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Chapter 2: 2-5DQ (page 46)
How is the income statement related to the balance sheet?
Income statement and balance sheet of a company are directly related to each other
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Arrange the following income statement items so they are in the proper order of an income statement:
Taxes | Earning per share |
Share Outstanding | Earning before taxes |
Interest Expense | Cost of goods sold |
Depreciation Expense | Earning after taxes |
Preferred Stcok dividends | Earning available to common stockholders |
Sales | Selling and administrative expense |
Gross profit |
Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions.
b. Inventory turnover
The balance sheet for Stud Clothiers is shown below. Sales for the year were \(2,400,000, with 90 percent of sales sold on credit.
Stud Clothier | |||
Balance sheet 20X1 | |||
Assets | Liabilities and Equity | ||
Cash | \)60,000 | Account payable | \(220,000 |
Account receivable | 240,000 | Accrued taxes | 30,000 |
Inventory | 350,000 | Bonds payable (long term) | 150,000 |
Plant and equipment | 410,000 | Common stock | 80,000 |
Paid in capital | 200,000 | ||
Retained earnings | 380,000 | ||
Total assets | \)1,060,000 | Total LIbilities and Equity | $1,060,000 |
Compute the following:
c. Debt to total assets ratio.
Landers Nursery and Garden Stores has current assets of \(220,000 and fixed assets of \)170,000. Current liabilities are \(80,000 and long-term liabilities are \)140,000. There is $40,000 in preferred stock outstanding and the firm has
issued 25,000 shares of common stock. Compute book value (net worth)
per share.
Baker Oats had an asset turnover of 1.6 times per year.
b. The following year, on the same level of assets, Baker鈥檚 assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?
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