CHAPTER 15

Financial Analysis: The Big Picture

Learning Objectives
1. Apply horizontal analysis and vertical analysis to financial statements.
2. Analyze a company’s performance using ratio analysis.
3. Apply the concept of sustainable income.

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-1
 ANSWERS TO QUESTIONS

1. (a) Kurt is not correct. There are three characteristics: liquidity, profitability, and solvency.
(b) The three parties are not primarily interested in the same characteristics of a company. Short-term
creditors are primarily interested in the liquidity of the company. In contrast, long-term creditors and
shareholders are primarily interested in the profitability and solvency of the company.
LO 2 BT: C Difficulty: Medium TOT: 4 min. AACSB: None AICPA FC: Reporting

2. (a) Comparison of financial information can be made on an intracompany basis, an intercompany

basis, and an industry average basis (or norms).
(1) An intracompany basis compares an item or financial relationship within a company in
the current year with the same item or relationship in one or more prior years.
(2) The industry averages basis compares an item or financial relationship of a company
with industry averages (or norms) published by financial rating services.
(3) An intercompany basis compares an item or financial relationship of one company with the
same item or relationship in one or more competing companies.
(b) The intracompany basis of comparison is useful in detecting changes in financial relationships
and significant trends within a company.
The industry averages basis provides information as to a company’s relative performance
within the industry.
The intercompany basis of comparison provides insight into a company’s competitive position.
LO 2 BT: C Difficulty: Medium TOT: 5 min. AACSB: None AICPA FC: Reporting

3. Horizontal analysis (also called trend analysis) measures the dollar and percentage increase or
decrease of an item over a period of time. In this approach, the amount of the item on one statement
is compared with the amount of that same item on one or more earlier statements. Vertical analysis
(also called common-size analysis) expresses each item within a financial statement in terms of a
percent of a base amount.
LO 1 BT: C Difficulty: Medium TOT: 3 min. AACSB: None AICPA FC: Reporting

4. (a) €350,000 × 1.224 = €428,400, 2025 net income.

(b) €350,000 ÷ .05 = €7,000,000, 2024 revenue.
LO 1 BT: AP Difficulty: Medium TOT: 3 min. AACSB: Analytic AICPA FC: Reporting

5. A ratio expresses the mathematical relationship between one quantity and another. The relationship is
expressed in terms of either a percentage (200%), a rate (2 times), or a simple proportion (2:1).
Ratios can provide clues to underlying conditions that may not be apparent from individual financial
statement components. The ratio is more meaningful when compared to the same ratio in earlier
periods or to competitors’ ratios or to industry ratios.
LO 2 BT: C Difficulty: Medium TOT: 3 min. AACSB: None AICPA FC: Reporting

6. (a) Liquidity ratios: Current ratio, acid-test ratio, accounts receivable turnover, and inventory
turnover.
(b) Solvency ratios: Debt to assets ratio and times interest earned.
LO 2 BT: K Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Reporting

7. Gordon is correct. A single ratio by itself may not be very meaningful and is best interpreted by
comparison with: (1) past ratios of the same company, (2) ratios of other companies, or (3) industry norms
or predetermined standards. In addition, other ratios of the company are necessary to determine
overall financial well-being.
LO 2 BT: C Difficulty: Medium TOT: 3 min. AACSB: None AICPA FC: Reporting

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Questions Chapter 15 (Continued)

8. (a) Liquidity ratios measure the short-term ability of a company to pay its maturing obligations
and to meet unexpected needs for cash.
(b) Profitability ratios measure the income or operating success of a company for a given period of time.
(c) Solvency ratios measure the ability of the company to survive over a long period of time.
LO 2 BT: K Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Reporting

9. The current ratio relates current assets to current liabilities. The acid-test ratio relates cash, short-term
investments, and net receivables to current liabilities. The current ratio includes inventory and
prepaid expenses while the acid-test ratio excludes these. The acid-test ratio provides additional
information about short-term liquidity and is an important complement to the current ratio.
LO 2 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Reporting

10. Monte Company does not necessarily have a problem. The accounts receivable turnover can be
misleading in that some companies encourage credit and revolving charge sales and slow collections
in order to earn a healthy return on the outstanding accounts receivable in the form of high rates of
interest. Nevertheless, the ratio is not favorable in comparison to the industry average.
LO 2 BT: C Difficulty: Medium TOT: 3 min. AACSB: None AICPA FC: Reporting

11. (a) Asset turnover

(b) Inventory turnover or Days in inventory
(c) Return on ordinary shareholders’ equity
(d) Times interest earned
LO 2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

12. The price earnings (P/E) ratio is a reflection of investors’ assessments of a company’s future
earnings. In this question, investors favor Microsoft because it has the higher P/E ratio. The investors feel
that Microsoft will be able to generate even higher future earnings and so the investors are willing
to pay more for the shares.
LO 2 BT: C Difficulty: Medium TOT: 3 min. AACSB: None AICPA FC: Reporting

13. The payout ratio is cash dividends declared on ordinary shares divided by net income. In a growth
company, the payout ratio is often low because the company is reinvesting earnings in the business.
LO 2 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

14. (a) The increase in profit margin is good news because it means that a greater percentage of net
sales is going towards income.
(b) The decrease in inventory turnover signals bad news because it is taking the company longer
to sell the inventory and consequently, there is a greater chance of inventory obsolescence.
(c) An increase in the current ratio signals good news because the company improved its ability
to meet maturing short-term obligations.
(d) The earnings per share ratio is a deceptive ratio. The decrease might be bad news to the
company because it could mean a decrease in net income. If there is an increase in shareholders’
investment (as a result of issuing additional shares) and a decrease in EPS, then this means
that the additional investment is earning a lower return (as compared to the return on ordinary
shareholders’ equity before the additional investment). Generally, this is undesirable.
(e) The increase in the price-earnings ratio is generally good news because it means that the
market price per share has increased, and investors are willing to pay that higher price for the
shares. An increase in the P/E ratio is good news for investors who own the shares and don’t
want to buy any more. It is bad news for investors who want to buy (or buy more of) the shares.
(f) The increase in the debt to assets ratio is bad news because it means that the company has
increased its obligations to creditors and has lowered its equity “buffer.”

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Questions Chapter 15 (Continued)

14. (Continued)

(g) The decrease in the times interest earned is bad news because it means that the company’s ability
to meet interest payments as they come due has weakened.
LO 2 BT: C Difficulty: Hard TOT: 6 min. AACSB: None AICPA FC: Reporting

Net Income
Return on assets =
15. Average Assets
(7.6%)

Net Income ? Preference Dividends

Return on ordinary shareholders’ equity =
Average Ordinary Shareholders' Equity
(12.8%)

The difference between the two rates can be explained by looking at the denominator value and
by remembering the basic accounting equation, A = L + E. The asset value will clearly be the larger of
the two denominator values; therefore, it will also give the smaller return.
LO 2 BT: AN Difficulty: Hard TOT: 5 min. AACSB: Analytic AICPA FC: Reporting

16. (a) The times interest earned, which is an indication of the company’s ability to meet interest
payments, and the debt to assets ratio, which indicates the company’s ability to withstand losses
without impairing the interests of creditors.
(b) The current ratio and the acid-test ratio, which indicate a company’s liquidity and short-term
debt-paying ability.
(c) The earnings per share and the return on ordinary shareholders’ equity, both of which indicate the
earning power of the investment.
LO 2 BT: C Difficulty: Medium TOT: 5 min. AACSB: None AICPA FC: Reporting

17. Earnings per share means earnings per ordinary share. Preference share dividends are subtracted
from net income in computing EPS in order to obtain income available to ordinary shareholders.
LO 2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

18. (a) Trading on the equity means that the company has borrowed money at a lower rate of interest
than it is able to earn by using the borrowed money. Simply stated, it is using money supplied
by non-owners to increase the return to the owners.
(b) A comparison of the return on assets with the rate of interest paid for borrowed money
indicates the profitability of trading on the equity.
LO 2 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Reporting

Net income ? Preference dividends

19. = Earnings per share
Weighted-average ordinary shares outstanding

R$160,000 ? R$30,000
= R$2.60
50,000
EPS of R$2.60 is high relative to what? Is it high relative to last year’s EPS? The president may be
comparing the EPS of R$2.60 to the market price of the company’s stock.
LO 2 BT: AP Difficulty: Easy TOT4 min. AACSB: Analytic AICPA FC: Reporting

