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# Prepare Financial Statement Analysis

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Use the financial statements of Landry's Restaurants using the following links:
http://www.landrysrestaurants.com/pdf/financial/2003AnnualReport.pdf and http://www.landrysrestaurants.com/pdf/financial/2002AnnualReport.pdf), (Fundamentals of Financial Accounting 1st ed., by Phillips, Libby, and Libby)

Describe the purpose of each ratio.
Based on your analysis, what does each ratio tell you of Landry's financial performance?

(Consider the changes between years)

Properly cite your references. If you used an electronic source, include it please

** See ATTACHED file for complete details **

#### Solution Preview

** See ATTACHED file for complete details **

Principles of Accounting, Revised Edition, by Benjamin, Francia, and Strawser.

As you need more room, the cell will (should) expand.

Ratio#1 is provided to you as an example.

Ratio Name Purpose of Ratio Ratio Answer What do the ratios tell you about Landry's financial performance?
2003 2002
1 Net Profit Margin Computes the percentage of sales the company keeps after deducting expenses. . 4.2% 4.6%
Sales increased from \$41.5 million in 2002 to \$45.9 million in 2003. However, Landry's net profit margin declined from 4.6% in 2002 to 4.2% in 2003. This decrease in net profit margin is primarily due to a decline in Landry's gross profit percentage. Gross profit percentage is the amount of profit after deducting the cost of Landry's operations. This means Landry's cost of providing restaurant services (food and service costs) increased more than Landry's sales. This could be due to Landry's opening new restaurants which incur full operating costs but the new restaurants need to build sales.

2 Gross Profit Percentage Computes the percentage of sales the company keeps after deducting cost of revenues
70.9%
71.2%
Landry's gross profit has been declined from 71.2% to 70.9% in 2003. It is a slight decrease even thoudh sales of Landry has been increased from \$894.8 million in 2002 to \$1,105.8 million in 2003. The decrease may result from the increase in Landry's cost of revenues, which increased more than the increase in sales. This could be due to Landry's opening new restaurants, which incur full operating costs but the new restaurants need to build sales.

3 Fixed Asset Turnover Computes the productivity of the company
1.2
1.3
In 2002, Landry can use its fixed assets to generate approximately \$1.3 of revenue by each dollar spent on fixed assets while in 2003, this ratio has been reduced to ...

#### Solution Summary

This solution is comprised of a detailed explanation to prepare Financial Statement Analysis using the attached statements.

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## Prepare Income Statements of Flexibly Designed

This project should be completed using Excel (with formulas and linked data). The parameters of the project are below:

1. Prepare an Income Statement for the year ended 2011. This statement should be flexibly designed (formulas in cells). This should be a multi-step income statement (see video and/or exhibit 4.1 on pg. 4-5). To the right of your dollars in this statement, show common-sized percentages based on sales (vertical analysis).

2. Show journal entries, adjusting entries and closing entries for the below additional information...none of the journal entries have been posted to the ledger (many journal entries have been booked to get you started, however none of the entries for 2011 have been posted). You can add a transaction analysis (not required), however you must show actual journal entries that include debits and credits.

3. Prepare a Statement of Retained Earnings for the year ended 2011. This statement should be flexibly designed.

4. Prepare a Balance Sheet dated Dec. 31, 2011. Have the Balance Sheets for 12/31/10 and 12/31/11 on the same Excel sheet labeled Balance Sheets. Again, a flexible design is required so any changes will automatically update the balance sheet.

5. Prepare a Statement of Cash Flows using the indirect method for the year ended 2011. The Statement of Cash Flows (operating section) should automatically change when assumptions are changed. The ending cash as shown on the statement of cash flows will then flow to the Balance Sheet. Cash flow videos are still available in the classroom for your review and appendix B in your textbook contains additional information that you might find helpful.

