PROBLEM 2.
1
The following table shows selected data for Romulo Corporation for the past four years
ended December 31:
Instructions:
a. What was the accounts receivable turnover for 2019?
Formula: Accounts Receivable Turnover = Net Credit Sales / Average Accounts
Receivable
Solution:
1. Find the end of last year accounts receivable, then add it to the end of this year.
(A/R2018+ A/R2019/2)
(P7,500+P6,800)/2=7,150
Plugging it into the turnover ratio, we get :
P20,300/7,150= 2.84 (Times)
b. What was the inventory turnover for 2018?
Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory
Solution:
2. First, we need to have average the beginning plus ending/2
(Inventory 2019+ Inventory 2018)/2
(13,000+12,200) /2= 12,600
Then divide it
10,300/12,600=.82(Times)
PROBLEM 2.2
From the given data, alculate the folowing ratios or the Salvacion Corporton for 207.
Instructions:
a. Current Ratio
Formula: Current Ratio = Current Assets / Current Liabilities
Solution:
The question is not clear year of 2017 but I will still complete it
1.Compute the Current Assets = Cash + Accounts receivable + Inventory + short-term
Investments,
Current assets = 125,000+ 75,000+90,000+60,000=350,000
Then compute what current liabilities= Account payable + Short term notes payable
Current liabilities = 74,000+ 40,000 =114,000
Current Ratio =Current Assets/ Current Liabilities:
350,000/114,000 = 3.07 (Ratio)
b. Quick Ratio
Formula: Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Solution:
Quick Ratio = (Cash+ Account receivable + Short-term investment) /Current Liabilities
(125,000+75,000+60,000)/114,000= 2.28 (Ratio)
c. Debt to Total Assets Ratio
Formula: Debt to Total Assets Ratio = Total Liabilities / Total Assets
Solution:
The tricky part of this is to find the total assets which requires finding the Total
Liabilities
Total Assets given is 469,000
To calculate the total liablities, we add short term notes payable to notes payable which
we result in
Notes payable = 40,000,
Accounts payable = 74,000
Total Liability =40,000+74,000= 114,000
Which then we divide into Total Assets
114,000/469,000 =.24 (Ratio)
d. Profit Margin Ratio
Formula: Profit Margin Ratio = Net Income / Net Sales
Solution:
Net income given is 31,500
Net sales given is 240,000
Therefore ratio is
Net Income/ Net Sales
31,500/240,000=.13(Ratio)
PROBLEM 2.3
Comparative information taken from the 7RS Company financial statements is shown
below:
Instructions
3. Clculate the peso changes for each item and indicate whether the change is
increase of decrease
Formula: Year 2020 - Year 2019
Solution:
|(a)|Account Receivables=175,000-140,000 =35,000( Increase)
|(b)|Retained Earnings=30,000-(-40,000)= 70,000 (Increase)
|(c)|Sales= 855,000-750,000=105,000 (Increase)
|(d)|Operating expenses=170,000-200,000= -30,000 (Decrease)
|(e)|Income taxes payable= 22,000-20,000=2000 (Increase)
4. Calculate the percentage change from 2019 to 2020. P rec
Formula for Percentage: ((This year - Last year)/Last Year)
Solution:
|(a)|Account Receivables=35,000/140,000= 25%
|(b)|Retained Earnings=70,000/-40,000= -175%
|(c)|Sales=105,000/750,000= 14%
|(d)|Operating expenses=-30,000/200,000= -15%
|(e)|Income taxes payable=2000/20,000= 10%
PROBLEM 2.4
The following items were taken from the financial statements of Kam's Kormer, Inc,
over a three-year period:
Instructions:
Using horizontal analysis and 2018 as the base year, compute the trend percentages
for net sales, cost of goods sold, and gross profit. Explain whether the trends are
favorable or unfavorable for each item.
Formula: Trend Percentage = (Any Year Amount / Base Year Amount) * 100
Solution:
Item 2018 2019 2020 Trend
Explanation
Net 100% (212/200)*100=106% (226/200)*100=113% Increasing
Sales trend, which
is generally
favorable,
indicating
growing
revenue.