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Questions Chapter 15 (Continued)

20. Discontinued operations refers to the disposal of a significant component of the business such as
the stopping of an entire activity or eliminating a major class of customers. It is important to report
discontinued operations separately from continuing operations because the discontinued component
will not affect future income statements.
LO 3 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Reporting

21. EPS on income from continuing operations usually is more relevant to an investment decision than
EPS on net income. Income from continuing operations represents the results of continuing and
ordinary business activity. It is, therefore, a better basis for predicting future operating results than
an EPS figure which includes the effect of discontinued operations that are not expected to recur
again in the foreseeable future.
LO 3 BT: C Difficulty: Medium TOT: 5 min. AACSB: None AICPA FC: Reporting

22. When comparing EPS trends, discontinued operations should be omitted since they are not
reflective of normal operations. In this example, the trend is unfavorable because EPS, exclusive of
discontinued operations, has decreased from £3.20 to £2.99.
LO 3 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Reporting

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-5
 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 15.1

Dear Uncle Liam,
It was so good to hear from you! I hope that you are doing well.
You asked some interesting questions. They relate very well to the material
that we are studying now in my financial accounting class. You said you
heard that different users of financial statements are interested in different
characteristics of companies. This is true. A short-term creditor, such as a bank,
is interested in the company’s liquidity, or ability to pay obligations as they
become due. The liquidity of a borrower is extremely important in evaluating
the safety of a loan. A long-term creditor, such as a bondholder, would be
interested in solvency, the company’s ability to survive over a long period of
time. A long-term creditor would also be interested in profitability. They are
interested in the likelihood that the company will survive over the life of the debt
and be able to meet interest payments. Shareholders are also interested in
profitability, and in the solvency of the company. They want to assess the
likelihood of dividends and the growth potential of the shares.

It is important to compare different financial statement elements to other

items. The amount of a financial statement element such as cash does not have
much meaning unless it is compared to something else. Comparisons can
be done on an intracompany basis. This basis compares an item or financial
relationship within a company for the current year to one or more previous
years. Intracompany comparisons are useful in detecting changes in financial
relationships and significant trends. Comparisons can also be done with
industry averages. This basis compares an item or financial relationship
with industry averages or norms. Comparisons with industry averages provide
information as to a company’s relative performance within the industry. Finally,
comparisons can be done on an intercompany basis. This basis compares an
item or financial relationship with the same item or relationship in one or more
competing companies. Intercompany comparisons are useful in determining
a company’s competitive position.

I hope this answers your questions. If it does not, or you have more questions,
please write me again or call. We could even meet for lunch sometime; it
would be great to see you!

Love,
Your niece (or nephew)
LO 1 BT: C Difficulty: Medium TOT: 12 min. AACSB: None AICPA FC: Reporting

15-6 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 15.2

(a) The three tools of financial statement analysis are horizontal analysis,
vertical analysis, and ratio analysis. Horizontal analysis evaluates a series
of financial statement data over a period of time. Vertical analysis evaluates
financial statement data by expressing each item in a financial statement
as a percent of a base amount. Ratio analysis expresses the relationship
among selected items of financial statement data.

(b) Horizontal Analysis

2023 2024 2025
Current assets 100% 105% 109%
(105% = €230,000/€220,000; 109% = €240,000/€220,000)

Vertical Analysis
2023 2024 2025
Current assets* 44% 38% 38%
*as a percentage of total assets
(44% = €220,000/€500,000; 38% = €230,000/€600,000;
38% = €240,000/€630,000)

Ratio Analysis
2023 2024 2025
Current ratio 1.38 1.35 1.30
(1.38 = €220,000/€160,000; 1.35 = €230,000/€170,000;
1.30 = €240,000/€184,000)
LO 1, 2 BT: AP Difficulty: Medium TOT: 15 min. AACSB: Analytic AICPA FC: Reporting,
Measurement

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-7
BRIEF EXERCISE 15.3

Horizontal analysis:
Increase
or (Decrease)
Dec. 31, 2025 Dec. 31, 2024 Amount Percentage
Inventory € 840,000 € 500,000 €340,000 68%
Accounts receivable € 520,000 € 350,000 €170,000 49%
Total assets €2,500,000 €3,000,000 (€500,000) (17)%

€340,000 €170,000 (€500,000)

= .68 = .49 = (.17)
€500,00 0 €350,000 €3,000,000
LO 1 BT: AP Difficulty: Medium TOT: 6 min. AACSB: Analytic AICPA FC: Measurement

BRIEF EXERCISE 15.4

Vertical analysis:
Dec. 31, 2025 Dec. 31, 2024
Amount Percentage* Amount Percentage**
Inventory € 840,000 33.6% € 500,000 16.7%
Accounts receivable € 520,000 20.8% € 350,000 11.7%
Total assets €2,500,000 100.0% €3,000,000 100.0%

* 840,000 ** 500,000
= .336 = .167
2,500,000 3,000,000

* 520,000 ** 350,000
= .208 = .117
2,500,000 3,000,000
LO 1 BT: AP Difficulty: Medium TOT: 6 min. AACSB: Analytic AICPA FC: Measurement

15-8 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 15.5

2025 2024 2023

Net income €525,000 €500,000 €550,000

Increase or (Decrease)
Amount Percentage
(a) 2023–2024 € (50,000) (9%)
(b) 2024–2025 € (25,000) (5%)

€(50,000) €25,000
= (.09) = .05
€550,000 €500,000
LO 1 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Analytic AICPA FC: Measurement

BRIEF EXERCISE 15.6

2025 2024 Increase

Net income £560,000 X 40%

£ 560,000 ? X
X .40 =
X
.40X = £560,000 – X

1.40X = £560,000
X = £400,000

2024 Net income = £400,000

(% inc. in net inc. = (2025 net inc. – 2024 net inc.) ÷ 2024 net inc.)
(40% = ($560,000 – 2024 net inc.) ÷ 2024 net inc.)
LO 1 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Analytic AICPA FC: Measurement

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-9
BRIEF EXERCISE 15.7

Comparing the percentages presented results in the following conclusions:

The net income for Kemplar increased in 2024 because of the combination
of an increase in sales revenue and a decrease in both cost of goods sold and
expenses. However, the reverse was true in 2025 as sales revenue decreased
while both cost of goods sold, and expenses increased. This resulted in a
decrease in net income.
LO 1 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Analytic and Communication AICPA FC: Reporting
AICPA PC: Communication

BRIEF EXERCISE 15.8

2025 2024 2023

Sales revenue 100.0 100.0 100.0
Cost of goods sold 59.2 62.4 64.5
Expenses 25.0 25.6 27.5
Net income 15.8 12.0 8.0

Net income as a percent of sales revenue for Dagman increased over the
three-year period because cost of goods sold and expenses both decreased as
a percent of sales revenue every year.
LO 1 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Analytic and Communication AICPA FC: Reporting
AICPA PC: Communication

BRIEF EXERCISE 15.9

(a) Working capital = Current assets – Current liabilities

Current assets £46,690,000

Current liabilities (41,200,000)
Working capital £ 5,490,000

15-10 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 15.9 (Continued)

(b) Current ratio:

Current assets ? 6,690,000

=
Current liabilities ? 1,200,000
= 1.13:1
(c) Acid-test ratio:

Cash + Short-term investments

+ Receivables (net) ? ,113,000 + ? ,947,000 + ? 2,545,000

Current liabilities ? 1,200,000

? 5,605,000
=
? 1,200,000
= .62:1
LO 2 BT: AP Difficulty: Easy TOT: 8 min. AACSB: Analytic AICPA FC: Measurement

BRIEF EXERCISE 15.10

Net sales
(a) Asset turnover =
Average assets

€88,000,000
=
€14,000,000 + €18,000,000
2
= 5.5 times
(Asset turnover = Net sales ÷ Ave. tot. assets)
[1.81 times = €88,000,000 ÷ ((€14,000,000 + €18,000,000)÷2)]

