14-1
revenue and expenses data at Rogan Technologies Co, are as follows;
2010
2009
Sales
500,000
440,000
Cost of goods sold
325,000
242,000
Selling expenses
70,000
79,200
Administrative expenses
75,000
70,400
Income tax expenses
25,000
26,400
a. prepare an income statement in comparative form, stating each item for both 2010
and 2009 as a percent of sales. Round to one decimal place.
b. comment on the significant changes disclosed by the comparative income statement
14-3
revenue and expense data from the current calendar year for Sorenson Electronics
company and for the electronics industry are as follows. the Sorenson electronics
company data are expressed in dollars. The Electronics industry averages are
expressed in percentages
Sorenson Electronics Electronics industry
Company
average
Sales
2,050,000
102.5%
Sales returns and allowances
50,000
2.5
Net sales
2,000,000
100.0%
Cost of goods sold
1,100,000
61.0
Gross profit
900,000
39.0%
Selling expense
560,000
23.0%
Administrative expenses
220,000
10.0
Total operating expenses
780,000
33.0%
Operating income
120,000
6.0%
Other income
44,000
2.2
164,000
8.2%
Other expense
20,000
1.0
Income before tax
144,000
7.2%
Income tax
60,000
5.0
Net income
84,000
2.2%
a. prepare a common sized income statement comparing the results of operations for
Hrothgar Electronics company with industry average. round to one decimal place.
b. As far as the data permit, comment on significant relationships revealed by the
comparisons.
14-7
PepsiCo, Inc, the parent company of Frito- Lay snack food and pepsi beverages, had
the following current assets and current liabilities at the end of two recent years:
Dec, 30,2006( in
millions)
Dec, 31,2005( In
millions)
Cash and cash equivalents
1,651
1,716
Short term investment, at cost
1,171
3,166
Accounts and notes receivable, net
3,725
3,261
Inventories
1,926
1,693
Prepaid expenses and other current
assets
657
618
Short term obligations
274
2,889
Accounts payable and other current
liabilities
6,496
5,971
Income taxes payable
90
546
a. determine the (1) current ratio and (2) quick ratio for both years. Round to one
decimal place
b. what conclusions can you draw from these data?
14-14
Hasbro and Matte Incl are the two largest toy companies in North America. Condensed
liabilities and stockholders equity from recent balance sheet are shown each company
as follows in (thousands0:
Hasbro
Mattel
Current liabilities
$905,873
1,582,520
Long term debt
494,917
653,714
Other liabilities
-
304,676
Total liabilities
1,400,790
2,522,910
Shareholders equity:
104,847
441,396
Additional paid in capital
322,254
1,613,307
Retaining earnings
2,020,348
1,652,140
Loss and other equity items
11,186
(276,861)
Treasury stock at cost
(920,475)
(996,981)
Total stockholder's equity
1,538,160
2,432,974
Total liabilities and stockholder's equity
2,938,950
4,955,884
Accumulated other comprehensive
The income from operations and interest expense from the income statement for both
companies were as follows:
Hasbro
Mattel
Income from operations
376,363
728,818
Interest income
27,521
79,853
a. determine the ratio of liabilities to stockholder equity for both companies. Round to
one decimal place
b. determine the number of times interest charges are earned for both companies
round to one decimal place.
c. interpret the ratio differences between the two companies
problem 14-2A
for 2010, other technology company initiated sales promotion campaign that included
the expenditure of an additional $20,000 for advertising. at the end of the year, George
Wallace, the president, is presented with the following condensed comparative income
statement:
Others technology Company
Comparative income Statement
For the year ended December 31,2010 and 2009
2010
2009
Sales
$714,000
$612,000
Sales return and allowances
14,000
12,000
Net sales
700,000
600,000
Cost of goods sold
322,000
312,000
Gross profit
378,000
288,000
Selling expense
154,000
120,000
Administrative expenses
70,000
66,000
Total operating expenses
224,000
186,000
Income from operations
154,000
102,000
Other income
28,000
24,000
Income before income tax
182,000
126,000
Income tax
70,000
60,000
Net income
112,000
66,000
Instructions:
1. prepare a comparative income statement for the two year period, presenting an
analysis of each item in relationship to net sales for each of the years. Round to one
decimal places
2. To the extent the data permit, comment on the significant relationships revealed by
the vertical analysis prepared in (1)
14-1)
a.
ROGAN TECHNOLOGIES CO.
Comparative Income Statement
For the Years Ended December 31, 2010 and 2009
2010
Amount
Percent
Sales ...................................................
Cost of goods sold .............................
Gross profit .......................................
Selling expenses ................................
Administrative operating
expenses .......................................
Total expenses...................................
Income from operations ..................
Income tax expense ..........................
Net income ........................................
b.
2009
Amount
Percent
$500,000
325,000
$175,000
$ 70,000
100.0%
65.0
35.0%
14.0%
$440,000
242,000
$198,000
$ 79,200
100.0%
55.0
45.0%
18.0%
75,000
$145,000
$ 30,000
25,000
$ 5,000
15.0
29.0%
6.0%
5.0
1.0%
70,400
$149,600
$ 48,400
26,400
$ 22,000
16.0
34.0%
11.0%
6.0
5.0%
The vertical analysis indicates that the cost of goods sold as a percent of sales
increased by 10 percentage points (65.0% – 55.0%), while selling expenses
decreased by 4 percentage points (14% – 18%), administrative expenses
decreased by 1% (15% – 16%), and Income Tax Expense decreased by 1
percentage point (5% – 6%). Thus, net income as a percent of sales dropped by
4% (4% + 1% + 1% – 10%).
