Using these data from the comparative balance sheet of Patillo Company, perform horizontal analysis.

Increase or (Decrease)

December 31, 2010 December 31, 2009 Amount Percentage

$ 160000
Accounts receivable $560,000   $400,000   40 %

$ 130000
Inventory 780,000   650,000   20 %

$ 420000
Total assets 3,220,000   2,800,000   15 %

Royal Ware Company has stockholders' equity of $441,448 and net income of $69,069. It has a payout ratio of 26%
and a return on assets ratio of 20%. How much did Royal Ware pay in cash dividends, and what were its average
total assets? (Round all answers to 0 decimal places, e.g. 12,255.)
Cash dividends $ 17958

Average total assets $ 345345

Talley Incorporated had the following transactions involving current assets and current liabilities during February
2010.
 
  Collected accounts receivable of $14,770.
Feb. 3

7  Purchased equipment for $30,268 cash.

11  Paid $2,202 for a 3-year insurance policy.

14  Paid accounts payable of $11,279.

18  Declared cash dividends, $5,378.

Additional information: As of February 1, 2010, current assets were $120,735 and current liabilities were $32,630.
Compute the current ratio as of the beginning of the month and after each transaction. (Round each ratio to 2
decimal places, e.g. 12.51.)
Feb. 1 3.70 :1

Feb. 3 3.70 :1

Feb 7 3.70 :1

Feb. 11
3.70 :1
Feb. 14 5.13 :1

Feb. 18 4.87 :1

Current ratio:

Feb. 1 3.70 ($120,735 ÷ $32,630).

3 3.70 No change in total current assets or liabilities.

7 2.77 ($90,467 ÷ $32,630).

11 2.77 No change in total current assets or liabilities.

14 3.71 ($79,188 ÷ $21,351).

18 2.96 ($79,188 ÷ $26,729).

Selected comparative statement data for the giant bookseller Barnes & Noble are presented here. All balance sheet
data are as of December 31 (in millions).
  2006 2005

Net sales $5,261.3 $5,103.0

Cost of goods sold 3,623.0 3,535.8

Net income 150.5 146.7

Accounts receivable 100.5 99.1

Inventory 1,354.6 1,314.0

Total assets 3,196.8 3,156.3

Total common stockholders' equity 1,164.9 1,115.8

Compute the following ratios for 2006: (Round all answers to 1 decimal place, e.g. 12.5.)
Profit margin 2.9 %

Asset turnover 1.66 times

Return on assets 4.7 %

Return on common stockholders' equity 13.2 %

Gross profit rate 31.1 %

  

Condensed balance sheet and income statement data for Breckenridge Corporation are presented here.
BRECKENRIDGE CORPORATION

Balance Sheets

December 31
2010 2009 2008
Cash $30,000 $20,000 $18,000
Receivables (net) 50,000 45,000 48,000
Other current assets 90,000 85,000 64,000
Investments 55,000 70,000 45,000
Plant and equipment (net) 500,000 370,000 258,000
$725,000 $590,000 $433,000
       
Current liabilities $85,000 $80,000 $30,000
Long-term debt 185,000 85,000 20,000
Common stock, $10 par 320,000 300,000 300,000
Retained earnings 135,000 125,000 83,000
$725,000 $590,000 $433,000
BRECKENRIDGE CORPORATION

Income Statements

For the Years Ended December 31

2010 2009
Sales $640,000 $500,000
Less: Sales returns and allowances 40,000 30,000
Net sales 600,000 470,000
Cost of goods sold 425,000 300,000
Gross profit 175,000 170,000
Operating expenses (including income taxes) 110,000 99,000
Net income $65,000 $71,000
Additional information:
1. The market price of Breckenridge's common stock was $6.00, $9.00, and $7.00 for 2008, 2009, and 2010,
respectively.