Cost of 100% 140/136=103% 150/136=110% Increasing
Goods trend, which
Sold is generally
unfavorable ,
indicating that
the
production
process or
product input
has become
more
expensive.
Gross 100% (72/64)*100=113% (76/64)*100=119% Increasing
Profit trend, which
is generally
favorable, as
it shows
increasing
profitability of
goods sold.
PROBLEM 2.5
Selected information from the comparative financial statements of UrTurn Company
for the year ended December 31 appears below:
Instructions: Answer the following questions relating to the year ended December 31,
2018. Show computations.
5. The inventory turnover ratio for 2018 is
Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory
Solution:
1.First, we need to compute the average of beginning and end to compute inventory
(130,000+150,000)/2=140,000
2. 600,000/140,000=4.29 (Times)
6. The number of times interes earned ratio in 2018 is
Formula: Times Interest Earned Ratio = EBIT / Interest Expense, where EBIT = Net
Income + Interest Expense + Income Tax Expense
Solution:
1.We need to find the amount before net income, adding income, interest expense
and income tax expense
150,000+60,000+40,000=250,000/
2. We divide by the interest expense, which then is 40,000
250,000/40,000=6.25 (Times)
7. The receivables turnover ratio for 2018 is
Formula: Receivables Turnover Ratio = Net Credit Sales / Average Accounts
Receivable
Solution:
First, compute the average of accounts, so add last year ending to this year ending
175,000+200,000)/2=187,500
Next compute to find the turnover
800,000/187,500=4.27 (Times)
8. The return on assets ratio for 2018 is
Formula: Return on Assets = Net Income / Average Total Assets
Solution:
9. To find the return on assets, we must find beginning and end total asset which ends
up being
(1,100,000+800,000)/2=950,0002. Next we find the asset using the formula
10. We find Net income, we divide net income/Average Assets which ends up being
11. 150,000/950,000= .16(Ratio)
12. The current cash debt coverage ratio for 2018 is
Formula: Current Cash Debt Coverage Ratio = Net Cash Provided by Operating
Activities / Average Current Liabilities
Solution:
13. First we compute average average liabilities which is last year and this year
ended
(140,000+110,000)/2=125,0002. To solve the cash coverage we would do the same
220,000/125,000=1.76 (Ratio)
PROBLEM 2.6
UrProf Corporation had the following comparative current assets and current liabilities
During 2018, net credit sales and cost of goods sold were P475,000 and P250,000,
respectively. Net cash provided by operating activities for 2018 was P120,000.
Instructions: Compute the following liquidity measures for 2018:
a. Current Ratio
Formula: Current Ratio = Current Assets / Current Liabilities
Solution:
14. Simply divide Total current assets by the Total Current Liabilities
So this is the same the ending is what we care for at Dec 31-2018
15. Result from Current ratio is :
270,000/170,000=1.59 (Ratio)
b. Current Cash Debt Coverage Ratio
Formula: Current Cash Debt Coverage Ratio = Net Cash Provided by Operating
Activities / Average Current Liabilities
Solution:
1.We need to calculate what it is by averaging beginning and end
(170,000+155,000) /2=162,500
2. Now we divided by the
120,000/162,500=.74 (Ratio)
c. Receivables Turnover
Formula: Receivables Turnover = Net Credit Sales / Average Accounts Receivable
Solution:
The average in the accounts receivable ( 95,000+60,000/2)=77,500
Receivables Turnover = 475,000/77,500=.16(Times)
d. Inventory Turnover
Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory
Solution:*
To find average inventory
(110,000+90,000)/2= 100,000
250,000/100,000=2.5 (Times)
PROBLEM 2.7
The balance sheet for Violeta Corporation at the end of the current year includes the
following
Income before income taxes was P950,000 and income tax expense for the curent
year mounted o P285.000. Cash dividends paid on common sock wer P20,0, and the
common sock vas seling for P4 per share at the end of the year. There were no
ownership change during the year.
nstructions: Determine each of the following:
a. Number of times that bond interest was earned.
