Chapter 15

Please Note:

These templates contain formulas that, when the correct data is entered
into the correct cells, will help solve the problems. Formulas will appear
as a long dash with or without a dollar sign, or as "#DIV/0!" or "#REF!" or
"#VALUE". As data is entered, formulas will become numbers. Data
numbers should be entered without dollar signs or commas.

To determine which cells are involved in a formula, simply highlight the

cell containing the formula, and the formula will be displayed in the
Formula Bar. By placing the cursor into the Formula Bar and clicking
once, the cells in question will be highlighted and color-coded to match
the formula. Exit the formula by pressing the Escape key. Use this method
whenever the position of data cells is not obvious on the spreadsheet.

Hint: When footnotes contain calculations, enter data into the footnote cells
first, before entering data elsewhere.
 Chapter 15, P 1.

1. Schedules showing amount and percentage changes prepared

Sanborn Corporation
Comparative Income Statements
For the Years Ended December 31, 20x2 and 20x1
(in thousands of dollars)

Increase or Decrease
20x2 20x1 Amount Percentage
Net Sales $ — #DIV/0!
Cost of Goods Sold — #DIV/0!
Gross Margin $ — $ — $ — #DIV/0!
Operating Expenses
Selling Expenses $ — #DIV/0!
Administrative Expenses — #DIV/0!
Total Operating Expenses $ — $ — $ — #DIV/0!
Income from Operations $ — $ — $ — #DIV/0!
Interest Expense — #DIV/0!
Income Before Income
Taxes $ — #DIV/0!
Income Taxes — #DIV/0!
Net Income $ — $ — $ — #DIV/0!
Earnings per share #DIV/0!

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P1-1

 Chapter 15, P 1. (Continued)

Sanborn Corporation
Comparative Balance Sheets
December 31, 20x2 and 20x1
(in thousands of dollars)

Increase or Decrease
20x2 20x1 Amount Percentage
Assets
Cash $ — #DIV/0!
Accounts Receivable (net) — #DIV/0!
Inventory — #DIV/0!
Property, Plant, and
Equipment (net) — #DIV/0!
Total Assets $ — $ — $ — #DIV/0!

Liabilities and Stockholders' Equity

Accounts Payable $ — #DIV/0!
Notes Payable (short-term) — #DIV/0!
Bonds Payable — *
Common Stock, $10 par value — —
Retained Earnings — #DIV/0!
Total Liabilities and
Stockholders' Equity $ — $ — $ — #DIV/0!

*Infinite

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P1-2

 Chapter 15, P 1. (Continued)

2. Common-size income statements and balance sheet prepared

Sanborn Corporation
Common-Size Income Statements
For the Years Ended December 31, 20x2 and 20x1

20x2 20x1
Net Sales 100.0% 100.0%
Cost of Goods Sold #DIV/0! #DIV/0!
Gross Margin #DIV/0! #DIV/0!
Operating Expenses
Selling Expenses #DIV/0! #DIV/0!
Administrative Expenses #DIV/0! #DIV/0!
Total Operating Expenses #DIV/0! #DIV/0!
Income from Operations #DIV/0! #DIV/0!
Interest Expense #DIV/0! #DIV/0!
Income Before Income Taxes #DIV/0! #DIV/0!
Income Taxes #DIV/0! #DIV/0!
Net Income #DIV/0! #DIV/0!

Sanborn Corporation
Common-Size Balance Sheets
December 31, 20x2 and 20x1

20x2 20x1
Assets
Cash #DIV/0! #DIV/0!
Accounts Receivable (net) #DIV/0! #DIV/0!
Inventory #DIV/0! #DIV/0!
Property, Plant, and Equipment (net) #DIV/0! #DIV/0!
Total Assets #DIV/0! #DIV/0!