14-3)
a.
SORENSON ELECTRONICS COMPANY
Common-Sized Income Statement
For the Year Ended December 31, 20—
Sorenson
Electronics
Company
Amount
Percent
Sales ...........................................................................
Sales returns and allowances ..................................
Net sales.....................................................................
Cost of goods sold .....................................................
Gross profit ...............................................................
Selling expenses ........................................................
Administrative expenses ..........................................
Total operating expenses .........................................
Operating income .....................................................
Other income ............................................................
Other expense ...........................................................
Income before income tax .......................................
Income tax expense ..................................................
Net income ................................................................
b.
102.5%
2.5
100.0%
55.0
45.0%
28.0%
11.0
39.0%
6.0%
2.2
8.2%
1.0
7.2%
3.0
4.2%
102.5%
2.5
100.0%
61.0
39.0%
23.0%
10.0
33.0%
6.0%
2.2
8.2%
1.0
7.2%
5.0
2.2%
The cost of goods sold is 6 percentage points lower than the industry average,
but the selling expenses and administrative expenses are five percentage points
and 1 percentage point higher than the industry average. The combined impact
is for net income as a percent of sales to be 2 percentage points better than the
industry average. Apparently, the company is managing the cost of
manufacturing product better than the industry but has slightly higher selling
and administrative expenses relative to the industry. The cause of the higher
selling and
administrative expenses as a percent of sales, relative to the
industry, can be investigated further.
14-7)
a.
$ 2,050,000
50,000
$ 2,000,000
1,100,000
$
900,000
$
560,000
220,000
$
780,000
$
120,000
44,000
$
164,000
20,000
$
144,000
60,000
$
84,000
Electronics
Industry
Average
(1) Current Ratio =
Current As sets
Current Liabilitie s
Dec. 30, 2006:
$9,130
= 1.3
$6,860
Dec.
31,
2005:
$10,454
= 1.1
$9,406
(2) Quick Ratio =
Dec. 30, 2006:
Quick Assets
Current Liabilitie s
$6,547
= 1.0
$6,860
Dec. 31, 2005:
$8,143
$9,406
= 0.9
b.
The liquidity of PepsiCo has increased some over this time period. Both the
current and quick ratios have increased. The current ratio increased from 1.1 to
1.3, and the quick ratio increased from 0.9 to 1.0. PepsiCo is a strong company
with ample resources for meeting short-term obligations.
14-14)
a.
Ratio of Liabilities to Stockholders’ Equity =
Hasbro:
Total Liabilitie s
Total Stockholders' Equity
$1,400,790
= 0.9
$1,538,160
Mattel, Inc.:
$2,522,910
= 1.0
$2,432,974
b.
Income Before Tax + Interest Expense
Number of Times
=
Interest Charges Are Earned
Interest Expense
Hasbro:
$376,363 + $27,521
= 14.7
$27,521
Mattel, Inc.:
c.
$728,818 + $79,853
= 10.1
$79,853
Both companies carry a moderate proportion of debt to the stockholders’
equity, near 1.0 times stockholders’ equity. The companies’ debt as a percent of
stockholders’ equity is similar. Both companies also have very strong interest
coverage, earning in excess of 10 times interest charges. Together, these ratios
indicate that both companies provide creditors with a margin of safety, and that
earnings appear more than enough to make interest payments.
P14-2A)
1.
OTHERE TECHNOLOGY COMPANY
Comparative Income Statement
For the Years Ended December 31, 2010 and 2009
Amount
Sales ...................................................
Sales returns and allowances ..........
Net sales.............................................
Cost of goods sold .............................
Gross profit .......................................
Selling expenses ................................
Administrative expenses ..................
Total operating expenses .................
Income from operations ..................
Other income ....................................
Income before income tax ...............
Income tax expense ..........................
Net income ........................................
11.0%
2.
2010
Percent
$ 714,000
14,000
$ 700,000
322,000
$ 378,000
$ 154,000
70,000
$ 224,000
$ 154,000
28,000
$ 182,000
70,000
$ 112,000
102.0%
2.0
100.0%
46.0
54.0%
22.0%
10.0
32.0%
22.0%
4.0
26.0%
10.0
16.0%
2009
Amount Percent
$ 612,000
12,000
$ 600,000
312,000
$ 288,000
$ 120,000
66,000
$ 186,000
$ 102,000
24,000
$ 126,000
60,000
$ 66,000
102.0%
2.0
100.0%
52.0
48.0%
20.0%
11.0
31.0%
17.0%
4.0
21.0%
10.0
The vertical analysis indicates that the costs other than selling expenses (cost of
goods sold and administrative expenses) improved as a percentage of sales. As a
result, net income as a percentage of sales increased from 11.0% to 16.0%. The
sales promotion campaign appears to have been successful. While selling
expenses as a percent of sales increased slightly (2%), the increased cost was
more than made up for by increased sales.