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    John Spencer Corporation

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    John Spencer Corporation
    Comparative Income Statement
    For the Years Ended December 31
    2009 2008
    Sales $530,000 $448,000
    Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372,000 338,000
    Gross margin on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,000 110,000
    Operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,000 68,000
    Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,000 42,000
    Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 2,000
    Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,000 40,000
    Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000 12,000
    Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,000 $28,000

    John Spencer Corporation
    Comparative Balance Sheet
    December 31
    2009 2008
    Assets:
    Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000 $ 6,000
    Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 14,000
    Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 20,000
    Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
    Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 20,000
    Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ $176,000 $160,000
    Liabilities and stockholders' equity:
    Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,000 $ 50,000
    Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000 10,000
    Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 60,000
    Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 40,000
    Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . $176,000 $160,000

    Required:
    7-1. Compute the following ratios for 2008 and 2009:

    a. Current ratio
    b. Debt ratio
    c. Asset turnover
    d. Return on sales
    e. Return on equity

    7-2. Have the firm's performance and financial position improved from 2008 to 2009? Explain.

    8. Inventory Ratios
    Captain Geech Boating Company sells fishing boats to fishermen. Its beginning and ending inventories for 2009 are $462 million and $653 million, respectively. It had cost of goods sold of $1,578 million for the year ended December 31, 2009. Merchant Marine Company also sells fishing boats. Its beginning and ending inventories for the year 2009 are $120 million and $90 million, respectively. It had cost of goods sold of $1,100 million for the year ended December 31, 2009.
    8-1. Calculate the inventory turnover and number of days' sales in inventory for the two
    companies.
    8-2. Are the results of these ratios what you expected? Which company is managing its inventory more efficiently?

    9. Analyzing Earnings

    Roger Donahoe owns two businesses: a drug store and a retail department store.
    (Assume the financial information is for the same time period.)

    Drug Store Department Store
    Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,050,000 $670,000
    Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 600,000
    Average total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 200,000
    Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,500 36,500

    9-1 Which business is more profitable? Which business is more efficient? Overall, which business would you consider to be a more attractive investment? Provide ratios and other financial rationale to support your answer.

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    Solution Summary

    This solution shows step-by-step calculations in an Excel file to determine various ratios of the John Spencer Corporation such as current ratio, debt ratio, asset turnover, inventory turnover as well as an analysis of a business for profitability.

    $2.19

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