Liabilities and Stockholders' Equity

Accounts Payable #DIV/0! #DIV/0!
Notes Payable (short-term) #DIV/0! #DIV/0!
Bonds Payable #DIV/0! #DIV/0!
Common Stock, $10 par value #DIV/0! #DIV/0!
Retained Earnings #DIV/0! #DIV/0!
Total Liabilities and Stockholders' Equity #DIV/0! * #DIV/0! *

* In common-size statements, the addition and subtraction of per-

centages are sometimes inexact due to rounding.
Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P1-3
 Chapter 15, P 1. (Continued)

3. Results commented on

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P1-4

 Chapter 15, P 2.

Effect
Transaction Ratio Increase Decrease None
a. Sold merchandise on account. Current ratio
b. Sold merchandise on account. Inventory turnover
c. Collected on accounts Quick ratio
receivable.
d. Wrote off an uncollectible Receivable turnover
account.
e. Paid on accounts payable. Current ratio
f. Declared cash dividend. Return on equity
g. Incurred advertising expense. Profit margin
h. Issued stock dividend. Debt to equity ratio
i. Issued bond payable. Asset turnover
j. Accrued interest expense. Current ratio
k. Paid previously declared Dividends yield
cash dividend.
l. Purchased treasury stock. Return on assets
m. Recorded depreciation Cash flow yield
expense.

* Assumes perpetual inventory system.

** Assumes an allowance for uncollectible accounts is used.

*** Answer assumes a ratio before the transaction of >1. If the ratio were <1, the
effect would be a decrease.

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P2-1

 Chapter 15, P 3.

Favorable (F)
or Unfavorable
Ratio 20x2 20x1 (U) Change
1. Liquidity analysis
a. Current + + + +
ratio + +
$ — $ —
= = #DIV/0! times = = #DIV/0! times
$ — $ —
$ — + $— $— $ — + $— $—
b. Quick ratio = =
$ — + $— $— $ — + $— $—
= #DIV/0! times = #DIV/0! times
c. Receivable
turnover ( + ) ¸ ( + ) ¸
$ — $ —
= = #DIV/0! times = = #DIV/0! times
#DIV/0! #DIV/0!
d. Average 365 days 365 days
= #DIV/0! days = #DIV/0! days
days' sales #DIV/0! times #DIV/0! times
uncollected
e. Inventory
turnover ( + ) ¸ ( + ) ¸
$ — $ —
= = #DIV/0! times = = #DIV/0! times
#DIV/0! #DIV/0!
f. Average days' 365 days 365 days
= #DIV/0! days = #DIV/0! days
inventory #DIV/0! times #DIV/0! times
on hand
g. Payables – +
turnover ( + ) ¸ ( + ) ¸
$ — $ —
= = #DIV/0! times = = #DIV/0! times
#DIV/0! #DIV/0!
h. Average days' 365 days 365 days
= #DIV/0! days = #DIV/0! days
payable #DIV/0! times #DIV/0! times
Note: These analyses indicate the apparently favorable or unfavorable change in each ratio. Class discussion may
focus on conditions that might lead to different conclusions.
Note: All amounts used in calculating the ratios and percentages are in thousands of dollars except the amounts
used to calculate the P/E ratio and the denominator in the dividends yield.
Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P3-1
Chapter 15, P 3. (Continued)

Favorable (F)
or Unfavorable
Ratio 20x2 20x1 (U) Change
2. Profitability
analysis
a. Profit
= = #DIV/0! = = #DIV/0! F
margin

b. Asset
Neutral
turnover ( + ) ¸ ( + ) ¸

= #DIV/0! times = #DIV/0! times

c. Return on $100,800
= #DIV/0! = #DIV/0! F
assets ( $— + $ — ) ¸ ( $— + $ — ) ¸

d. Return on $—
= #DIV/0! = #DIV/0! F
equity ( + ) ¸ ( + ) ¸

3. Long-term
solvency
analysis
a. Debt to + + +
Neutral
equity ratio $ — + $ — +

= #DIV/0! times = #DIV/0! times

b. Interest + +
= #DIV/0! times = #DIV/0! times U
coverage $ —
ratio

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P3-2

Chapter 15, P 3. (Continued)