Net income
(b) Profit margin =
Net sales

€12,760,000
=
€88,000,000
= 14.5%
LO 3 BT: AN Difficulty: Medium TOT: 6 min. AACSB: Analytic AICPA FC: Measurement

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-11
BRIEF EXERCISE 15.11

Net credit sales

(a) Accounts receivable turnover =
Average net accounts receivable

2025 2024
(1) €3,680,000 €3,000,000
= 6.9 times = 6.0 times
€535,000* €500,000**
*($520,000 + $550,000) ÷ 2 **($480,000 + $520,000) ÷ 2

(2) Average collection period

365 365 = 60.8 days
= 52.9 days 6.0
6.9

(b) Gladow Company should be pleased with the effectiveness of its credit
and collection policies. The company has decreased the average collection
period by 7.9 days and the collection period of approximately 53 days is
well within the 60 days allowed in the credit terms.
LO 2 BT: AN Difficulty: Medium TOT: 10 min. AACSB: Analytic and Communication AICPA FC:
Measurement AICPA PC: Communication

BRIEF EXERCISE 15.12

Cost of goods sold

(a) Inventory turnover =
Average inventory

(1) 2025 2024

4,400,000 4,600,000
= 4.4 times = 5.0 times
980,000 + 1,020,000 860,000 + 980,000
2 2
Beginning inventory 980,000 860,000
Purchases 4,440,000 4,720,000
Goods available for sale 5,420,000 5,580,000
Ending inventory 1,020,000 980,000
Cost of goods sold 4,400,000 4,600,000
(Inv. turnover = CGS ÷ Ave. inv.)
[2025: 4.4 times = ($980,000 + $4,440,000 – $1,020,000) ÷ (($980,000 + $1,020,000) ÷ 2)]

15-12 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 15.12 (Continued)

(2) Days in inventory

365 365
= 83.0 days = 73.0 days
4.4 5.0
(b) Management should be concerned with the fact that inventory is moving
slower in 2025 than it did in 2024. The decrease in the turnover could be
because of poor pricing decisions or because the company is stuck with
obsolete inventory.
LO 2 BT: AN Difficulty: Hard TOT: 15 min. AACSB: Analytic and Communication AICPA FC: Measurement
AICPA PC: Communication

BRIEF EXERCISE 15.13

Cash dividends
Payout ratio =
Net income

X
.22 =
HK$680,000

X = HK$680,000 (.22) = HK$149,600

Cash dividends = HK$149,600

(Cash div. paid = Net inc. × Payout ratio)
(HK$149,600 = HK$680,000 × .22)

Net income
Return on assets =
Average assets

HK$680,000
.16 =
X

.16X = HK$680,000

HK$680,000
X=
.16

X = HK$4,250,000

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-13
BRIEF EXERCISE 15.13 (Continued)

Average assets = HK$4,250,000

(Ave. tot. assets = Net inc. ÷ Rtn. on assets)
(HK$4,250,000 = HK$680,000 ÷ .16)
LO 2 BT: AN Difficulty: Hard TOT: 12 min. AACSB: Analytic AICPA FC: Measurement

BRIEF EXERCISE 15.14

BLEVINS ASA
Partial Statement of Comprehensive Income

Loss from operations of European facilities, net

of €96,000 income tax saving (€320,000 × 30%) ..... €224,000
Loss on disposal of European facilities, net of
€45,000 income tax saving (€150,000 × 30%) .......... 105,000 €329,000
LO 3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Measurement, Reporting

BRIEF EXERCISE 15.15

SILVA AG
Partial Statement of Comprehensive Income

Income before income taxes ......................................................... €450,000

Income tax expense (€450,000 × 25%) .......................................... 112,500
Net income ...................................................................................... 337,500
Other comprehensive income
Unrealized gain on non-trading securities,
net of €17,500 tax (€70,000 × 25%) ......................................... 52,500
Comprehensive income ................................................................. €390,000
LO 3 BT: AP Difficulty: Medium TOT: 6 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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 SOLUTIONS FOR DO IT! EXERCISES
DO IT! 15.1

Increase (Decrease) in 2025

Amount Percent
Plant assets ₤71,000 9.5% [(₤821,000 – ₤750,000) ÷ ₤750,000]
Current assets (37,000) (16.4)% [(₤188,000 – ₤225,000) ÷ ₤225,000]
Total assets ₤34,000 3.5% [(₤1,009,000 – ₤975,000) ÷ ₤975,000]
LO 1 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Measurement

DO IT! 15.2
2025 2024
(a) Current ratio:
€1,350 ÷ €900 = 1.50:1
€1,343 ÷ €810 = 1.66:1

(b) Inventory turnover:

€984/[(€430 + €390) ÷ 2)] = 2.40 times
€895/[(€390 + €326) ÷ 2)]= 2.50 times

(c) Profit margin:

€364 ÷ €4,000 = 9.1%
€213 ÷ €3,600 = 5.9%

(d) Return on assets:

€364/[(€2,310 + €2,243) ÷ 2)] = 16.0%
€213/[(€2,243 + €2,100) ÷ 2)] = 9.8%

(e) Return on ordinary shareholders’ equity:

€364/[(€1,020 + €1,040) ÷ 2)] = 35.3%
€213/[€1,040 + €960) ÷ 2)] = 21.3%

(f) Debt to assets ratio:

(€390 + €900) ÷ €2,310 = 55.8%
(€393 + €810) ÷ €2,243 = 53.6%

(g) Times interest earned:

(€364 + €242 + €10) ÷ €10 = 62 times
(€213 + €142 + €20) ÷ €20 = 19 times
LO 2 BT: AP Difficulty: Medium TOT: 12 min. AACSB: Analytic AICPA FC: Measurement

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-15
DO IT! 15.3

GRINDERS LIMITED
Partial Statement of Comprehensive Income

Income before income taxes ........................................ ₤500,000

Income tax expense ...................................................... 160,000
Income from continuing operations ............................. 340,000
Discontinued operations
Loss from operations of music division, net of
₤19,200 income tax savings ................................ ₤40,800
Gain from disposal of music division, net of
₤16,000 taxes........................................................ 34,000 (6,800)
Net income ..................................................................... 333,200
Other comprehensive income:
Unrealized loss on non-trading securities, net of
₤9,600 tax savings ............................................... 20,400
Comprehensive Income ................................................ ₤312,800
[Discont. oper. = (Loss from oper. × (1 – tax rate)) + (Gain from disp. × (1 – tax rate))]
[(₤6,800) = (₤60,000 × (1 - .32)) + (₤50,000 × 1 - .32))]
LO 3 BT: AP Difficulty: Medium TOT: 10 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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 SOLUTIONS TO EXERCISES

EXERCISE 15.1

GALLUP SA
Condensed Statements of Financial Position
December 31

Increase or (Decrease)
2025 2024 Amount Percentage
Assets
Plant assets (net) €396,000 €320,000 (€76,000 (23.8%)
Current assets 128,000 110,000 ( 18,000 (16.4%)
Total assets €524,000 €430,000 €94,000 (21.9%)

Equity
Share capital— (
ordinary, €1 par € 159,000 € 115,000 €44,000) (38.3%)
Retained earnings 135,300 150,000 ((14,700)) (((9.8%))
Total equity 294,300 265,000 ( 29,300) ( 11.1%)

Liabilities
Non-current liabilities 138,700 95,000 ( 43,700 (46.0%)
Current liabilities 91,000 70,000 21,000 30.0%
Total liabilities 229,700 165,000 ( 64,700) ( 39.2%)
Total equity and
liabilities €524,000 €430,000 (€94,000) 21.9%

LO 1 BT: AP Difficulty: Medium TOT: 15 min. AACSB: Analytic AICPA FC: Measurement

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-17
EXERCISE 15.2

CONARD LIMITED
Condensed Income Statements
For the Years Ended December 31

2025 2024
Amount Percent Amount Percent
Net sales £750,000 100.0% £600,000 100.0%
Cost of goods sold 480,000 64.0% 408,000 68.0%
Gross profit 270,000 36.0% 192,000 32.0%
Selling expenses 105,000 14.0% 84,000 14.0%
Administrative expenses 75,000 10.0% 54,000 9.0%
Total operating expenses 180,000 24.0% 138,000 23.0%
Income before income taxes 90,000 12.0% 54,000 9.0%
Income tax expense 36,000 4.8% 18,000 3.0%
Net income £ 54,000 7.2% £ 36,000 6.0%
LO 1 BT: AP Difficulty: Medium TOT: 15 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 15.3

