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ACCT 203 Chapter Notes - Chapter 12: Business Cycle, Retained Earnings, Accounts Receivable

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brownduck883
25 May 2018
School
George Mason University
Department
Accounting
Course
ACCT 203
Professor
Harley

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ACCT 203 GMU Chapter 12 review
Dividends
Distribution of assets to stockholders
decrease retained earnings
Current Assets
expected to be used up within one business cycle
Long term Asset
(Non-current)
Expected to benefit the company beyond one business cycle
Current Liabilities
debts due within one year
long term liabilities
debts payable after one year
Equity
Represents ownership
ex. common stock, additional paid in capital, retained earnings
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Related Questions

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Property, plant, and equipment (net) $2,444,400
Liabilities:
Current liabilities $234,000
Note payable, 6%, due in 15 years 1,164,000
Total liabilities $1,398,000
Stockholders' equity:
Preferred $4 stock, $100 par (no change during year) $2,097,000
Common stock, $10 par (no change during year) 2,097,000
Retained earnings:
Balance, beginning of year $2,236,000
Net income 661,000 $2,897,000
Preferred dividends $83,880
Common dividends 17,120 101,000
Balance, end of year 2,796,000
Total stockholders' equity $6,990,000
Sales $34,349,700
Interest expense $69,840

Assuming that total assets were $7,969,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a. Ratio of fixed assets to long-term liabilities
b. Ratio of liabilities to stockholders' equity
c. Asset turnover
d. Return on total assets %
e. Return on stockholdersĆ¢Ā€Ā™ equity %
f. Return on common stockholders' equity %

Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Olvideo Enterprises Inc. for the current fiscal year.

Property, plant, and equipment (net) $1,526,000
Liabilities:
Current liabilities $152,000
Mortgage note payable, 8%, issued 2003, due 2019 763,000
Total liabilities $915,000
Stockholders' equity:
Preferred $4 stock, $100 par (no change during year) $915,000
Common stock, $10 par (no change during year) 915,000
Retained earnings:
Balance, beginning of year $976,000
Net income 319,000 $1,295,000
Preferred dividends $36,600
Common dividends 38,400 75,000
Balance, end of year 1,220,000
Total stockholders' equity $3,050,000
Net sales $8,850,100
Interest expense $61,040

Assuming that long-term investments totaled $1,983,000 throughout the year and that total assets were $3,767,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a. Ratio of fixed assets to long-term liabilities
b. Ratio of liabilities to stockholders' equity
c. Ratio of net sales to assets
d. Rate earned on total assets %
e. Rate earned on stockholders' equity %
f. Rate earned on common stockholders' equity %

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