.

ACCA 205 PROBLEMS FOR BONUS GRADES

1. Using the income statement below, develop a common-size statement by filling in the blanks provided.
Show your work. Round to one decimal place.

2009 2009

Net sales $780,000 100.0%_

Cost of goods sold 452,400 58.0%_
Gross margin $327,600 42.0%__
Operating expenses 156,000 20.0%__
Income before income taxes $171,600 22.0%__
Income taxes expense 124,800 16.0%__
Net income $ 46,800 6.0%___

2. Prepare a trend analysis of the following data using 2010 as the base year. Place your answers in the chart
provided. Comment on the trend.

2010 2009 2008

Net sales $108,000 $110,000 $100,000

Gross margin 61,040 58,800 56,000
Net income 9,600 10,800 10,000

2010 2009 2008

108% 110% 100%
Net sales 109% 105% 100%
Gross margin 96% 108% 100%
Net income

3. Prepare a trend analysis of the following data, using 2008 as the base year. Place your answers in the
chart provided. Comment on the trend.

2010 2009 2008

Net sales $324,000 $330,000 $300,000

Net income 33,000 31,800 30,000

2010 2009 2008

108% 110% 100%
Net sales 110% 106% 100%
Net income

4. Prepare a horizontal analysis by computing the amounts and percentage changes for the following balance
sheet items; place your answers in the blanks provided.

2010 2009 Amount Percentage

Assets
Current assets $ 6,500 $ 5,000 1,500 30%
Property, plant, and equipment 22,000 25,000 -3,000 -12%
Total assets $28,500 $30,000 -1,500 -5%

Liabilities and Stockholders' Equity

Liabilities $ 5,500 $10,000 -4,500 -45%
Stockholders' equity 23,000 20,000 3,000 15%
Total liabilities and stockholders' equity $28,500 $30,000 -1,500 -5%
5. Using the following information from an annual report, prepare a vertical analysis of the consolidated
balance sheet at June 30, 2009. (Round percentage answers to one decimal place.)

June 30, 2009

(In millions) Working Percent
Cash and cash equivalents $ 584 584/8353*100 6.99%
Accounts and other receivables 182 182/8353*100 2.18%
Merchandise inventories 2,027 2027/8353*100 24.27%
Prepaid expenses and other current assets 80 80/8353*100 0.96%
Total current assets $2,873 2873/8353*100 34.39%
Real estate, net $2,342 2342/8353*100 28.04%
Other, net 2,113 2113/8353*100 25.30%
Total property and equipment $4,455 4455/8353*100 53,33%
Goodwill, net $ 374 374/8353*100 4.48%
Other assets 651 651/8353*100 7.79%
Total assets $8,353 8353/8353*100 100.00%
Short-term borrowings $ 278 278/8353*100 3.33%
Accounts payable 1,617 1617/8353*100 19.36%
Accrued expenses and other current liabilities 836 836/8353*100 10.01%
Income taxes payable 107 107/8353*100 1.28%
Total current liabilities $2,838 2838/8353*100 33.98%
Long-term debt $1,230 1230/8353*100 14.73%
Deferred income taxes 362 362/8353*100 4.33%
Other liabilities 243 243/8353*100 2.91%
Total liabilities $4,673 4673/8353*100 55.94%
Common stock $ 30 30/8353*100 0.36%
Additional paid-in capital 453 453/8353*100 5.42%
Retained earnings 4,757 4757/8353*100 56.95%
Foreign currency translation adjustments (137) -137/8353*100 -1.64%
Treasury shares, at cost (1,423) -1423/8353*100 -17.04%
Total stockholders' equity $3,680 3680/8353*100 44.06%
Total liabilities and stockholders' equity $8,353 8353/8353*100 100.00%

6. From the following information, compute the ratios indicated and place the proper numbers in the spaces
provided. Assume the average for the year is the same as the ending balances for the balance sheet
accounts. Round answers to one decimal place, and show your work.

Westwood Corporation
Balance Sheet
December 31, 2010
Assets
Cash $ 15,000
Marketable securities 10,000
Accounts receivable (net) 20,000
Inventory 30,000
Prepaid expenses 8,000
Property, plant, and equipment 117,000
Total assets $200,000

Liabilities and Stockholders' Equity

Current liabilities $ 30,000
Long-term liabilities 50,000
Stockholders' equity 120,000
Total liabilities and stockholders' equity $200,000

Westwood Corporation
Income Statement
For the Year Ended December 31, 2010
Net sales $160,000
Cost of goods sold 120,000
Gross margin $ 40,000
Operating expenses
Selling and administrative expenses $ 16,000
Interest expense 8,000
Income taxes expense 4,000 28,000
 Net income $ 12,000

Westwood had 4,000 shares of common stock issued and outstanding. The market price of common stock
at year end was $15.00 per share. Dividends paid in 2010 were $0.60 per share.

Current ratio 83,000/30,000=2.8 Asset turnover 160,000/200,000=0.8 times

times
Quick ratio 45,000/30,000=1.5 Return on assets 12,000/200,000=6.0%
times
Receivable turnover 160,000/20,000=8.0 Return on equity 12,000/120,000=10.0%
times
Days' sales uncollected 356/8=45.6 days Debt to equity ratio 80,000/120,000=0.7% times
Inventory turnover 120,000/30,000=4.0% Interest coverage ratio (12,000+4,000+8,000)/8,000=3.0
times
Profit margin 12,000/160,000=7.5% Days' inventory on 365/4.0=91.25
hand
Dividends yield 0.60/15.00=4.0% Price/earnings (P/E) 15/3=5.0 times
ratio