(a) GARCIA SLU

Condensed Statements of Financial Position
December 31

Percentage
Increase Change
2025 2024 (Decrease) from 2024
Assets
Intangibles € 24,000 € 40,000 € (16,000) (40.0%)
Property, plant &
equipment (net) 100,000 92,000 ( 8,000) ( 8.7%)
Current assets 76,000 82,000 (6,000) (7.3%)
Total assets €200,000 €214,000 € (14,000) (6.5%)

15-18 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 15.3 (Continued)

GARCIA SLU
Condensed Statements of Financial Position (Continued)
December 31

Percentage
Increase Change
2025 2024 (Decrease) from 2024
Equity and liabilities
Equity € 20,000 € 16,000 € 4,000 25.0%
Non-current
liabilities 140,000 150,000 (10,000) (6.7%)
Current liabilities 40,000 48,000 (8,000) ((16.7%))
Total equity and
liabilities €200,000 €214,000 €(14,000) (6.5%)

(b) GARCIA SLU

Condensed Statements of Financial Position
December 31, 2025

Amount Percent
Assets
Intangibles € 24,000 12.0%
Property, plant, and equipment (net) 100,000 50.0%
Current assets 76,000 38.0%
Total assets €200,000 100.0%

Equity and liabilities

Equity € 20,000 10%
Non-current liabilities 140,000 70%
Current liabilities 40,000 20%
Total equity and liabilities €200,000 100%

LO 1 BT: AP Difficulty: Medium TOT: 20 min. AACSB: Analytic AICPA FC: Measurement

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-19
EXERCISE 15.4

(a) HENDI A.S.

Condensed Income Statements
For the Years Ended December 31

Increase or (Decrease)
During 2025
2025 2024 Amount Percentage
Net sales 600,000 500,000 100,000 20.0%
Cost of goods sold 468,000 400,000 68,000 17.0%
Gross profit 132,000 100,000 32,000 32.0%
Operating expenses 60,000 54,000 6,000 11.1%
Net income 72,000 46,000 26,000 56.5%

(b) HENDI A.S.

Condensed Income Statements
For the Years Ended December 31

2025 2024
Amount Percent Amount Percent
Net sales 600,000 100.0% 500,000 100.0%
Cost of goods sold 468,000 78.0% 400,000 80.0%
Gross profit 132,000 22.0% 100,000 20.0%
Operating expenses 60,000 10.0% 54,000 10.8%
Net income 72,000 12.0% 46,000 9.2%
LO 1 BT: AP Difficulty: Medium TOT: 15 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 15.5

(a) Current ratio = 2.1:1 ($5,228 ÷ $2,541)

Acid-test ratio = 1.3:1 (($1,194 + $2,177) ÷ $2,541)
Accounts receivable turnover = 5.7 times ($12,166 ÷ $2,153)*
Inventory turnover = 5.4 times ($7,737 ÷ $1,445.5)**

*($2,177 + $2,129) ÷ 2
**($1,531 + $1,360) ÷ 2

15-20 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 15.5 (Continued)

(b) Ratio Nordstrom Park Street Industry

Current 2.1:1 2.05:1 1.70:1
Acid-test 1.3:1 1.05:1 .70:1
Accounts receivable
turnover 5.7 37.2 46.4
Inventory turnover 5.4 3.1 4.3

Nordstrom is similar to Park Street for the current and acid-test ratios
but significantly below for the accounts receivable turnover. Nordstrom
is much better than Park Street for the inventory turnover.

Nordstrom is better than the industry average for the current and acid-
test ratios but below the industry average for the accounts receivable
turnover. Its inventory turnover, however, is higher than the industry
average.
LO 2 BT: AN Difficulty: Medium TOT: 30 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 15.6

(a) Current ratio as of February 1, 2025 = 2.8:1 (R$140,000 ÷ R$50,000).

Feb. 3 2.8:1 No change in total current assets or liabilities.

7 2.2:1 (R$112,000 ÷ R$50,000).
11 2.2:1 No change in total current assets or liabilities.
14 2.6:1 (R$100,000 ÷ R$38,000).
18 2.3:1 (R$100,000 ÷ R$43,000).

(b) Acid-test ratio as of February 1, 2025 = 2.5:1 (R$125,000* ÷ R$50,000).

* R$140,000 – R$10,000 – R$5,000

Feb. 3 2.5:1 No change in total quick assets or current liabilities.

7 1.9:1 (R$97,000 ÷ R$50,000).
11 1.9:1 (R$94,000 ÷ R$50,000).
14 2.2:1 (R$82,000 ÷ R$38,000).
18 1.9:1 (R$82,000 ÷ R$43,000).
LO 2 BT: AP Difficulty: Hard TOT: 30 min. AACSB: Analytic AICPA FC: Measurement

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-21
EXERCISE 15.7

? 40,000
(a) = 2.8:1.
? 0,000

? 0,000
(b) = 1.6:1.
? 0,000

? 96,000
(c) = 6.6 times.
? 0,000 (1)

? 90,000
(d) = 3.5 times.
? 5,000 (2)

? 0,000 + ? 0,000
(1)
2
? 0,000 + ? 0,000
(2)
2
LO 2 BT: AP Difficulty: Medium TOT: 12 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 15.8
? 2,000
(a) Profit margin = 6.0%.
? 00,000

? 00,000
(b) Asset turnover = 1.25 times.
 ? 40,000 + ? 80,000 
 2 
(Asset turnover = Net sales ÷ Ave. tot. assets)
[1.25 times = ₤700,000 ÷ ((₤540,000 + ₤580,000) ÷ 2)]

? 2,000
(c) Return on assets = 7.5%.
? 60,000

15-22 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 15.8 (Continued)

? 2,000
(d) Return on ordinary shareholders’ = 11.2%.
equity  ? 25,000 + ? 25,000 
 2 

(Rtn. on ord. shareholders’ equity = (Net inc. – Pref. div.) ÷ Ave. ord. shareholders' equity)
[11.2% = (₤42,000 - ₤0) ÷ ((₤325,000 + $₤25,000) ÷ 2)]
LO 3 BT: AP Difficulty: Medium TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 15.9

€60,000 ? € ,000
(a) = €1.72.
32,000 shares

€ 10.80
(b) = 6.3 times.
€1.72

€ 15,000
(c) = 25%.
€ 60,000

€60,000 + €14,000 + €17,000 € 91,000

(d) = = 6.5 times.
€14,000 € 14,000
LO 2 BT: AP Difficulty: Medium TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 15.10

Cost of goods sold

(a) Inventory turnover = 3.4 =
 € 200,000 + €180,000 
 2 

3.4 × €190,000 = Cost of goods sold

Cost of goods sold = €646,000.
(CGS = Ave. inv. × Inv. turnover)
[€646,000 = ((€200,000 + €180,000) ÷ 2) × 3.4]

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-23
EXERCISE 15.10 (Continued)

Net sales (credit)

(b) Accounts receivable turnover = 8.8 =
 € 73,000 + € 126,000 
 2 

8.8 × €99,500 = Net sales (credit) = €875,600.

(Net credit sales = Ave. accts. rec. × Accts. rec. turnover)
[€875,600 = ((€73,000 + €126,000 ) ÷ 2) × 8.8]

(c) Return on ordinary shareholders’ equity = 25% =

Net income
 € 400,000 + €134,000 + €400,000 + €122,000 
 2 

.25 × €528,000 = Net income = €132,000.

