SS Topic 6

SOLUTIONS TO EXERCISES

EXERCISE 18.1

GALLUP SA
Condensed Statements of Financial Position
December 31

Increase or (Decrease)
2020 2019 Amount Percentage
Assets
Plant assets (net) €396,000 €320,000 (€76,000 (23.8%)
Current assets 128,000 110,000 ( 18,000 (16.4%)
Total assets €524,000 €430,000 €94,000 (21.9%)

Equity
Share capital— (
ordinary, €1 par € 159,000 € 115,000 €44,000) (38.3%)
Retained earnings 135,300 150,000 ((14,700)) (((9.8%))
Total equity 294,300 265,000 ( 29,300) ( 11.1%)

Liabilities
Non-current liabilities 138,700 95,000 ( 43,700 (46.0%)
Current liabilities 91,000 70,000 30.0%
Total liabilities 229,700 165,000 (15,000 ) ( 39.2%)
Total equity and 21,000
liabilities €524,000 €430,000 ( 64,700) 21.9%

(€94,000)

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EXERCISE 18.2

CONARD LIMITED
Condensed Income Statements
For the Years Ended December 31

2020 2019
Amount Percent Amount Percent
Net sales £750,000 100.0% £600,000 100.0%
Cost of goods sold 480,000 64.0% 408,000 68.0%
Gross profit 270,000 36.0% 192,000 32.0%
Selling expenses 105,000 14.0% 84,000 14.0%
Administrative expenses 75,000 10.0% 54,000 9.0%
Total operating expenses 180,000 24.0% 138,000 23.0%
Income before income taxes 90,000 12.0% 54,000 9.0%
Income tax expense 36,000 4.8% 18,000 3.0%
Net income £ 54,000 7.2% £ 36,000 6.0%

EXERCISE 18.3

(a) GARCIA SLU

Condensed Statements of Financial Position
December 31

Percentage
Increase Change
2020 2019 (Decrease) from 2019
Assets
Intangibles € 24,000 € 40,000 € (16,000) (40.0%)
Property, plant &
equipment (net) 100,000 92,000 ( 8,000) ( 8.7%)
Current assets 76,000 82,000 (6,000) (7.3%)
Total assets €200,000 €214,000 € (14,000) (6.5%)

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EXERCISE 18.3 (Continued)

GARCIA SLU
Condensed Statements of Financial Position (Continued)
December 31

Percentage
Increase Change
2020 2019 (Decrease) from 2019
Equity and liabilities
Equity € 20,000 € 16,000 € 4,000 25.0%
Non-current
liabilities 140,000 150,000 (10,000) (6.7%)
Current liabilities 40,000 48,000 (8,000) ((16.7%))
Total equity and
liabilities €200,000 €214,000 €(14,000) (6.5%)

(b) GARCIA SLU

Condensed Statements of Financial Position
December 31, 2020

Amount Percent
Assets
Intangibles € 24,000 12.0%
Property, plant, and equipment (net) 100,000 50.0%
Current assets 76,000 38.0%
Total assets €200,000 100.0%

Equity and liabilities

Equity € 20,000 10%
Non-current liabilities 140,000 70%
Current liabilities 40,000 20%
Total equity and liabilities €200,000 100%

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EXERCISE 18.4

(a) HENDI A.S.

Condensed Income Statements
For the Years Ended December 31

Increase or (Decrease)
During 2019
2020 2019 Amount Percentage
Net sales 600,000 500,000 100,000 20.0%
Cost of goods sold 468,000 400,000 68,000 17.0%
Gross profit 132,000 100,000 32,000 32.0%
Operating expenses 60,000 54,000 6,000 11.1%
Net income 72,000 46,000 26,000 56.5%

(b) HENDI A.S.

Condensed Income Statements
For the Years Ended December 31

2020 2019
Amount Percent Amount Percent
Net sales 600,000 100.0% 500,000 100.0%
Cost of goods sold 468,000 78.0% 400,000 80.0%
Gross profit 132,000 22.0% 100,000 20.0%
Operating expenses 60,000 10.0% 54,000 10.8%
Net income 72,000 12.0% 46,000 9.2%

EXERCISE 18.5

(a) Current ratio = 2.1:1 ($5,228 ÷ $2,541)

Acid-test ratio = 1.3:1 ($3,371 ÷ $2,541)
Accounts receivable turnover = 5.7 times ($12,166 ÷ $2,153)*
Inventory turnover = 5.4 times ($7,737 ÷ $1,445.5)**

*($2,177 + $2,129) ÷ 2
**($1,531 + $1,360) ÷ 2

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EXERCISE 18.5 (Continued)

(b) Ratio Nordstrom Park Street Industry

Current 2.1:1 2.05:1 1.70:1
Acid-test 1.3:1 1.05:1 .70:1
Accounts receivable
turnover 5.7 37.2 46.4
Inventory turnover 5.4 3.1 4.3

Nordstrom is similar to Park Street for the current and acid-test

ratios but significantly below for the accounts receivable
turnover. Nordstrom is much better than Park Street for the
inventory turnover.

Nordstrom is better than the industry average for the current

and acid-test ratios but below the industry average for the
accounts receivable turnover. Its inventory turnover ratio
however is higher than the industry average.

EXERCISE 18.7

(a) = 2.8:1.

(b) = 1.6:1.

(c) = 6.6 times.

(d) = 3.5 times.

(1)

(2)

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EXERCISE 18.8

(a) Profit margin = 6.0%.

(b) Asset turnover =

1.25 times.

(c) Return on assets = 7.5%.

(d) Return on ordinary shareholders’

equity
= 11.2%.

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EXERCISE 18.9

(a) = €1.72.

(b) = 6.3 times.

(c) = 25%.

(d) = = 6.5 times.

EXERCISE 18.10

(a) Inventory turnover = 3.4 =

3.4 X €190,000 = Cost of goods sold

Cost of goods sold = €646,000.

(b) Accounts receivable turnover = 8.8 =

8.8 X €99,500 = Net sales (credit) = €875,600.

(c) Return on ordinary shareholders’ equity = 25% =

.25 X €528,000 = Net income = €132,000.

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EXERCISE 18.10 (Continued)

(d) Return on assets = 20% =

Average assets = = €660,000

= €660,000

Total assets (Dec. 31, 2020) = (€660,000 X 2) – €650,000 =

€670,000.