Favorable (F)
or Unfavorable
Ratio 20x2 20x1 (U) Change
4. Cash flow
adequacy
analysis
a. Cash flow
= = #DIV/0! times
yield

b. Cash flows $ — $ —
= #DIV/0! = #DIV/0!
to sales

c. Cash flows $— $—
to assets ( + ) ¸ ( $1,584,800 + ) ¸

$— $—
= #DIV/0! = #DIV/0!
$—

d. Free cash $— – – $— – –
flow = $— = $—

5. Market strength
analysis
a. Price/earnings
= #DIV/0! times = #DIV/0! times
ratio

b. Dividends ¸ shares ¸ shares

= #DIV/0! = #DIV/0!
yield $ — $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P3-3

Chapter 15, P 4.

6. Company
with More
Favorable
Ratio Lewis Corporation Ramsey Corporation Ratio
1. Liquidity analysis
+ + + +
a. Current ratio + + + +
+ + + +

$ — $ —
= = #DIV/0! times = = ### times #DIV/0!
$ — $ —

$ — + $ — + $ — $ — + $ — + $ —
b. Quick ratio
$ — + $ — + $ — $ — + $ — + $ —

$ — $ —
= = #DIV/0! times = = ### times #DIV/0!
$ — $ —

c. Receivable turnover = #DIV/0! times = #DIV/0! times #DIV/0!

$ — $ —

d. Average days' sales days days

= #DIV/0! days = #DIV/0! days #DIV/0!
uncollected #DIV/0! times #DIV/0! times

e. Inventory turnover = #DIV/0! times = #DIV/0! times #DIV/0!

f. Average days' days days

= #DIV/0! days = #DIV/0! days #DIV/0!
inventory on hand #DIV/0! times #DIV/0! times

$ — + $0 $ — + $0
g. Payables turnover = #DIV/0! times = #DIV/0! times #DIV/0!
$ — $ —

h. Average days' days days

= #DIV/0! days = #DIV/0! days #DIV/0!
payable #DIV/0! times #DIV/0! times
(continued)

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P4-1

Chapter 15, P 4. (Continued)

6. Company
with More
Favorable
Ratio Lewis Corporation Ramsey Corporation Ratio
2. Profitability analysis

a. Profit margin = #DIV/0! = #DIV/0! #DIV/0!

$ — $ —
b. Asset turnover = #DIV/0! times = #DIV/0! times #DIV/0!

$ — $ —
c. Return on assets = #DIV/0! = #DIV/0! #DIV/0!
$ — $ —

$ — $ —
d. Return on equity
+ + + +

$ — $ —
= = #DIV/0! = = #DIV/0! #DIV/0!
$ — $ —

3. Long-term solvency
analysis
$ — + $ — +
a. Debt to equity ratio + + + +
$ — + $ — + $ — $ — + $ — + $ —

$ — $ —
= = #DIV/0! times = = #DIV/0! times #DIV/0!
$ — $ —

+ +
b. Interest coverage ratio
$ — $ —

$ — $ —
= = #DIV/0! times = = #DIV/0! times #DIV/0!
$ — $ —
(continued)

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P4-2

Chapter 15, P 4. (Continued)

6. Company
with More
Favorable
Ratio Lewis Corporation Ramsey Corporation Ratio
4. Cash flow adequacy analysis

a. Cash flow yield = #DIV/0! times = #DIV/0! times #DIV/0!

$ — $ —
b. Cash flows to sales = #DIV/0! = #DIV/0! #DIV/0!
$ — $ —

$ — $ —
c. Cash flows to assets = #DIV/0! = #DIV/0! Neutral
$ — $ —

$ — – – $ — – –
d. Free cash flow Ramsey
= $ — = $ —

5. Market strength analysis

a. Price/earnings ratio = #DIV/0! times = #DIV/0! times #DIV/0!

$ — ¸ shares $ — ¸ shares
b. Dividends yield
$ — $ —

= #DIV/0! = #DIV/0! #DIV/0!

7. Use of information from prior years

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P4-3

Chapter 15, P 5.

