,320,000 PROBLEM 15-16 Common-Size Financial Statements [L015-1] Refer to the financial statement data for Lydex Company given in Problem 15-15. Required: For both this year and last year: 1. Present the balance sheet in common-size format. 2. Present the income statement in common-size format down through net income. 3. Comment on the results of your analysis.

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 stockholdersĆ¢Ā€Ā™ equity %
Return on common stockholdersĆ¢Ā€Ā™ equity %
Earnings per share on common stock $
Price-earnings ratio
Dividends per share of common stock $
Dividend yield

Measures of liquidity, solvency, and profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.

Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
Ā  20Y2 20Y1
Retained earnings, January 1 $3,704,000 $3,264,000
Net income $ 600,000 $ 550,000
Dividends: Ā  Ā 
On preferred stock (10,000) (10,000)
On common stock (100,000) (100,000)
Increase in retained earnings $ 490,000 $ 440,000
Retained earnings, December 31 $4,194,000 $3,704,000

Ā Ā 

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
Ā  20Y2 20Y1
Sales $ 10,850,000 $10,000,000
Cost of goods sold (6,000,000) (5,450,000)
Gross profit $ 4,850,000 $ 4,550,000
Selling expenses $ (2,170,000) $ (2,000,000)
Administrative expenses (1,627,500) (1,500,000)
Total operating expenses $(3,797,500) $ (3,500,000)
Operating income $ 1,052,500 $ 1,050,000
Other revenue and expense: Ā  Ā 
Other revenue 99,500 20,000
Other expense (interest) (132,000) (120,000)
Income before income tax expense $ 1,020,000 $ 950,000
Income tax expense (420,000) (400,000)
Net income $ 600,000 $ 550,000

Ā Ā 

Ā Ā 

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
Ā  20Y2 20Y1
Assets Ā 
Current assets: Ā  Ā 
Cash $1,050,000 $ 950,000
Marketable securities 301,000 420,000
Accounts receivable (net) 585,000 500,000
Inventories 420,000 380,000
Prepaid expenses 108,000 20,000
Total current assets $ 2,464,000 $2,270,000
Long-term investments 800,000 800,000
Property, plant, and equipment (net) 5,760,000 5,184,000
Total assets $ 9,024,000 $8,254,000
Liabilities Ā 
Current liabilities $ 880,000 $ 800,000
Long-term liabilities: Ā  Ā 
Mortgage note payable, 6% $ 200,000 $ 0
Bonds payable, 4% 3,000,000 3,000,000
Total long-term liabilities $ 3,200,000 $3,000,000
Total liabilities $ 4,080,000 $3,800,000
Stockholdersā€™ Equity Ā 
Preferred 4% stock, $5 par $ 250,000 $ 250,000
Common stock, $5 par 500,000 500,000
Retained earnings 4,194,000 3,704,000
Total stockholdersā€™ equity $ 4,944,000 $4,454,000
TotalĀ liabilities andĀ stockholdersā€™ equity $ 9,024,000 $8,254,000

Determine the following measures for 20Y2. Round to one decimal place, including percentages, except for per-share amounts, which should be rounded to the nearest cent.

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