6. Analysis: on a separate sheet titled "Analysis" compute the following and show in a table (show your work below your table); your table should look similar to that on page 4-21:
a. ROE for 2011
b. ROA for 2011
c. RNOA for 2011
d. Stockholders' Equity for 2010 and 2011
e. Net Income for 2011
f. NOPAT for 2011
g. NOA for 2010 and 2011
h. NOPM for 2011
i. NOAT for 2011
j. NNO for 2010 and 2011
k. Current Ratio for 2010 and 2011
l. Quick Ratio for 2010 and 2011
m. Liabilities-to-Equity Ratio for 2010 and 2011

Balance Sheet
12/31/2010

Current Assets
Cash \$17,000
Marketable Securities (Short-term) 2,000
Accounts Receivable 14,000
Inventory 15,000
Prepaid Insurance 5,000
Total Current Assets \$51,000

Property, Plant, and Equipment
Land \$30,000
Building 150,000
Accumulated Dep. - Building (45,000)
Equipment 100,000
Accumulated Dep. - Equipment (20,000)
Total PPE \$215,000

Total Assets \$266,000

Current Liabilities
Accounts Payable \$9,000
Unearned Revenue 2,000
Income Taxes Payable 3,000
Total Current Liabilities \$14,000

Long-term Liabilities
Bonds, 10%, due in 2015 \$100,000

Equity
Common Stock \$ 50,000
(100,000 authorized, 50,000 issued)
Retained Earnings 22,000
Total Equity \$152,000

Total Liabilities & Equity \$266,000

1. Sales for 2011 are \$310,000. All sales are on credit.
2. Gross Margin ratio is 40 percent
3. Accounts Receivable:
i. \$190,000 of the accounts receivable is paid by the end of the year (the remaining balance remains on the balance sheet).
ii. \$4,000 of A/R is written off during the year.
iii. 5% of Accounts Receivable (after write-off and collections) is considered to be uncollectible.
4. Inventory:
i. Inventory purchases is \$180,000, all on credit.
ii. All accounts payable is from inventory purchases; all but \$12,000 of inventory purchased is paid by the end of the year.
5. Additional equipment is purchased on 4/1/11 for \$20,000 cash. All equipment when new, including the new purchase, has/had a five year life, no salvage value, and is depreciated using the straight-line method.
6. The building depreciates at \$5,000 per year.
7. Half of the marketable securities were sold for \$1,200. The FMV and cost of the other half of the securities are the same, so no adjustment to FMV is required.
8. Salaries are \$2,200 per month (12 months of salaries expense must be booked). It is expected that one-half month will be owed on 12/31/11 because of when payday falls (therefore, 11.5 months of salaries have been paid and ½ month is still owed to the employees at year end).
9. \$55,000 in cash is borrowed on 9/30/11 by issuing a Note Payable. Interest is 8% per year.
10. The bonds were sold at face value last December and pay interest on Dec. 31, 2011.
11. 10,000 additional shares of stock were sold for \$3 a share.
12. Insurance costing \$18,000 was purchased on 6/1/11 (the same time in which the policy purchased in 2010 expired. The new policy was for 12 months).
13. On Dec. 31, 1000 shares of stock are repurchased from the market at \$2.90/share (treasury stock).
14. The tax rate is 30 percent. Income taxes for the current year are due and therefore paid during the first two months of the next year (you will have complete an entry to pay the 2010 taxes, however the 2011 taxes will not be paid until the end of January 2012).
15. Dividends of \$3,000 were paid during 2011.
16. The unearned revenue has been earned during the year (classified as other revenue on the multi-step income stmt.).

Required Labeled Sheets (all statements should be for 2011):

1. Data Sheet for Additional Data
2. Entries: Basic and Adjusting (you do not have to show closing entries, however keep in mind all temporary accounts are closed to retained earnings)
3. Adjusted Trial Balance for 2011 (includes the posted amounts of all entries and adjusting entries)
4. Multi-step Income Statement
5. Retained Earnings Statement
6. Classified Balance Sheet
7. Cash Flow Statement
8. Post-Close Trial Balance for 2011
9. Analysis

The Post-Close Trial Balance for 2010 is provided below (based on the above balance sheet). This can be used as a starting point or you can use the above Balance Sheet; keep in mind all debits and credits ALWAYS equal AND Assets = Liabilities + Equity:

Post Close Trial Balance
31-Dec-10
DEBITS CREDITS
Cash 17,000
Marketable Securities 2,000
Accounts Rec. 14,000
Inventory 15,000
Prepaid Insurance 5,000
Land 30,000
Building 150,000
Accumulated Dep. - Building 45,000
Equipment 100,000
Accumulated Dep. - Equipment 20,000
Accounts Payable 9,000
Salaries Payable
Unearned Revenue 2,000
Interest Payable
Income Taxes Payable 3,000
Note Payable
Bonds 100,000
Common Stock 50,000