(Net inc. = Ave. ordinary shareholders' equity × Rtn. on ordinary shareholders' equity)
[€132,000 = ((€400,000 + €134,000 + €400,000 + €122,000) ÷ 2) × .25]

€132,000 [see (c) above]

(d) Return on assets = 20% =
Average assets

€132,000
Average assets = = €660,000
.20
Total assets (Dec. 31, 2025) + €650,000
= €660,000
2
Total assets (Dec. 31, 2025) = (€660,000 × 2) – €650,000 = €670,000.
(Ave. assets = Net inc. ÷ Rtn. on assets)
(€660,000 = €132,000 ÷ 20%)
LO 3 BT: AP Difficulty: Hard TOT: 20 min. AACSB: Analytic AICPA FC: Measurement

15-24 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 15.11

(a) Current ratio: (€4,300 + €22,000 + €10,000)/€15,000 = 2.42:1

(b) Acid-test ratio: (€4,300 + €22,000)/€15,000 = 1.75:1
(c) A/R turnover: €100,000/[(€22,000 + €24,000)/2] = 4.35 times
(d) Inventory turnover: €60,350/[(€10,000 + €7,000)/2] = 7.10 times
(e) Profit margin: €14,000/€100,000 = 14%
(f) Asset turnover: €100,000/[(€111,300 + €120,700)/2] = .86 times
(g) Return on assets: €14,000/[(€111,300 + €120,700)/2] = 12.1%
(h) Return on ordinary
shareholders’ equity: €14,000/[(€96,300 + €89,600)/2] = 15.1%
(i) Debt to assets ratio: €15,000/€111,300 = 13.5%
LO 2 BT: AP Difficulty: Medium TOT: 20 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 15.12

(a)
DOUGLAS LIMITED
Partial Income Statement
For the Year Ended October 31, 2025

Income before income taxes ..................................... £550,000

Income tax expense (£550,000 × 30%) ..................... 165,000
Income from continuing operations………………… 385,000
Discontinued operations
Loss from operations of discontinued
division, net of £18,000 (₤60,000 × 30%)
tax savings……………………………………………. £42,000
Loss from disposal of discontinued
division, net of £27,000 (₤90,000 × 30%)
tax savings………………………………………… 63,000
(105,000)
Net income ................................................................... £280,000
(Discont. oper. = Loss from oper., net of inc. tax. savings + Loss on disp., net of inc. tax savings)
[($28,000) = (($60,000) x (1.00 - .30)) + (($90,000) x (1.00 - .30))]

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-25
EXERCISE 15.12 (Continued)

(b) From: Student@StateUniversity.edu

To: ChiefAccountant@DouglasLimited.com

Subject: Explanation of misleading income statement data

After reviewing your income statement for the year ended 10/31/25, we
believe it is misleading for the following reasons:

The amount reported for income before discontinued operations is

overstated by £45,000. The income tax expense should be 30% of
£550,000, or £165,000, not £120,000.

Also, the loss from the discontinued division needs to be separated into
the loss from operations and the loss from disposal and shown net of tax
effects. Likewise, the effect of the loss from the discontinued division on
net income is only £105,000, not £150,000. An income tax savings of
£45,000 (₤18,000 + ₤27,000) should be netted against the loss on the
discontinued division.
LO 3 BT: AN Difficulty: Medium TOT: 20 min. AACSB: Analytic and Communication AICPA FC:
Measurement, Reporting AICPA PC: Communication

EXERCISE 15.13

TRAYER PLC
Partial Statement of Comprehensive Income
For the Year Ended December 31, 2025

Income from continuing operations ...................................... ₤290,000

Discontinued operations
Loss from operations, net of ₤2,000
(₤10,000 × 20%) tax........................................ ₤8,000
Gain from disposal, net of ₤8,000
(₤40,000 × 20%) tax......................................... 32,000 24,000
Net income .............................................................................. ₤314,000
Other comprehensive income
Unrealized loss on non-trading securities,
net of ₤16,000 (₤80,000 × 20%) tax savings ................... 64,000
Comprehensive income.......................................................... ₤250,000
(Discont. oper. = Loss from oper., net of inc. tax. savings + Gain on disp., net of inc. tax.)
[₤24,000 = ((₤10,000) x (1.00 - .20)) + (₤40,000 x (1.00 - .20))]
LO 3 BT: AP Difficulty: Medium TOT: 15 min. AACSB: Analytic AICPA FC: Measurement, Reporting

15-26 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 SOLUTIONS TO PROBLEMS

PROBLEM 15.1

(a) Condensed Income Statement

For the Year Ended December 31, 2025

Barrymore
Lionel Company Company
Amount Percent Amount Percent
Net sales ₤1,549,035 100.0% ₤339,038 100.0%
Cost of goods sold 1,053,345 68.0% 237,325 70.0%
Gross profit 495,690 32.0% 101,713 30.0%
Operating expenses 263,336 17.0% 77,979 23.0%
Income from operations 232,354 15.0% 23,734 7.0%
Interest expense 7,745 .5% 2,034 .6%
Income before income taxes 224,609 14.5% 21,700 6.4%
Income tax expense 61,960 4.0% 8,476 2.5%
Net income ₤ 162,649 10.5% ₤ 13,224 3.9%

(b) Lionel Company appears to be more profitable. It has higher relative

gross profit, income from operations, income before taxes, and net income.
 ? 62,649 a
Lionel’s return on assets of 16.6%   is higher than Barrymore’s
 ? 81,067 
 ? 3,224  b
return on assets of 6.0%   . Also, Lionel’s return on ordinary
 ? 20,400 
 ? 62,649  c
shareholders’ equity of 19.9%   is higher than Barrymore’s
 ? 17,556 
 ? 3,224  d
return on ordinary shareholders’ equity of 7.0%   .
 ? 88,914 

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-27
PROBLEM 15.1 (Continued)
a
₤162,649 is Lionel’s 2025 net income. ₤981,067 is Lionel’s 2025
average assets:

2025 2024
Plant assets ₤596,920 ₤575,610
Current assets 401,584 388,020 ? , 962, 134
Total assets ₤998,504 + ₤963,630 = 2

b
₤13,224 is Barrymore’s 2025 net income. $220,400 is Barrymore’s 2025
average assets:
2025 2024
Plant assets ₤142,842 ₤128,927
Current assets 86,450 82,581 £ 440,800
Total assets ₤229,292 + ₤211,508 = 2

c
₤162,649 is Lionel’s 2025 net income. $817,556 is Lionel’s 2025
average ordinary shareholders’ equity:
2025 2024
Share capital - ordinary ₤578,765 ₤578,765
Retained earnings 252,224 225,358 £ 1,635,112
Total equity ₤830,989 + ₤804,123 = 2

d
₤13,224 is Barrymore’s 2025 net income. ₤188,914 is Barrymore’s
2025 average ordinary shareholders’ equity:
2025 2024
Share capital - ordinary ₤137,435 ₤137,435
Retained earnings 55,528 47,430 £ 377, 828
Total equity ₤192,963 + ₤184,865 = 2

LO 1, 2 BT: AN Difficulty: Medium TOT: 30 min. AACSB: Analytic and Communication AICPA FC:
Measurement, Reporting AICPA PC: Communication

15-28 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 PROBLEM 15.2

R$192,000
(a) Earnings per share = = R$3.20
60,000
R$300,000 ÷ R$5 = 60,000 shares

R$192,000
(b) Return on ordinary shareholders’ equity =
 R$465,400 + R$542,600 
 2 

R$ 192,000
=
R$ 504,000

= 38.1%
(Rtn. on ordinary shareholders' equity = (Net inc. - Pref. div.) ÷ Ave. ordinary shareholders' equity)
[38.1% = R$192,000 ÷ ((R$465,400 + R$542,600) ÷ 2)]

R $ 192,000 R$192,000
(c) Return on assets = = = 21.3%.
 R$852,800 + R $ 946,100  R$899,450
 2 
(Rtn. on assets = Net inc. ÷ Ave. tot. assets)
[21.3% = R$192,000 ÷ ((R$852,800 + R$946,100) ÷ 2)]

R$345,800
(d) Current ratio = = 1.70:1
R$203,500

R$234,850
(e) Acid-test ratio = = 1.15:1
R$203,500

*R$105,750 + R$69,000 + R$60100 = R$234,850

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-29
PROBLEM 15.2 (Continued)
R$1,818,500
(f) Accounts receivable turnover =
 (R$102,800 + R$105,750 ) 
 2 

R$1,818,500
=
R$104,275

= 17.4 times
(Accts. rec. turnover = Net credit sales ÷ Ave. net accts. rec.)
[17.4 times = R$1,818,500 ÷ ((R$102,800 + R$105,750) ÷ 2)]

R $ 1,011,500 R$1,011,500
(g) Inventory turnover = =
 R$115,500 + R $ 110,950  R$113,225
 2 
= 8.9 times
(Inv. turnover = CGS ÷ Ave. inv.)
[8.9 times = R$1,011,500 ÷ ((R$115,500 + R$110,950) ÷ 2)]

R$291,000
(h) Times interest earned = = 19.4 times
R$15,000

R$1,818,500
(i) Asset turnover = = 2.0 times
R$899,450*

*(R$852,800 + R$946,100) ÷ 2
(Asset turnover = Net sales ÷ Ave. tot. assets)
[2.0 times = R$1,818,5000 ÷ ((R$852,800 + R$946,100) ÷ 2)]

R$403,500
(j) Debt to assets = = 42.6%
R$946,100

LO 2 BT: AP Difficulty: Medium TOT: 30 min. AACSB: Analytic AICPA FC: Measurement

15-30 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 PROBLEM 15.3

(a) 2024 2025

(1) Profit margin.

