Managerial Accounting (Looseleaf)
Managerial Accounting (Looseleaf)
7th Edition
ISBN: 9781260482935
Author: Wild
Publisher: MCG
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Chapter 13, Problem 2PSB

1.

To determine

To compute: Current ratio of B Company for the years 2017, 2016 and 2015.

1.

Expert Solution
Check Mark

Explanation of Solution

Formula to calculate current ratio is,

    Currentratio= CurrentAssets CurrentLiabilities

2017

Given,
Current assets are $54,860.
Current liabilities are $22,370.

Substitute $54,860for current assets and $22,370 for current liabilities in the above formula.

    Currentratio= $54,860 $22,370 =2.45

2016

Given,
Current assets are $32,660.
Current liabilities are $19,180

Substitute $32,660 for current assets and $19,180 for current liabilities.

    Currentratio= $32,660 $19,180 =1.70

2015

Given,
Current assets are $36,300.
Current liabilities are $16,500.

Substitute $36,300 for current assets and $16,500 for current liabilities in the above formula.

    Currentratio= $36,300 $16,500 =2.2

Thus, current ratios of B Company are 2.45, 1.70 and 2.2 for the year 2017, 2016 and 2015 respectively.

2.

To determine

To prepare: Common size income statement of B Company.

2.

Expert Solution
Check Mark

Explanation of Solution

Common size income statement is express in form of percentage which helps to analyze the statement in a better way.

    B COMPANY

    Common Size Income Statement

    For the Year Ended December31, 2017, 2016 and 2015

    Common size percents

    Particulars

    2017($)

    2016($)

    2015($)

    2017

    2016

    2015

    Sales

    198,800

    166,000

    143,800

    100

    100

    100

    Cost of goods sold

    108,890

    86,175

    66,200

    54.77

    52

    46.04

    Gross profit

    89,910

    79,825

    77,600

    45.23

    48.1

    54

    Selling expenses

    22,680

    19,790

    18,000

    11.41

    12

    12.52

    Administrative expenses

    16,760

    14,610

    15,700

    8.43

    8.80

    11

    Total expenses

    39,440

    34,400

    33,700

    19.84

    20.8

    23.52

    Income before taxes

    50,470

    45,425

    43,900

    25.39

    27.3

    30.48

    Income taxes

    60,50

    5,910

    5,300

    3.04

    3.56

    3.7

    Net income

    44,420

    39,515

    38,600

    22.34

    23.80

    26.84

    Table (1)

Hence, B Company has common size percents of net income 22.34%, 23.80% and 26.84% in the year of 2017, 2016 and 2015 respectively.

Working Notes:

Formula to calculate common size percent is:

    Commonsizepercent(%)= Analysis Baseamount ×100

2017

Calculation of common percent of sales,

    Common percent of Sales= $198,800 $198,800 ×100 =100%

Calculation of common percent of cost of goods sold,

    Common percent of cost of goods sold= $108,890 $198,800 ×100 =54.77%

Calculation of common percent of gross profit,

    Common percent of grossprofit= $89,910 $198,800 ×100 =45.23%

Calculation of common percent of selling expenses,

    Common percent of sellingexpenses= $22,680 $198,800 ×100 =11.41%

Calculation of common percent of administrative expenses,

    Commonpercentofadministrative expenses= $16,760 $198,800 ×100 =8.43%

Calculation of common percent of income taxes,

    Common percent ofincome taxes= $6,050 $198,800 ×100 =3.04%

Calculation of common percent of net income,

    Common percent of netincome= $44,420 $198,800 ×100 =22.34%

2016

Calculation of common percent of sales,

    Common percent of Sales= $166,000 $166,000 ×100 =100%

Calculation of common percent of cost of goods sold,

    Common percent of cost ofgoods sold= $86,175 $166,000 ×100 =52%

Calculation of common percent of gross profit,

    Common percent of grossprofit= $79,825 $166,000 ×100 =48.1%

Calculation of common percent of selling expenses,

    Common percent of sellingexpenses= $19,790 $166,000 ×100 =12%

Calculation of common percent of administrative expenses,

    Common percent ofadministrative expenses= $14,610 $166,000 ×100 =8.80%

Calculation of common percent of income taxes,

    Common percent ofincome taxes= $5,910 $166,000 ×100 =3.56%

Calculation of common percent of net income,

    Common percent of netincome= $39,515 $166,000 ×100 =23.80%

2015

Calculation of common percent of sales,

    Common percent of Sales= $143,800 $143,800 ×100 =100%

Calculation of common percent of cost of goods sold,

    Common percent of cost ofgoods sold = $66,200 $143,800 ×100 =46.04%

Calculation of common percent of gross profit,

    Common percent of grossprofit= $77,600 $143,800 ×100 =54%

Calculation of common percent of selling expenses,

    Common percent of sellingexpenses= $18,000 $143,800 ×100 =12.52%

Calculation of common percent of administrative expenses,

    Common percent ofadministrative expenses= $15,700 $143,800 ×100 =11%

Calculation of common percent of income taxes,

    Common percent ofincome taxes= $5,300 $143,800 ×100 =3.7%

Calculation of common percent of net income,

    Commonpercent of netincome= $38,600 $143,800 ×100 =26.84%

3.

To determine

To compute: Trend percents of balance sheet items taking 2015 as base year.

3.

Expert Solution
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Explanation of Solution

Balance Sheet of B Company as mentioned below:

    B Company

    Balance Sheet

    For the year ended December 31, 2017 and 2016

    Trend Percents (%)

    Particular

    2017($)

    2016($)

    2017

    2016

    Assets

    Current assets

    54,860

    32,660

    151.13

    90

    Long-term investments

    0

    17,00

    0

    16.04

    Plant assets, net

    112,810

    113,660

    142.8

    143.87

    Total assets

    167,670

    148,020

    133.18

    117.57

    Liabilities and Equity

    Current liabilities

    22,370

    19,180

    135.58

    116.24

    Common stock

    46,500

    46,500

    125.68

    125.68

    Other paid- in capital

    13,850

    13,850

    122.57

    122.57

    Retained earnings

    84,950

    68,490

    139.03

    112.09

    Total liabilities and equity

    167,670

    148,200

    133.18

    117.57

    Table (2)

Thus, total assets trend percent in 2017 is 133.18% and in 2016 is 117.57%

Working notes:

Formula to calculate trend percent is,

    TrendPercent(%)= Analysisperiodamount Baseperiodamount ×100

2017

Calculation of trend percent of current assets,

    Currentassetstrend %= $54,860 $36,300 ×100 =151.13%

Calculation of trend percent of long term investments,

    Long terminvestments trend %= $0 $10,600 ×100 =0%

Calculation of trend percent of plant assets,

    Plant assets trend %= $112,810 $79,000 ×100 =142.8%

Calculation of trend percent of total assets,

    Total assets trend %= $167,670 $125,900 ×100 =133.18%

Calculation of trend percent of current liabilities,

    Current liabilities trend %= $22,370 $16,500 ×100 =135.58%

Calculation of trend percent of common stock,

    Common stock trend%= $46,500 $37,000 ×100 =125.68%

Calculation of trend percent of other paid in capital,

    Otherpaid-in capitaltrend%= $13,850 $11,300 ×100 =122.57%

Calculation of trend percent of retained earnings,

    Retained earnings trend%= $84,950 $61.100 ×100 =139.03%

Calculation of trend percent of total liabilities and equity,

    Totalliabilities andequity%= $167,670 $125,900 ×100 =133.18%

2016

Calculation of trend percent of current assets,

    Currentassetstrend %= $32,660 $36,300 ×100 =90%

Calculation of trend percent of long term investments,

    Long terminvestments trend %= $1,700 $10,600 ×100 =16.04%

Calculation of trend percent of plant assets,

    Plant assets trend %= $113,660 $79,000 ×100 =143.87%

Calculation of trend percent of total assets,

    Total assets trend %= $148,020 $125,900 ×100 =117.57%

Calculation of trend percent of current liabilities,

    Current liabilities trend %= $19,180 $16,500 ×100 =116.24%

Calculation of trend percent of common stock,

    Commonstocktrend%= $46,500 $37,000 ×100 =125.68%

Calculation of trend percent of other paid in capital,

    Otherpaid-in capitaltrend%= $13,850 $11,300 ×100 =122.57%

Calculation of trend percent of retained earnings,

    Retained earnings trend%= $68,490 $61,100 ×100 =112.09%

Calculation of trend percent of total liabilities and equity,

    Totalliabilities andequity%= $148,020 $125,900 ×100 =117.57%

4.

