Chapter Thirteen
4 Problems
Problem 1
10 points(5 for a, 2.5 for b & 2.5 for c)
Financial information for Nealon Inc. is presented below.
December 31, 2014 December 31, 2013
Current assets $140,000 $110,000
Plant assets (net) 440,000 360,000
Current liabilities 95,000 75,000
Long-term liabilities 165,000 100,000
Common stock, $1 par 180,000 120,000
Retained earnings 140,000 175,000
Instructions:
(a) Prepare a schedule showing a horizontal analysis for 2014 using 2013 as the base year.
(b) What is the primary use of horizontal analysis?
(c) What does the schedule from part (a) tell you about Nealon?
Problem 2
10 points(5 for a, 2.5 for b & 2.5 for c)
Operating data for Poll Corporation are presented below.
2014 2013
Net sales $900,000 $700,000
Cost of goods sold 570,000 450,000
Selling expenses 140,000 90,000
Administrative expenses 80,000 60,000
Income tax expense 33,000 30,000
Net income 77,000 70,000
Instructions:
(a) Prepare a schedule showing a vertical analysis for 2014 and 2013.
(b) What is the primary use of vertical analysis?
(c) What does the schedule from part (a) tell you about Poll?
Problem 3
10 points(2.5 each)
Selected comparative statement data for Tyrone Company are presented below. All balance sheet data are as of December 31.
2014 2013
Net sales $1,160,000 $1,120,000
Cost of goods sold 700,000 640,000
Interest expense 15,000 10,000
Net income 150,000 140,000
Accounts receivable 140,000 120,000
Inventory 100,000 95,000
Total assets 780,000 700,000
Preferred stock (6%) 200,000 200,000
Total stockholders’ equity 630,000 525,000
Instructions:
Compute the following ratios for 2014.
(a) Profit margin.
(b) Asset turnover.
(c) Return on assets.
(d) Return on common stockholders’ equity
Problem 4
10 points(8 points for a & 2 points for b)
For its fiscal year ending October 31, 2014, Antonio Corporation reports the following partial data.
Income before income taxes $600,000
Income tax expense (40% X $480,000) 192,000
Income from continuing operations 408,000
Gain from discontinued operations 100,000
Extraordinary loss from flood (220,000)
Net income $288,000
The flood loss is considered an extraordinary item. The income tax rate is 40% on all items.
Instructions:
(a) Prepare a correct income statement, beginning with income before income taxes.
(b) Explain in memo form why the income statement data are misleading.
Discussion Question:
Please read the following article. It will provide you with some perspective for this week’s discussion.
“Amazon vs. eBay Which Is the Cheaper Stock to Buy?
http://www.forbes.com/sites/greatspeculations/2014/12/19/amazon-vs-ebay-which-is-the-cheaper-stock-to-buy/#37648ad82e31
1) Find the last 5 year’s of sales for each Amazon and eBay.
2) Complete a horizontal analysis comparing the “sales” of the two companies. Show your calculations.
3) What do you think, who is preforming better?
4) What is the each company’s current ratio? What does the current ratio tell you?
5) What do you think, which company stronger financially?