Formula: Times Interest Earned = Earnings Before Interest and Taxes (EBIT) / Interest
Expense
Solution:
Times Interest Earned = Earnings Before Interest and Taxes (EBIT)
EBIT given the question says earnings before tax= P950,000
We need to figure what Interest Expense is Bonds Payable
6% *5,000,000=300,000
So now we can find out that time earned
950,000/300,000=3.17 (Times)
b. Earnings per share for common stock.
Formula:
The formula requires to
Net income - Prefered dividend then average with amount
Net income = 950,000-285,000=665,000
Find preferred dividend
6%*1,000,000= 60,000
( 665,000-60,000)/200,000=.03(amount)
c. Price-earnings ratio.
Formula: Price-Earnings Ratio = Market Price per Share / Earnings per Share
Solution:
Market price =4
EPS=.03
So it turns out to be 4/.03=133.33(amount)
PROBLEM 2.8
GGEM Corporation had net income of P4,000,000 in 2017. Using 2017 as the base
year, net ncome decreased by 40% in 2018 and increased by 110% in 2019.
nsructions: Compute the net income reported by GGEM Corporation for 2018 and
2019.
Formula:
The percent formula is = Part/Base=%
. 4=X/4,000,000
Compute the net income reported by GGEM Corporation for 2018
X=4,000,000*.4= 1,600,000 , so we subtract it to the 4,000,000, resulting in: 2,400,000
Compute the net income reported by GGEM Corporation for 2019
4,000,000*1.1=.400,000
PROBLEM 2.9
The following ratios have been computed for the RMO Company for 2018.
The 2018 financial statements of the company with missing information was presented
on the next page:
Use the above ratios and information from RMO Company financial statements to fill
in the nissing information on the financial statements. Follow the sequence indicated.
Show computations hat support your answers.
I require seeing the other page of the financial statements
PROBLEM 2.10
RED Corporation has issued common stock only. The company has been successful
and has a gross profit rate of 20%. The information shown below was taken from the
company's financial statements.
Instructions: Compute the following:
a. Receivables turnover
Formula: Receivables Turnover = Net Credit Sales / Average Accounts Receivable
Solution:
The receivables turnover =5,200,000/700,000=7.43(Times)
b. Average number of days required to collect the accounts receivable.
Formula: Days Sales Outstanding = 365 Days / Accounts Receivable Turnover
Solution:*
Day sales in account receivables=365/7.43=49.13(Days)
c. The inventory turnover
Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory
Solution:
16. Calculate gross profit:
Gross ProfitRate = Gross Profit / Net Sales
Plugging the amount and formula, we get
0.20= Gross Profit /5,200,000 = Gross Profit is 1,040,000
Solve Inventory to Find inventory turnover
COGS=Net Sales-Gross Profit
We get COGS TO BE
COGS= 5,200,000-1,040,000=4,160,000
Next,
Ending Inventory= Beginning Inventory + Purchases - COGS
Ending Inventory=482,000+ 4,146,000-4,160,000
*Solve by 4,628,000 -4,160,000
Final Answer Is 468,000
Inventory Turnover = 4,160,000/ (482,000+468,000)/2=4,160,000/475,000=8.76
d. Average days in inventory.
Formula: Days in Inventory = 365 Days / Inventory Turnover
Solution:
Days= 365/8.76=41.67(Days)
e. Return on common stockholders' equity.
Formula: Return on Common Equity = (Net Income - Preferred Dividends) / Average
Common Stockholders' Equity
Solution:
ROE is=420,000/3,500,000=.12(Ratio)
PROBLEM 2.11
Indicate the effects of the transactions listed in the following table on total current
assets, current ratio, and net profit. Indicate it by a (+) sign to mean increase, (- ) to
indicate a decrease, and (NE) for no efect or an indeterminate effect. Assume an iniial
current ratio of more than 1.0.