To determine

To explain: Analyze computed ratios and percents.

4.

Expert Solution
Check Mark

Explanation of Solution

  • 2:1 is the ideal current ratio which a company should maintain. Near to ideal ratio of B Company is in the year of 2015 which is 2.2:1.
  • On the basis of common size percents and trend percents there is an increasing element in the relative percent.
  • B Company has common size percents of net income 22.34%, 23.80% and 26.84% in the year of 2017, 2016 and 2015 respectively.
  • Total assets trend percent of the company in 2017 is 133.18% and in 2016 is 117.57% which shows increment of 15.61% ( 133.18%117.57% ) .

Thus, B Company’s trend percents show its efficiency in its operations.

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Chapter 13 Solutions

Managerial Accounting (Looseleaf)

Ch. 13 - Prob. 6DQCh. 13 - Prob. 7DQCh. 13 - Prob. 8DQCh. 13 - Prob. 9DQCh. 13 - Prob. 10DQCh. 13 - Prob. 11DQCh. 13 - Prob. 12DQCh. 13 - Where on the income statement does a company...Ch. 13 - Prob. 14DQCh. 13 - Prob. 15DQCh. 13 - Samsung Refer to Samsung’s financial statements in...Ch. 13 - Prob. 17DQCh. 13 - Prob. 1QSCh. 13 - Prob. 2QSCh. 13 - Prob. 3QSCh. 13 - Prob. 4QSCh. 13 - Prob. 5QSCh. 13 - Prob. 6QSCh. 13 - Prob. 7QSCh. 13 - Prob. 8QSCh. 13 - Prob. 9QSCh. 13 - Prob. 10QSCh. 13 - Prob. 11QSCh. 13 - Prob. 12QSCh. 13 - Prob. 13QSCh. 13 - Morgan Company and Parker Company are similar...Ch. 13 - Which of the following gains or losses would...Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Exercise 13-6 Common-size percents P2 Simon...Ch. 13 - Prob. 7ECh. 13 - Exercise 13-8 Liquidity analysis and...Ch. 13 - Exercise 13-9 Risk and Capital structure analysis...Ch. 13 - Exercise 13-10 Efficiency and Profitability...Ch. 13 - Exercise 13-11 profitability analysis P3 Refer to...Ch. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Prob. 15ECh. 13 - Exercise Interpreting financial ratios Refer to...Ch. 13 - Prob. 17ECh. 13 - Prob. 18ECh. 13 - Prob. 1PSACh. 13 - Prob. 2PSACh. 13 - Prob. 3PSACh. 13 - Problem 13-4A Calculation of financial statement...Ch. 13 - Prob. 5PSACh. 13 - Prob. 6PSACh. 13 - Prob. 1PSBCh. 13 - Prob. 2PSBCh. 13 - Prob. 3PSBCh. 13 - Prob. 4PSBCh. 13 - Prob. 5PSBCh. 13 - Problem 13-6BAIncome statement computations and...Ch. 13 - Use the following selected data from Business...Ch. 13 - Use Apple’s financial statements in Appendix A to...Ch. 13 - Prob. 2AACh. 13 - Prob. 3AACh. 13 - Prob. 1BTNCh. 13 - Prob. 2BTNCh. 13 - Prob. 3BTNCh. 13 - Prob. 4BTNCh. 13 - ENTREPRENEURIAL DECISION A1 P1 P2 P3 BTN 13-7...Ch. 13 - Prob. 6BTN
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How To Analyze an Income Statement; Author: Daniel Pronk;https://www.youtube.com/watch?v=uVHGgSXtQmE;License: Standard Youtube License