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Accounting net incomes and comparative balance sheets

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BE13- 1 On June 30 Rojas Corporation discontinued its operations in Mexico. On September 1 Rojas disposed of the Mexico facility at a pretax loss of $ 480,000. The applicable tax rate is 25%. Show the discontinued operations section of Rojas's income statement.

BE13- 3 On January 1, 2007, Cannon Inc. changed from the LIFO method of inventory pricing to the FIFO method. Explain how this change in accounting principle should be treated in the company's financial statements.

BE13- 4 Using these data from the comparative balance sheet of De Rosa Company, per-form horizontal analysis.
December 31, 2007 December 31, 2006
Accounts receivable $ 520,000 $ 400,000
Inventory 780,000 6 600,000
Total assets 3,220,000 2,800,000

BE13- 6 Net income was $ 500,000 in 2005, $ 480,000 in 2006, and $ 537,600 in 2007. What is the percentage of change from ( a) 2005 to 2006, and ( b) from 2006 to 2007? Is the change an increase or a decrease?

BE13- 7 If Parthenon Company had net income of $ 672,300 in 2007 and it experienced a 17% increase in net income over 2006, what was its 2006 net income?

BE13- 8 Vertical analysis ( common- size) percentages for Bellamy Company's sales, cost of goods sold, and expenses are listed here.

Vertical Analysis 2007 2006 2005
Sales 100.0% 100.0% 100.0%
Cost of goods sold 59.2 62.4 64.5
Expenses 26.0 26.6 28.5

Did Bellamy's net income as a percent of sales increase, decrease, or remain unchanged over the 3- year period? Provide numerical support for your answer.

BE13- 9 Horizontal analysis ( trend analysis) percentages for Kirvida Company's sales, cost of goods sold, and expenses are listed here.

Horizontal Analysis 2007 2006 2005
Sales 96.2% 104.8% 100.0%
Cost of goods sold 102.0 97.0 100.0
Expenses 108.6 95.4 100.0

Explain whether Kirvida's net income increased, decreased, or remained unchanged over the 3- year period.

BE13- 11 The following data are taken from the financial statements of Tall Tail Company.
2007 2006
Accounts receivable ( net), end of year $ 560,000 $ 540,000
Net sales on account 4,700,000 4,000,000
Terms for all sales are 1/ 10, n/ 45.
Compute for each year ( a) the receivables turnover ratio and ( b) the average collection period. What conclusions about the management of accounts receivable can be drawn from these data? At the end of 2005, accounts receivable was $ 500,000.

BE13- 12 The following data were taken from the income statements of Long Haul Company.
2007 2006
Sales revenue $ 6,420,000 $ 6,240,000
Beginning inventory 970,000 837,000
Purchases 4,640,000 4,661,000
Ending inventory 1,020,000 970,000

Compute for each year ( a) the inventory turnover ratio and ( b) days in inventory. What conclusions concerning the management of the inventory can be drawn from these data?

BE13- 13 Staples, Inc. is one of the largest suppliers of office products in the United States. It had net income of $ 708.4 million and net revenue of $ 14,448.4 million in 2004. Its total assets were $ 6,503.0 million at the beginning of the year and $ 7,071.4 million at the end of the year. What is Staples, Inc.' s ( a) asset turnover ratio and ( b) profit margin ratio? ( Round to two decimals.) Provide a brief interpretation of your results.

BE13- 14 Royal Ware Company has stockholders' equity of $ 400,000 and net income of $ 60,000. It has a payout ratio of 25% and a return on assets ratio of 16%. How much did Royal Ware pay in cash dividends, and what were its average total assets?

BE13- 15 Selected data taken from the 2004 financial statements of trading card com-pany Topps Company, Inc. are as follows ( in millions).

2004
Net sales for 2004 $ 295.9
Current liabilities, February 28, 2004 39.5
Current liabilities, February 26, 2005 47.5
Net cash provided by operating activities 22.9
Total liabilities, February 28, 2004 64.2
Total liabilities, February 26, 2005 71.2
Capital expenditures 2.6
Cash dividends 6.5

Compute these ratios at February 26, 2005: ( a) current cash debt coverage ratio ( b) cash debt coverage ratio, and ( c) free cash flow. Provide a brief interpretation of your results.

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Solution Summary

The solution examines the change in accounting principles and financial statements.

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P23-8 Comparative Balance Sheet Accounts of Jensen Company

P23-8 Comparative balance sheet accounts of Jensen Company are presented below.

JENSEN COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
DECEMBER 31,
Debit Balances 2007 2006
Cash $80,000 $51,000
Accounts receivable 145,000 130,000
Merchandise inventory 75,000 61,000
Investments
(Available-for-sale) 55,000 85,000
Equipment 70,000 48,000
Buildings 145,000 145,000
Land 40,000 25,000
Totals $610,000 $545,000
Credit Balances
Allowance for Doubtful Accounts $10,000 $8,000
Accumulated Depreciation - Equipment 21,000 14,000
Accumulated Depreciation - Building 37,000 28,000
Accounts payable 70,000 60,000
Income taxes payable 12,000 10,000
Long-term notes payable 62,000 70,000
Common stock 310,000 260,000
Retained earnings 88,000 95,000
Totals $610,000 $545,000

Additional data:

1. Equipment that cost $10,000 and was 40% depreciated was sold in 2007.
2. Cash dividends were declared and paid during the year.
3. Common stock was issued in exchange for land.
4. Investments that cost $35,000 were sold during the year.

Jensen's 2007 income statement is as follows.

Sales $950,000
Less: Cost of goods sold 600,000
Gross profit 350,000
Less: Operating expenses (includes deprecation and bad debt expense)
250,000
Income from operations 100,000
Other revenues and expenses
Gain on sale of investments $15,000
Loss on sale of equipment (3,000) 12,000
Income before taxes 112,000
Income taxes 45,000
Net income $67,000

Instructions

a. Prepare a statement of cash flows using the indirect method.

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