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Mr Irishka Essay

1777 words - 8 pages

SOLUTIONS TO EXERCISES
Ex. 14.1

a.
b.
c.

d.
e.
f.
g.

Accounts receivable decreased 21% ($34,000 decrease ÷ $160,000 = 21%
decrease).
Marketable securities decreased 100% ($250,000 decrease ÷ $250,000 = 100%
decrease).
A percentage change cannot be calculated because retained earnings showed a
negative amount (a deficit) in the base year and a positive amount in the
following year.
A percentage change cannot be calculated because of the zero amount of notes
receivable in 2008, the base year.
Notes payable increased 9% ($70,000 increase ÷ $800,000 = 9% increase).
Cash increased 5% ($4,000 increase ÷ $80,000 = 5% increase).
Sales increased 7% ($60,000 increase ÷ ...view middle of the document...

The
combination of these three favorable factors caused net income to rise from 4
cents to 8 cents out of each dollar of sales.

© The McGraw-Hill Companies, Inc., 2010
E14.1,2,3

Ex. 14.5

(Dollars in thousands, except per share amounts)
a.

b.

LINK, INC.
Statement of Earnings
For the Year Ended December 31, 2009
Net sales ……………………………………………………………….
Less: Cost of goods sold ………………………………………………
Gross profit ……………………………………………………………
Less: Operating expenses ………………………………………………
Operating income ………………………………………………………
Nonoperating items:
Interest revenue ………………………………………… $ 15,797
Income tax expense ……………………………………… (204,820)
Net earnings
Earnings per share

$ 4,395,253
2,821,455
1,573,798
1,004,396
$
569,402

$
$

(189,023)
380,379
1.70

(1) Gross profit rate:
Gross profit …………………………………………………… $ 1,573,798
Net sales ……………………………………………………… $
4,395,253
35.8%
Gross profit rate ($1,573,798 ÷ $4,395,253) ……………
(2) Net income as a percentage of net sales:
Net income …………………………………………………… $
Net sales ……………………………………………………… $
Net income as a percentage of net sales
($380,379 ÷ $4,395,253) …………………………………

380,379
4,395,253
8.7%

(3) Return on assets:
Operating income …………………………………………… $
Average total assets ………………………………………… $
Return on assets ($569,402 ÷ $2,450,000) ………………
(4) Return on equity:
Net income …………………………………………………… $
Average equity ……………………………………………… $
Return on equity ($380,379 ÷ $1,825,000) ……………
c.

569,402
2,450,000
23.2%
380,379
1,825,000
20.8%

The net sales figure represents the company’s primary source of revenue from
operations. Thus, interest revenue is a nonoperating source of revenue. To include
interest revenue in the gross profit computation would overstate both gross profit
and operating income.

© The McGraw-Hill Companies, Inc., 2010
E14.5

Ex. 14.9
a. Home Depot has significantly increased its size, as indicated by the number of
stores, during the ten-year period from 1998 through 2007. The number of stores
has increased from 761 to 2,234, almost a 300% increase. This represents an
annual growth rate of 13.6%. The average square footage per store has remained
relatively constant in 105,000 – 109,000 range.
b. The trend in the relationship of net earning to sales is variable. From 1998-2005,
it was generally positive, though not increasing every year. Since 2005, the
percentage has declined to a level (5.4%) that is approximately the same as 1998
(5.3%).
c. As measured by the current ratio, liquidity has declined. This ratio is lower in
many years than in the previous year over the ten-year period. It began at 1.73
(to 1) in 1998 and ended at 1.15, a significant decline over the ten-year period.
Another factor from the ten-year summary which sheds light on liquidity is that
the inventory turnover has declined during the ten-year period from 5.4 in 1998
to 4.2 in 2007. This indicates how often inventory "turns over" or sells and is
converted...

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