? 0,000 ? 4,000
= 4.7% = 6.3%
? 40,000 ? 00,000

(2) Asset turnover.

? 40,000 ? 00,000
= 1.1 times = 1.1 times
 ? 33,000 + ? 00,000   ? 00,000 + ? 40,000 
 2   2 
(Asset turnover = Net Sales ÷ Ave. tot. assets)
[2024: 1.1 times = ₤640,000 ÷ ((₤533,000 +
₤600,000) ÷ 2)]

(3) Earnings per share.

? 0,000 ? 4,000
= ₤0.97 = ₤1.38
31,000 32,000

(4) Price-earnings ratio.

? .00 ? .00
= 5.2 times = 5.1 times
? .97 ? .38

(5) Payout ratio.

? 0,000* ? 2,000**
= 66.7% = 50.0%
? 0,000 ? 4,000
*(₤113,000 + ₤30,000 – ₤123,000) **(₤123,000 + ₤44,000 – ₤145,000)

(6) Debt to assets.

? 62,000 ? 50,000
= 27.0% = 23.4%
? 00,000 ? 40,000

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-31
PROBLEM 15.3 (Continued)

(b) The underlying profitability of the corporation appears to have improved.

For example, profit margin and earnings per share have both increased.
Also, the corporation appears to be involved in attempting to reduce its
debt burden as its debt to assets ratio has decreased. Similarly, its payout
ratio has decreased, which should help its overall solvency.
LO 2 BT: AN Difficulty: Medium TOT: 30 min. AACSB: Analytic and Communication AICPA FC: Measurement,
Reporting AICPA PC: Communication

15-32 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 PROBLEM 15.4
(a) LIQUIDITY
2024 2025 Change
a
€ 343,000 b
€ 374,000
Current = 1.9:1 =1.9:1 No change
€ 182,000 € 192,000
a b
65,000+40,000+80,000+135,000 +23,000 70,000+52,000+98,000+125,000 +29,000
c
€185,000 d
€ 220,000
Acid-test = 1.0:1 = 1.1:1 Increase
€182,000 € 192,000
c d
65,000+40,000+80,000 70,000+52,000+98,000
Accounts € 798,000 € 858,000
receivable = 9.5 times = 9.6 times Increase
€ 84,000* € 89,000**
turnover
*(€88,000 + €80,000) ÷ 2 **(€80,000 + €98,000) ÷ 2
€ 611,000
Inventory €575,000 = 4.7 Increase
= 4.5 times € 130,000**
turnover € 126,500*
times
*(€118,000 + €135,000) ÷ 2 **(€135,000 + €125,000) ÷ 2

An overall increase in short-term liquidity has occurred.

PROFITABILITY

Profit € 42,000 € 42,500

= 5.3% = 5.0% Decrease
margin € 798,000 € 858,000

Asset € 798,000 € 858,000

= 1.2 times = 1.3 times Increase
turnover € 640,000 * € 660,000 * *
*(€632,000 + €648,000) ÷ 2 **(€648,000 + €672,000) ÷ 2
Return on € 42,000 € 42,500
= 6.6% = 6.4% Decrease
assets € 640,000 € 660,000

Earnings € 42,000 € 42,500

= €2.10 = €2.13 Increase
per share 20,000 20,000

€200,000 ÷ €10 = 20,000 shares

Profitability has remained relatively the same.

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-33
PROBLEM 15.4 (Continued)

(b) 2025 2026 Change

1. Return on € 42,500 € 50,000
ordinary = 13.2% = 11.2% Decrease
€ 323,000 (a) € 445,000 (b)
shareholders’
equity

2. Debt to assets € 342,000 (c) € 242,000

= 50.9% = 34.6% Decrease
€ 672,000 € 700,000

3. Price-earnings € 9.00 € 12.50

ratio = 4.2 times = 5.0 times Increase
€ 2.13 € 2.50 (d)

(a) (€200,000 + €130,000 + €200,000 + €116,000) ÷ 2

(b) (€380,000 + €180,000 + €200,000 + €130,000) ÷ 2
(c) €100,000 + €48,000 + €44,000 + €150,000
(d) €50,000 ÷ 20,000

LO 2 BT: AN Difficulty: Medium TOT: 50 min. AACSB: Analytic AICPA FC: Measurement

15-34 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 PROBLEM 15.5

(a) Ratio Target Walmart

(All Dollars Are in Millions)
(1) Current .9:1 ($11,573 ÷ $12,777) .9:1 ($61,185 ÷ $69,345)
(2) Accounts receivable
turnover 24.9 ($72,596 ÷ $2,921) 70.8 ($476,294 ÷ $6,723)
(3) Average collection
period 14.7 (365 ÷ 24.9) 5.2 (365 ÷ 70.8)
(4) Inventory turnover 6.1 ($51,160 ÷ $8,335) 8.1 ($358,069 ÷ $44,331)
(5) Days in inventory 59.8 (365 ÷ 6.1) 45.1 (365 ÷ 8.1)
(6) Profit margin 2.7% ($1,971 ÷ $72,596) 3.3% ($16,022 ÷ $476,294)
(7) Asset turnover 1.6 ($72,596 ÷ $46,358a) 2.3 ($476,294 ÷ $203,928c)
(8) Return on assets 4.3% ($1,971 ÷ $46,358a) 7.9% ($16,022 ÷ $203,928c)
(9) Return on ordinary
shareholders’ equity 12.0% ($1,971 ÷ $16,394.5b) 19.7% ($16,022 ÷ $81,538.5d)
(10) Debt to assets 63.6% ($28,322 ÷ $44,553) 60.3% ($123,412 ÷ $204,751)
(11) Times interest earned 3.8 ($4,229 ÷ $1,126) 11.3 ($26,462 ÷ $2,335)

a c
($44,553 + $48,163) ÷ 2 ($204,751 + $203,105) ÷ 2
b d
($16,231 + $16,558) ÷ 2 ($81,339 + $81,738) ÷ 2

(b) The comparison of the two companies shows the following:

Liquidity—Target’s current ratio of .9:1 is the same as Walmart’s, .9:1.

However, Walmart has a better inventory turnover ratio than Target and its
accounts receivable turnover is substantially better than Target’s.

Profitability—Walmart betters Target in all of the profitability ratios. Thus,

it is more profitable than Target.

Solvency—Walmart betters Target in both of the solvency ratios. Thus, it

is more solvent than Target.
LO 2 BT: AN Difficulty: Medium TOT: 60 min. AACSB: Analytic and Communication AICPA FC:
Measurement, Reporting AICPA PC: Communication

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-35
 PROBLEM 15.6

? 04,000
(a) Current ratio = = 1.5:1.
? 34,000

? 1,000 + ? 8,000 + ? 5,000

(b) Acid-test ratio = = 0.93:1.
? 34,000

? 00,000
(c) Accounts receivable turnover =
 (? 5,000 + ? 5,000) 
 2 
= 6.3 times.

? 15,000
(d) Inventory turnover = = 4.5 times.
 ? 0,000 + ? 0,000 
 2 

? 6,700
(e) Profit margin = = 7.3%.
? 00,000

? 00,000
(f) Asset turnover = = 0.85 times.
 ? 27,000 + ? 51,000 
 2 

? 6,700
(g) Return on assets = = 6.2%.
 ? 27,000 + ? 51,000 
 2 

? 6,700
(h) Return on ordinary shareholders’ equity =
 ? 73,000 + ? 50,000 
 2 
= 10.2%.

