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Account classification; Income Statement; NPV; and Ratios

4-50. Using the format provided, for each account identify (1) whether the account is a balance sheet (B/S) or an income statement (I/S) account; (2) whether it is an asset (A), a liability (L), an owners' equity (OE), a revenue (R), or an expense (E) account; (3) whether the account is real or a nominal account; (4) whether the account will be "closed" or left "open" at year-end; and (5) whether the account normally has a debit or a credit balance.

Accounts Receivable
Accounts Payable
Prepaid Insurance
Mortgage Payable
Rent Expense
Sales Revenue
Cost of Goods Sold
Dividends
Capital Stock
Inventory
Retained Earnings
Prepaid Rent
Supplies on Hand
Utilities Expense
Income Taxes Payable
Interest Revenue
Notes Payable
Income Tax Expense
Wages Payable
Unearned Rent Revenue
Land
Unearned Consulting Fees
Interest Receivable
Consulting Fees

8-43. Income Statement Analysis. The following table represents portions of the income statements of Brinkerhoff Company for the years 2007-2009: Fill in the missing numbers. Assume that gross margin is 40% of the net sales revenue.

Gross sales revenue................................$56,000 $(9) $47,600
Sales discounts.....................................0 300 200
Sales returns........................................0 100 400
Net Sales revenue...................................56,000 (10) (1)
Beginning inventory................................(15) 8,700 (2)
Purchases.............................................33,400 (11) 25,000
Purchases discounts.................................700 400 800
Freight-in.............................................(16) 0 700
Cost of goods available for sale....................40,500 37,800 (3)
Ending inventory......................................6,900 (12) (4)
Cost of goods sold....................................(17) (13) (5)
Gross margin..........................................(18) 20,400 (6)
Selling expenses......................................4,500 (14) (7)
General and administrative expenses .............(19) 3,100 2,800
Income before income taxes........................14,300, 14,000, 11,900
Income taxes...........................................4,250 4,200 (8)
Net income.............................................(20) 9,800 8,400

22-38. Net Present Value Method. A fast-food establishment is thinking of buying a new cooking grill and refrigeration unit. The costs of these new machines are $12,500 and $9,000, respectively. The installation costs of the new equipment will run about $800. It is estimated that 10% more customers can be served with the new equipment, which would mean an additional annual net cash flow of approximately $4,500. The salvage value of the old grill and refrigeration unit is estimated to be $1000. The firm's cost of capital is 12%. The equipment should last 10 years, at a minimum. Using the present value method, should the company purchase the new equipment? (Ignore income tax effects.)

14.62. Refer to the financial statement information below for Clarksville Corporation. For the years 2007, 2008, and 2009, compute the following ratios:

1. Return on sales
2. Asset turnover
3. Assets-to-equity ratio
4. Return on equity

The comparative income statements and balance sheets for Clarksville Corporation for the
years 2007, 2008, and 2009 are given below.

Comparative Income Statements
For the Years Ended December 31
2009 2008 2007
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,700,000 $6,600,000 $3,800,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 4,800,000 2,520,000
Gross profit on sales . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000 $1,800,000 $1,280,000
Selling expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,120,000 $1,200,000 $ 960,000
General expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 440,000 400,000
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . $1,520,000 $1,640,000 $1,360,000
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 180,000 $ 160,000 $ (80,000)
Other revenue (expense) . . . . . . . . . . . . . . . . . . . . . . . . 80,000 130,000 160,000
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 260,000 $ 290,000 $ 80,000
Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 85,000 20,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 180,000 $ 205,000 $ 60,000
(continued)
9780324617122, Accounting: Concepts and Applications, 10e by Albrecht, Stice, Stice, & Swain - © Cengage Learning

Comparative Balance Sheets
December 31
2009 2008 2007
Assets:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 855,000 $ 955,500 $ 673,500
Land, building, and equipment . . . . . . . . . . . . . . . . . . 1,275,000 1,075,000 925,000
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000 100,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 60,500 61,500
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,278,000 $2,191,000 $1,760,000
Liabilities:
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 410,000 $ 501,000 $ 130,000
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 600,000 400,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 810,000 $1,101,000 $ 530,000
Stockholders' equity:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,100,000 $ 800,000 $1,000,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368,000 290,000 230,000
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . $1,468,000 $1,090,000 $1,230,000
Total liabilities and stockholders' equity . . . . . . . . . . $2,278,000 $2,191,000 $1,760,000

Solution Summary

The solution examines account classification, income statements, NPV and Ratios.

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