Item Transactions Total Current Current Ratio Effect on Net
Assets Income
1 Issuance of + + NE
additional
common stock in
cash
2 Merchandise is NE + +
sold for cash
3 A fixed asset is + - -
sold less than its
book value
4 Income tax due - NE NE
for the previous
year is paid
5 A fixed asset is + - -
sold for less than
book value
6 A fixed asset is + + +
sold for more
than book value
7 Merchandise is NE + +
sold on credit
8 Payment is made NE NE NE
to trade accounts
payable
9 A cash dividend - - NE
is declared and
paid
10 Cash is obtained + - NE
through short-
term loans
11 Short-term notes - - -
receivable is sold
at a discount
12 Marketable - NE -
securities are
sold below cost
13 Advances are NE NE NE
made to
employees
14 Current operating - NE -
expenses are
paid
PROBLEM 2.12
PhilArms, Inc had earnings per share of P4 last year and it paid a P2 dividend. Book
value per share at year-end was P40, while total retained earnings increased by P12
million during the year. The company has no preferred stock, and no new common
stock was issued during the year. If the company's year-end debt (which equals its
total liabilities) was P120 million, what was the company's year-end debt assets ratio?
Formula: Debt-to-Asset Ratio = Total Debt / Total Assets
Solution:
17. Calculate total equity from the total debt first. We know book value= total equity/
Total Equity: Book Value per Share=40
Earnings Per Share= P4,Dividends is 2 so Retained Earning=Earnings per
share/dividends or 4-2= 2
If RE = Total Equity * 2then
Total Equity:
(2/$40 )
To find number of share, divide Net income, which can calculate 12,000,000/4 , we
get 3,000,000
Number of share =3,000,000
To find total asset then we would times this by book rate
3,000,000 * 40=120,000,000
The company’s year-end debt assets ratio?
120,000,000/ 120,000,000=100% or 1 to 1
PROBLEM 2.13
Given the following data, reconstruct the balance shee and the income statement of
Libby Company for the year 2018:
Instructions:
I need to see both financial statement for this.
PROBLEM 2.14
MATCHING
For each of the ratios listed below, indicate by the appropriate code letter, whether it
is a liquidity ratio, a profitability ratio, or a solvency ratio.
Code: L= Liquidity ratio; P= Profitability ratio; S= Solvency ratio
18. P Earnings per share ratio
19. P Price-earnings ratio
20. P Return on assets ratio
21. L Receivables turnover ratio
22. P Payout ratio
23. L Current cash debt coverage ratio
24. L Current ratio
25. S Debt to total assets ratio
26. F Free cash flow
27. L Inventory turnover ratio
PROBLEM 2.15
I require the financial statements.
PROBLEM 2.16
INCREASE/DECREASE/NO EFFECT
State the effect of the following transactions on the current ratio. Uise increase,
decrease, or no effect for your answer. Assume the current ratio is currently greater
than 1.
28. Collection of an accounts receivable (NE)
29. Collection of an accounts receivable within the discount period(NE)
30. Declaration of cash dividends (-)
31. Additional stock is sold for cash.(+)
32. Accounts payable are paid.(NE)
33. Equipment is purchased for cash.(-)
34. Inventory purchases are made for cash.(-)
35. Inventory purchases are made on account.(+)
36. Sold an inventory on account(+)
37. Sold an inventory for cash(+)
PROBLEM 2.17
INCREASE/DECREASE/NO EFFECT
State the effect of the following transactions on the current ratio. Use increase,
decrease, or no effect for your answer. Assume the current ratio is currently less than
1.
38. Collection of an accounts receivable(NE)
39. Collection of an accounts receivable within the discount period (NE)
40. Declaration of cash dividends(+)
41. Additional stock is sold for cash.(+)
42. Accounts payable are paid.(NE)
43. Equipment is purchased for cash.(-)
44. Inventory purchases are made for cash.(-)
45. Inventory purchases are made on account.(+)
46. Sold an inventory on account(+)
47. Sold an inventory for cash(+)