2. You must compute dividends paid. All dividends were paid in cash.

Compute the following ratios for 2010 and 2009. (Round all answers to 2 decimal places, e.g. 12.52.)
(1) Profit margin
2010 10.83 %

2009 15.11 %

(2) Gross profit

2010 29.17 %

2009 36.17 %

(3) Asset turnover

2010 .91 times

2009 .92 times

(4) Earnings per share

2010 $ 2.10

2009 $ 2.37

(5) Price-earnings
2010 3.33 times

2009 3.80 times

(6) Payout ratio

2010 84.62 %

2009 40.85 %

(7) Debt to total assets

2010 37.24 %

2009 27.97 %

2010
 
2009
Profit margin
$65,000
=10.83% 
$71,000
=15.11%$600,000 $470,000        Gross profit
$175,000
=29.17% 
$170,000
=36.17%$600,000 $470,000        Asset turnover
$600,000
=0.91 times 
$470,000
=0.92 times($590,000 + $725,000) ÷ 2 ($433,000 + $590,000) ÷ 2        Earnings per share
$65,000
=$2.10 
$71,000
=$2.37($30,000 + $32,000) ÷ 2 ($30,000 + $30,000) ÷ 2         Price-earnings ratio
$7.00
=3.33 times 
$9.00
=3.80 times$2.10  $2.37        Payout ratio
$55,000*
=84.62% 
$29,000**
=40.85%$65,000 $71,000        *($125,000 + $65,000 - $135,000) **($83,000 + $71,000 - $125,000)        Debt to
total assets
$270,000
=37.24% 
$165,000
=27.97%$725,000 $590,000

In horizontal analysis, if an item has a negative amount in the base year, and a positive amount in the following year,
no percentage change for that item can be computed.
False

True

The current ratio is a measure of all the ratios calculated for the current year.
True

False

An income statement would not include

discontinued operations.

extraordinary items.

dividends paid.
 other revenue and gains.

In performing a vertical analysis, the base for cost of goods sold is

net sales.

total revenues.

total selling expenses.

total expenses.

The current ratio is a

profitability ratio.

liquidity ratio.

long-term solvency ratio.

cash flow ratio.

Which measure(s) is(are) an evaluation of a company’s ability to pay current liabilities?

1. Current cash debt coverage ratio.
2. Current ratio.
Neither 1 nor 2.

1 only.

2 only.

Both 1 and 2.

Which situation below might indicate a company has a low quality of earnings?
 The financial statements are prepared in accordance with generally accepted accounting principles.

Revenue is recognized when earned.

Repair costs are capitalized and then depreciated.

The same accounting principles are used each year.

Armada Company has these comparative balance sheet data:

ARMADA COMPANY

Balance Sheets

December 31
2010 2009
Cash $237,920 $87,332
Receivables (net) 67,930 64,030
Inventories 69,930 54,410
Plant assets (net) 218,790 181,610
$594,570 $387,382
     
Accounts payable $51,280 $69,000
Mortgage payable (15%) 119,670 101,620
Common stock, $10 par 140,000 120,000
Retained earnings 63,930 48,740
$377,520 $346,760
Additional information for 2010:
1. Net income was $33,570.

2. Sales on account were $392,530. Sales returns and allowances amounted to $27,600.

3. Cost of goods sold was $208,890.

4. Net cash provided by operating activities was $55,490.

5. Capital expenditures were $29,350, and cash dividends were $19,760.

Compute the following ratios at December 31, 2010. (Round to 3 decimal places, e.g. 2.501.)

Current ratio = $375,780

= 7.328 :1
$51,280
Receivables turnover = $364,930
= 5.531 times
$65,980(1)
(1) ($67,930 + $64,030) ÷ 2
Average collection period = 365 days ÷ 5.531 = 65.992 days
Inventory turnover = $208,890 = 3.360 times
 $62,170.000(2)
(2) ($69,930 + $54,410) ÷ 2
Days in inventory = 365 days ÷ 3.360 = 108.631 days
Cash debt coverage ratio = $55,490
= 0.325 times
($170,950 + $170,620) ÷ 2
Current cash debt coverage ratio = $55,490
= 0.923 times
($51,280 + $69,000) ÷ 2
Free cash flow = $55,490 - $29,350 - $19,760 = $6,380