Summary information from the financial statements of two companies competing in the same industry follows. Barco Company Kyan Company Barco Company Kyan Company Data from the current year-end balance sheets Data from the current year’s income statement Assets Sales $ 760,000 $ 914,200 Cash $ 21,500 $ 37,000 Cost of goods sold 593,100 636,500 Accounts receivable, net 37,400 54,400 Interest expense 8,000 12,000 Merchandise inventory 84,640 138,500 Income tax expense 14,608 25,238 Prepaid expenses 5,400 7,450 Net income 144,292 240,462 Plant assets, net 290,000 306,400 Basic earnings per share 4.24 5.57 Total assets $ 438,940 $ 543,750 Cash dividends per share 3.72 3.95 Liabilities and Equity Beginning-of-year balance sheet data Current liabilities $ 67,340 $ 97,300 Accounts receivable, net $ 26,800 $ 54,200 Long-term notes payable 85,800 107,000 Merchandise inventory 57,600 107,400 Common stock, $5 par value 170,000 216,000 Total assets 378,000 382,500 Retained earnings 115,800 123,450 Common stock, $5 par value 170,000 216,000 Total liabilities and equity $ 438,940 $ 543,750 Retained earnings 97,988 53,628 Required: 1a. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover, (e) days’ sales in inventory, and (f) days’ sales uncollected. Note: Do not round intermediate calculations. 1b. Identify the company you consider to be the better short-term credit risk.

Financial Accounting

15th Edition

ISBN:9781337272124

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter17: Financial Statement Analysis

Section: Chapter Questions

Problem 3PA: Effect of transactions on current position analysis Data pertaining to the current position of Forte...

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Summary information from the financial statements of two companies competing in the same industry follows.

	Barco Company	Kyan Company		Barco Company	Kyan Company
Data from the current year-end balance sheets			Data from the current year’s income statement
Assets			Sales	$ 760,000	$ 914,200
Cash	$ 21,500	$ 37,000	Cost of goods sold	593,100	636,500
Accounts receivable, net	37,400	54,400	Interest expense	8,000	12,000
Merchandise inventory	84,640	138,500	Income tax expense	14,608	25,238
Prepaid expenses	5,400	7,450	Net income	144,292	240,462
Plant assets, net	290,000	306,400	Basic earnings per share	4.24	5.57
Total assets	$ 438,940	$ 543,750	Cash dividends per share	3.72	3.95
Liabilities and Equity			Beginning-of-year balance sheet data
Current liabilities	$ 67,340	$ 97,300	Accounts receivable, net	$ 26,800	$ 54,200
Long-term notes payable	85,800	107,000	Merchandise inventory	57,600	107,400
Common stock, $5 par value	170,000	216,000	Total assets	378,000	382,500
Retained earnings	115,800	123,450	Common stock, $5 par value	170,000	216,000
Total liabilities and equity	$ 438,940	$ 543,750	Retained earnings	97,988	53,628

Required:

1a. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover, (e) days’ sales in inventory, and (f) days’ sales uncollected.

Note: Do not round intermediate calculations.

1b. Identify the company you consider to be the better short-term credit risk.

For both companies compute the current ratio.
(a)
Company
Barco
Kyan
(b)
Company
For both companies compute the acid-test ratio.
Barco
Kyan
Cash
(c)
Company
Barco
Kyan
Numerator:
Current assets
Net sales
+
+
Numerator:
Numerator:
+ Short-term investments + Current receivables
Current Ratio
/
/ Current liabilities
1
+
Denominator:
+
Acid-Test Ratio
For both companies compute the accounts (including notes) receivable turnover.
1
1
Accounts Receivable Turnover
Denominator:
Average accounts receivable, net
=
A
=
=
Current liabilities
=
Current Ratio
Current ratio
0 to 1
0 to 1
Denominator:
= Acid-Test Rat
Acid-test ratic
0 to 1
0 to 1
Accounts Receivable Turnover
Accounts receivable turnover
0 times
0
times

(d)
Company
Barco
Kyan
Barco
Kyan
Numerator:
Cost of goods sold
For both companies compute the days' sales in inventory.
(e)
Company
Barco
Kyan
Numerator:
Ending merchandise inventory
1
Numerator:
Accounts receivable, net
Inventory Turnover
Denominator:
Average inventory
1
1
/Cost of goods sold
For both companies compute the days' sales uncollected.
(f)
Company
Days' Sales in Inventory.
Denominator:
1
/Net sales
1
Days' Sales Uncollected
Denominator:
xxx
x
x Days
365
X X X
= Inventory turnover
0
times
0
times
Days =
x 365
=
=
=
Inventory
Turnover
=
Days' Sales in Inventory
Days' sales in inventory
0 days
0 days
Days' Sales Uncollected
Days' sales uncollected
0 days
0 days
O

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