ACCY 201 Study Guide - Financial Accounting Standards Board, Unsecured Debt, Current Liability
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Basic Financial Ratios
The accounting staff of CCB Enterprises has completed the financial statements for the 2016 calendar year. The statement of income for the current year and the comparative statements of financial position for 2016 and 2015 follow.
| CCB Enterprises | |
| Statement of Income | |
| For the Year Ended December 31, 2016 | |
| (thousands omitted) | |
| Revenue: | |
| Net sales | $794,620 |
| Other | 58,420 |
| Total revenue | $853,040 |
| Expenses: | |
| Cost of goods sold | $530,320 |
| Research and development | 24,480 |
| Selling and administrative | 155,320 |
| Interest | 19,600 |
| Total expenses | $729,720 |
| Income before income taxes | $123,320 |
| Income taxes | 49,328 |
| Net income | $73,992 |
| CCB Enterprises | ||
| Comparative Statements of Financial Position | ||
| December 31, 2016 and 2015 | ||
| (thousands omitted) | ||
| 2016 | 2015 | |
| Assets | ||
| Current assets: | ||
| Cash and short-term investments | $25,910 | $20,860 |
| Receivables, less allowance for doubtful accounts | ||
| ($1,130 in 2016 and $1,410 in 2015) | 48,190 | 50,300 |
| Inventories, at lower of FIFO cost or market | 64,860 | 62,100 |
| Prepaid items and other current assets | 5,220 | 3,280 |
| Total current assets | $144,180 | $136,540 |
| Other assets: | ||
| Investments, at cost | $105,880 | $105,880 |
| Deposits | 10,160 | 7,980 |
| Total other assets | $116,040 | $113,860 |
| Property, plant, and equipment: | ||
| Land | $12,100 | $12,100 |
| Buildings and equipment, less accumulated depreciation | ||
| ($126,330 in 2016 and $122,240 in 2015) | 268,840 | 247,870 |
| Total property, plant, and equipment | $280,940 | $259,970 |
| Total assets | $541,160 | $510,370 |
| Liabilities and Owners’ Equity | ||
| Current liabilities: | ||
| Short-term loans | $22,180 | $23,900 |
| Accounts payable | 72,240 | 71,070 |
| Salaries, wages, and other | 26,300 | 26,780 |
| Total current liabilities | $120,720 | $121,750 |
| Long-term debt | $160,620 | $171,030 |
| Total liabilities | $281,340 | $292,780 |
| Owners’ equity: | ||
| Common stock, at par | $43,840 | $42,010 |
| Paid-in capital in excess of par | 64,020 | 61,260 |
| Total paid-in capital | $107,860 | $103,270 |
| Retained earnings | 151,960 | 114,320 |
| Total owners’ equity | $259,820 | $217,590 |
| Total liabilities and owners’ equity | $541,160 | $510,370 |
Required:
1. Calculate the following financial ratios for 2016 for CCB Enterprises:
Round items h, j, and k to the nearest whole number. Round all other answers to two decimal places. Assume a 360-day year.
| a. Times interest earned | to 1 |
| b. Return on total assets | % |
| c. Return on common stockholders' equity | % |
| d. Debt-to-equity ratio (at December 31, 2016) | to 1 |
| e. Current ratio (at December 31, 2016) | to 1 |
| f. Quick (acid-test) ratio (at December 31, 2016) | to 1 |
| g. Accounts receivable turnover ratio (Assume that all sales are on credit.) | times |
| h. Number of days' sales in receivables | days |
| i. Inventory turnover ratio (Assume that all purchases are on credit.) | times |
| j. Number of days' sales in inventory | days |
| k. Number of days in cash operating cycle | days |
2. Which of the following statements pertaining to ratio analysis of CCB Enterprises is true?
All of these are true.
The following accounts (in no particular order) are for PerfectReb Corporation for the fiscal year ended December 31, 2015. (S/T =Short-Term; L/T = Long-Term)
REQUIRED:
A) Calculate Perfect Reb Corporation’s netincome or net loss for the 2015 fiscal year. You may solve this inany
manner that you wish, but it is highly recommended to prepare amultiple step income statement.
B) Using proper form, prepare Perfect RebCorporation’s balance sheet for 2015.
C) Using the information provided, solve forthe requested ratios and respond to the correspondingquestions.
Common Stock (13,000 shares outstanding) | $52,000 | Sales Discounts | $5,000 | |
Accrued Expenses (Payables) | 20,000 | Income Tax Expense (25% of IBIT) | ??? | |
Miscellaneous Operating Expenses | 50,000 | Cash | 142,000 | |
Accounts Receivable | 20,000 | Interest Expense | 4,000 | |
Buildings | 186,000 | Marketable Securities | 62,000 | |
Retained Earnings | ??? | Notes Payable (due in 5 years) | 12,000 | |
Wages Expense | 60,000 | Rent Expense | 11,000 | |
Inventory | 40,000 | Unearned Revenue | 19,000 | |
Accumulated Depreciation – Buildings | 48,000 | Allowance for Uncollectible Accounts | 15,000 | |
Accounts Payable | 41,000 | Sales | 433,000 | |
Gain on Sale of Equipment | 62,000 | Mortgage Payable ($12,000 S/T) | 144,000 | |
Land | 50,000 | Sales Returns & Allowances | 12,000 | |
Bad Debt Expense | 2,000 | Depreciation Expense | 11,000 | |
L/T Investments | 7,000 | Cost of Goods Sold | 109,000 | |
Notes Receivable ($2,000 S/T) | 13,000 | Interest Revenue | 3,000 |
A) NET INCOME (10 points) – SHOW ALL WORK ANDCALCULATIONS!!!!
B) CLASSIFIED BALANCE SHEET (15 points)
Perfect Reb Corporation Balance Sheet December 31,2015 | ||||||
ASSETS | LIABILITIES | |||||
Current Assets | Current Liabilities | |||||
Total Current Liabilities | ||||||
Total Current Assets | ||||||
Long-Term Assets | Long-Term Liabilities | |||||
Total Long-Term Assets | Total Long Term Liabilities | |||||
Fixed Assets | ||||||
Total Liabilities | ||||||
EQUITY | ||||||
Total Fixed Assets | ||||||
Total Equity | ||||||
TOTAL ASSETS | TOTAL LIABILITIES & EQUITY | |||||
C) RATIOS AND ANALYSIS (15 points):
Use the financial statements and additional information tocalculate the ratios. Round your answers to two decimalplaces. Be sure to label your answer correctly (example,%, times, days, etc.). IF AN ANSWER SHOULD BE EXPRESSED ASA PERCENTAGE, DO NOT LEAVE IT IN DECIMAL FORM!!!! (i.e. 0.5015 =50.15%!!!!)
Previous (December 31, 2014) year end balancesfor:
Accounts receivable, net of allowanceInventory
Stockholders’ Equity
Market price per share for one share of common stock atDec 31, 2015 Dividend per share for one share of common stock forFYE Dec 31, 2015
$2,000 15,000 139,000
$94.50/share $1.25/share
No new shares of common stock were issued during 2015.The company’s credit policy is net 15.
RATIO | CALCULATION | ANSWER |
1) Quick (Acid-Test) Ratio (2points) | ||
2) Dividend Yield (2points) | ||
3) Gross Profit Percentage (2points) | ||
4) Average Days’ Sales Uncollected 2points) | ||
5) Inventory Turnover (2points) | ||
6) Price-Earnings Ratio (2points) |
7) Using the liquidity ratios (and generalaccepted norms for the current ratio and quick/acid-test ratio),comment on the company’s financial position. (3points)