15-36 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 15.6 (Continued)

? 6,700
(i) Earnings per share = = £1.22.
30,000 (1)

(1) £150,000 ÷ £5.00

? 9.50
(j) Price-earnings ratio = = 16.0 times.
? .22

? 3,700 (2)
(k) Payout ratio = = 37.3%.
? 6,700

(2) £200,000 + £36,700 – £223,000

? 54,000
(l) Debt to assets = = 40.5%.
? 27,000

? 4,200 (3)
(m) Times interest earned = = 8.6 times.
? ,500

(3) £36,700 + £20,000 + £7,500

LO 2 BT: AP Difficulty: Medium TOT: 30 min. AACSB: Analytic AICPA FC: Measurement

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-37
 PROBLEM 15.7

€10,500,000
Accounts receivable turnover = 8 =
Average net accounts receivable

€10,500,000
Average net accounts receivable = = €1,312,500
8

Net accounts receivable 12/31/25 + €1,050,000

= €1,312,500
2
Net accounts receivable 12/31/25 + €1,050,000 = €2,625,000

Net accounts receivable 12/31/25 = €1,575,000

Net income
Profit margin = 14.5% = .145 =
€10,500,000

Net income = €10,500,000 × .145 = €1,522,500

Income before income taxes = €1,522,500 + €550,000 = €2,072,500

€1,522,500
Return on assets = 20% = .20 =
Average assets

Average assets = €1,522,500 ÷ .20 = €7,612,500

Assets (12/31/25) + €7,500,000

= €7,612,500
2
Assets (12/31/25) = €7,725,000

Total current assets = €7,725,000 – €4,620,000 = €3,105,000

Inventory = €3,105,000 – €1,575,000 – €480,000 = €1,050,000

Total liabilities and equity = €7,725,000 (same as total assets)

Total liabilities = €7,725,000 – €3,400,000 = €4,325,000

15-38 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 15.7 (Continued)

€3,105,000
Current ratio = 2.5 =
Current liabilities

Current liabilities = €3,105,000 ÷ 2.5 = $1,242,000

Long-term notes payable = $4,325,000 – $1,242,000 = $3,083,000

Cost of goods sold

Inventory turnover = 4.9 =
 €1,720,000 +€1,050,000
 2 

Cost of goods sold = €1,385,000 × 4.9 = €6,786,500

Gross profit = €10,500,000 – €6,786,500 = €3,713,500

Income from operations = €3,713,500 – €1,500,000 = €2,213,500

Interest expense = €2,213,500 – €2,072,500 = €141,000

LO 2 BT: AN Difficulty: Hard TOT: 40 min. AACSB: Analytic AICPA FC: Measurement, Analysis and
Interpretation

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-39
 PROBLEM 15.8

VIOLET BICK SA
Condensed Statement of Comprehensive Income
For the Year Ended December 31, 2025

Operating revenues
(€12,900,000 – €2,000,000) ........................ €10,900,000
Operating expenses
(€8,700,000 – €2,500,000) .......................... 6,200,000
Income from operations ............................... 4,700,000
Other Income and expense .......................... 200,000
Income before income taxes ........................ 4,500,000
Income tax expense (€4,500,000 × 30%) ...... 1,350,000
Income from continuing operations ............ 3,150,000
Discontinued operations
Loss from operations of hotel
chain*, net of €150,000
tax savings (€500,000 × 30%) ........... (€350,000)
Gain on sale of hotels, net of €90,000
income taxes (€300,000 × 30%) ........ 210,000 (140,000)
Net income .................................................... 3,010,000
Other comprehensive income
Unrealized gain on
non-trading securities, net of €45,000
income taxes (€150,000 × 30%) ........ 105,000
Comprehensive income................................ € 3,115,000
*€2,000,000 – €2,500,000 = (€500,000)

LO 3 BT: AP Difficulty: Medium TOT: 30 min. AACSB: Analytic AICPA FC: Measurement, Reporting

15-40 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 PROBLEM 15.9

GOWER LIMITED
Statement of Comprehensive Income
For the Year Ended December 31, 2025

Net sales ............................................................. ₤1,580,000

Cost of goods sold ............................................ 1,100,000
Gross profit ........................................................ 480,000
Selling and administrative expenses ............... 160,000
Income from operations .................................... 320,000
Other income and expense ............................... (6,000)
Income before income taxes ............................. 314,000
Income tax expense (₤314,000 × 30%) ............. 94,200
Income from continuing operations ................. 219,800
Discontinued operations
Income from operations of discontinued
division, net of ₤4,500 income taxes ....... 10,500
Loss on sale of discontinued division,
net of ₤22,200 tax savings ..................... (51,800) (41,300)
Net income ........................................................ 178,500
Other comprehensive income
Unrealized gain on
nontrading securities, net of
₤36,000 taxes ......................................... 84,000
Comprehensive income .................................... ₤ 262,500
LO 3 BT: AP Difficulty: Medium TOT: 40 min. AACSB: Analytic AICPA FC: Measurement, Reporting

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-41
 CT15.1 FINANCIAL REPORTING PROBLEM

(a) (New Taiwan dollar amounts in millions)

(1) Profit Margin

2020: NT$511,008.0 ÷ NT$1,339,254.8 = 38.2%

2019: NT$354,027.0 ÷ NT$1,069,985.4 = 33.1%

(2) Asset Turnover

2020: NT$1,339,254.8 ÷ [(NT$2,760,600.5 + NT$2,264,725.0) ÷ 2] = .53 times

2019: NT$1,069,985.4 ÷ [(NT$2,264,725.0 + NT$2,090,128.0) ÷ 2] = .49 times

(3) Return on Assets

2020: NT$511,008.0 ÷ [(NT$2,760,600.5 + NT$2,264,725.0) ÷ 2] = 20.3%

2019: NT$354,027.0÷ [(NT$2,264,725.0 + NT$2,090,128.0) ÷ 2] = 16.3%

(4) Return on Ordinary Shareholders’ Equity

2020: NT$511,008.0 ÷ [(NT$1,835,763.8 + NT$1,614,387.3) ÷ 2] = 29.6%

2019: NT$354,027.0 ÷ [(NT$1,614,387.3+ NT$1,677,496.4) ÷ 2] = 21.5%

TSMC’S profitability increased from 2019 to 2020 as evidenced by the

improvement in all four profitability ratios.

(b) (dollar amounts in millions)

(1) Debt to Assets Ratio

2020: NT$924,836.7 ÷ NT$2,760,600.5 = 33.5%

2019: NT$650,337.7 ÷ NT$2,264,725.0 = 28.7%

(2) Times Interest Earned

2020: (NT$511,008.0 + NT$2,081.5 + NT$73,738.3) ÷ NT$2,081.5 = 281.9 times

2019: (NT$354,027.0 + NT$3,250.9 + NT$35,835.1) ÷ NT$3,250.9 =120.9 times

15-42 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
CT15.1 (Continued)

Creditors provide roughly one-third of TSMC’s total assets in 2020, so its

long-term solvency is not in jeopardy. TSMC’s times interest earned is
very high indicating that the company has the ability to pay the interest
on its debt.