Effect
Transaction Ratio Increase Decrease None
a. Issued common stock for cash. Asset turnover
b. Declared cash dividend. Current ratio
c. Sold treasury stock. Return on equity
d. Borrowed cash by issuing Debt to equity ratio
note payable.
e. Paid salaries expense. Inventory turnover
f. Purchased merchandise for cash. Current ratio
g. Sold equipment for cash. Receivable turnover
h. Sold merchandise on account. Quick ratio
i. Paid current portion of long-term Return on assets
debt.
j. Gave sales discount. Profit margin
k. Purchased marketable securities Quick ratio
for cash.
l. Declared 5% stock dividend. Current ratio
m. Purchased a building. Free cash flow

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P5-1

Chapter 15, P 6.

Favorable (F) or
Unfavorable (U)
Ratio 20x2 20x1 Change
1. Liquidity
analysis
a. Current + + + +
= #DIV/0! times = #DIV/0! times
ratio + +

$ — + $— $ — + $—
b. Quick ratio = #DIV/0! times = #DIV/0! times
$ — + $— $ — + $—

c. Receivable
= #DIV/0! times = #DIV/0! times
turnover ( $— + ) ¸ ( $— + ) ¸

d. Average days days

= #DIV/0! days = #DIV/0! days
days' sales #DIV/0! times #DIV/0! times
uncollected

e. Inventory
= #DIV/0! times = #DIV/0! times
turnover ( $— + ) ¸ ( $— + ) ¸

f. Average days' days days

= #DIV/0! days = #DIV/0! days
inventory #DIV/0! times #DIV/0! times
on hand

g. Payables $ — + $ — +
turnover ( $— + $ — ) ¸ 2 ( $— + ) ¸ 2

$— $—
= = #DIV/0! times = = #DIV/0! times
$— $—

h. Average days' 365 days 365 days

= #DIV/0! days = #DIV/0! days
payable #DIV/0! times #DIV/0! times

Note: These analyses indicate the apparently favorable or unfavorable change in each ratio. Class discussion may
focus on conditions that might lead to different conclusions.
Note: All amounts used in calculating the ratios and percentages are in thousands of dollars, except the amounts
used to calculate the P/E ratio and the dividends yield.
(continued)

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P6-1

Chapter 15, P 6. (Continued)

Favorable (F) or
Unfavorable (U)
Ratio 20x2 20x1 Change*
2. Profitability
analysis
a. Profit
= = #DIV/0! = = #DIV/0!
margin

b. Asset $— $—
turnover ( + ) ¸ ( + ) ¸

= #DIV/0! times = #DIV/0! times

c. Return on
= #DIV/0! = #DIV/0!
assets ( $— + $ — ) ¸ 2 ( $— + $ — ) ¸ 2

d. Return on $— $—
= #DIV/0! = #DIV/0!
equity ( + ) ¸ ( + ) ¸

3. Long-term
solvency
analysis
a. Debt to + + + +
equity ratio + +

$ — $ —
= #DIV/0! times = #DIV/0! times
$ — $ —

b. Interest $ — + + $ — + +
coverage $ — $ —
ratio
= #DIV/0! times = #DIV/0! times
(continued)

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P6-2

Chapter 15, P 6. (Continued)

Favorable (F) or
Unfavorable (U)
Ratio 20x2 20x1 Change*
4. Cash flow
adequacy
analysis
a. Cash flow
= #DIV/0! times = #DIV/0! times
yield

b. Cash flows $ — $ —
= #DIV/0! = #DIV/0!
to sales

c. Cash flows $— $—
= #DIV/0! = #DIV/0!
to assets ( + ) ¸ ( + ) ¸

d. Free cash $— – – $— – –
flow = $— = $—

5. Market strength
analysis
a. Price/earnings
= #DIV/0! times = #DIV/0! times
ratio

b. Dividends $— ¸ shares $— ¸ shares

= #DIV/0! = #DIV/0!
yield $ — $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.15--P6-3