(c) Substantial amounts of important information about a company are not

in its financial statements. Events involving such things as industry
changes, management changes, competitors’ actions, technological
developments, governmental actions, and union activities are often
critical to the successful operation of a company. Financial reports in
the media and publications of financial service firms (Standard & Poor’s,
Dun & Bradstreet) will provide relevant information not usually found in
the annual report.
LO 2 BT: AN Difficulty: Medium TOT: 40 min. AACSB: Analytic, Communication AICPA FC: Reporting,
Measurement AICPA PC: Communication

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-43
 CT15.2 COMPARATIVE ANALYSIS PROBLEM

(a) Delfi Limited Nestlé

(1) (i) Percentage US$385,120  US$440,692 = (12.6%) CHF84,343 CHF92,568 = (8.9%)

increase US$440,692 CHF92,568
in net sales

(ii) Percentage
US$17,477  US$28,216 CHF12,372 CHF12,904 = (4.1%)
increase = (38.1)%
(decrease) in US$28,216 CHF12,904
net income

(2) (i) Percentage

US$382,488  US$402,295 CHF124,028 CHF127,940 = (3.1%)
increase = (4.9%)
(decrease) in US$402,295 CHF127,940
total assets

(ii) Percentage
US$225,749  US$227,600 CHF46,514 CHF52,862
increase = (0.8%) =
(decrease) in US$227,600 CHF52,862
(12.0%)
total ordinary
shareholders’
equity

Both companies’ sales decreased, with Delfi’s decrease being 42%

larger than Nestlé’s. In addition, both companies’ net incomes
decreased with Delfi’s decrease being more than 8 times as large as
Nestlé’s. So, it appears that Nestlé controlled costs better. Both
companies’ total assets and total ordinary shareholders’ equity
decreased. Delfi had a slightly greater decrease in total assets, but
Nestlé had a significantly greater decrease in ordinary shareholders’
equity. It looks like Nestlé relied heavily on debt financing during the
period.
LO 2 BT: AN Difficulty: Medium TOT: 40 min. AACSB: Analytic, Communication AICPA FC: Reporting,
Measurement AICPA PC: Communication

15-44 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 CT15.3 DECISION-MAKING ACROSS THE ORGANIZATION

The current ratio increase is a favorable indication as to liquidity, but

alone tells little about the going-concern prospects of the client. From
this ratio change alone, it is impossible to know the amount and direction
of the changes in individual accounts, total current assets, and total
current liabilities. Also unknown are the reasons for the changes.

The acid-test ratio decrease is an unfavorable indication as to liquidity,

especially when the current-ratio increase is also considered. This decline
is also unfavorable as to the going-concern prospects of the client because
it reflects a declining cash position and raises questions as to reasons
for the increases in other current assets, such as inventories.

The change in asset turnover cannot alone tell anything about either
solvency or going-concern prospects. There is no way to know the amount
and direction of the changes in sales and assets. An increase in sales
would be favorable for going-concern prospects, while a decrease in
assets could represent a number of possible scenarios and would need to
be investigated further.

The increase in net income is a favorable indicator for both solvency

and going-concern prospects, although much depends on the quality of
receivables generated from sales and how quickly they can be converted
into cash. If there has been a decline in sales, a significant factor is that
management has been able to reduce costs to produce an increase in
earnings. Indirectly, the improved income picture may have a favorable
impact on solvency and going-concern potential by enabling the client
to borrow currently (if it needs to do so) to meet cash requirements.

The 32% increase in earnings per share, which is identical to the

percentage increase in net income, is an indication that there has probably
been no change in the number of ordinary shares outstanding. This, in turn,
indicates that financing was not obtained through the issuance of ordinary
shares. It is not possible to reach conclusions about solvency and
going-concern prospects without additional information about the
nature and extent of financing.

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-45
CT15.3 (Continued)

The collective implications of these data alone are that the client entity
is about as solvent and as viable a going concern at the end of the current
year as it was at the beginning although there may be a need for short-term
operating cash.
LO 2 BT: AN Difficulty: Medium TOT: 30 min. AACSB: Analytic, Communication AICPA FC: Reporting,
Measurement AICPA PC: Communication

15-46 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 CT15.4 ETHICS CASE

(a) The stakeholders in this case are:

 Robert Turnbull, president of Turnbull Industries.

 Perry Jarvis, public relations director.
 You, as controller of Turnbull Industries.
 Shareholders of Turnbull Industries.
 Potential investors in Turnbull Industries.
 Any readers of the press release.

(b) The president’s press release is deceptive and incomplete and to that
extent his actions are unethical.

(c) As controller you should at least inform Perry, the public relations
director, about the biased content of the release. He should be aware
that the information he is about to release, while factually accurate, is
deceptive and incomplete. Both the controller and the public relations
director (if he agrees) have the responsibility to inform the president of
the bias of the about to be released information.

LO N/A BT: E Difficulty: Medium TOT: 20 min. AACSB: Ethics AICPA FC: Reporting AICPA PC:
Professional Demeanor, Communication

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-47
 GAAP EXERCISES

GAAP15.1
CHEN COMPANY
Statement of Comprehensive Income
For the Year Ended December 31, 2025

Sales revenue..................................................... $1,000,000

Cost of goods sold ............................................ 700,000
Gross profit ........................................................ 300,000
Operating expenses........................................... 200,000
Net income ......................................................... 100,000
Other comprehensive income ...........................
Unrealized gain on non-trading securities 75,000
Comprehensive income..................................... $ 175,000
LO 4 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Analytic, Diversity AICPA FC: Reporting AICPA
BB: International/Global Perspective

GAAP15.2
CHEN COMPANY
Income Statement
For the Year Ended December 31, 2025

Sales revenue..................................................... $1,000,000

Cost of goods sold ............................................ 700,000
Gross profit ........................................................ 300,000
Operating expenses........................................... 200,000
Net income ......................................................... $ 100,000

CHEN COMPANY
Comprehensive Income Statement
For the Year Ended December 31, 2025

Net income ......................................................... $100,000

Other comprehensive income ...........................
Unrealized gain on non-trading securities
75,000
Comprehensive income..................................... $175,000
LO 4 BT: AP Difficulty: Easy TOT: 8 min. AACSB: Analytic, Diversity AICPA FC: Reporting AICPA
BB: International/Global Perspective

15-48 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)
 GAAP15.3 GAAP FINACIAL REPORTING PROBLEM

(a) APPLE, INC.

Trend Analysis of Net Sales and Net Income
For the Three Years Ended 2020

Base Period 2018—(in millions)

2020 2019 2018

(1) Net sales $274,515 $260,174 $265,595
Trend 103% 98% 100%

(2) Net income 57,411 55,256 59,531

Trend 96% 93% 100%

Between 2018 and 2020 Apple’s net sales increased by 3%. Apple’s net
income decreased by 7% between 2018 and 2019 and decreased by 4%
from 2018 to 2020.

(b) (dollar amounts in millions)

(1) Debt to Assets ratio

2020: $258,549 ÷ $323,888 = 79.8%

2019: $248,028 ÷ $338,516 = 73.3%

(2) Times Interest Earned

2020: ($57,411 + $9,680 + $2,873) ÷ $2,873 = 24.4 times

2019: ($55,256 + $10,481 + $3,576) ÷ $3,576 = 19.4 times
Since creditors are providing about 80% of Apple's total assets, its long-
term solvency could be in question, however, it has a relatively stable
earnings power . In addition, Apple very easily has the ability to pay the
interest on its debt as indicated by the times interest earned of over 24
times in 2020.

Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only) 15-49
GAAP15.3 (Continued)

(c) (dollar amounts in millions)

(1) Profit Margin

2020: $57,411 ÷ $274,515 = 20.9%

2019: $55,256 ÷ $260,174 = 21.2%

(2) Asset Turnover

2020: $274,515 ÷ [($323,888 + $338,516) ÷ 2] = .83 times

2019: $260,174 ÷ [($338,516 + $365,725) ÷ 2] = .74 times

(3) Return on Assets

2020: $57,411 ÷ [($323,888 + $338,516) ÷ 2] = 17.3%

2019: $55,256 ÷ [($338,516 + $365,725) ÷ 2] = 15.7%

(4) Return on Common Shareholders’ Equity

2020: $57,411 ÷ [($65,339 + $90,488) ÷ 2] = 73.7%

2019: $55,256 ÷ [($90,488 + $107,147) ÷ 2] = 55.9%

In general, Apple’s profitability has increased from 2019 to 2020.

(d) Substantial amounts of important information about a company are not

in its financial statements. Events involving such things as industry
changes, management changes, competitors’ actions, technological
developments, governmental actions, and union activities are often
critical to the successful operation of a company. Financial reports in
the media and publications of financial service firms (Standard & Poor’s,
Dun & Bradstreet) will provide relevant information not usually found in
the annual report.
LO 4 BT: AP Difficulty: Medium TOT: 40 min. AACSB: Analytic, Diversity AICPA FC: Reporting
AICPA BB: Internationa/Global Perspective

15-50 Copyright © 2022 WILEY Weygandt, Financial Accounting, IFRS, 5/e, Solutions Manual (For Instructor Use Only)