MyLab Accounting with Pearson eText -- Access Card -- for Financial Accounting

12th Edition

ISBN: 9780134727677

Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.

Publisher: PEARSON

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Textbook Question

Chapter 12, Problem 12.61AP

LO 2, 4, 5

(Learning Objectives 2, 4, 5: Analyze trends; calculate and interpret ratios; evaluate earnings quality)

Selected data from Tompkin Furniture, Inc., follows.

Chapter 12, Problem 12.61AP, LO 2, 4, 5 (Learning Objectives 2, 4, 5: Analyze trends; calculate and interpret ratios; evaluate , example 1

Chapter 12, Problem 12.61AP, LO 2, 4, 5 (Learning Objectives 2, 4, 5: Analyze trends; calculate and interpret ratios; evaluate , example 2

Industry averages have been gathered for several ratios.

Furniture industry averages
Current ratio................................	2.3
Quick ratio..................................	1.0
Days′ inventory outstanding.........	80.0
Days′ sales outstanding................	60.0
Days′ payable outstanding...........	32.0
Debt ratio.....................................	62%
Times-interest-earned ratio..........	12.0
Gross margin percentage..............	51%
Operating income percentage.......	10%

Requirements

1. Perform a trend analysis on Tompkin’s sales revenue, inventory, and receivables over the past three years, using 2015 as the base. Is the trend in each of these areas favorable or unfavorable for the company?

2. Using the industry averages as benchmarks, analyze Tompkin’s performance over the past three years in the following areas:

a. Liquidity
b. Turnover
c. Overall debt payment ability
d. Profitability

3. Evaluate Tompkin’s quality of earnings. Are there any red flags in your analysis? Explain.

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Chapter 12, Problem 12.60AP

Chapter 12, Problem 12.62BP

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Chapter 12 Solutions

MyLab Accounting with Pearson eText -- Access Card -- for Financial Accounting

Ch. 12 - Prob. 1QC Ch. 12 - Prob. 2QC Ch. 12 - Prob. 3QC Ch. 12 - Prob. 4QC Ch. 12 - Expressing accounts receivable as a percentage of...Ch. 12 - Kincaid Company reported the following data (in...Ch. 12 - Prob. 7QC Ch. 12 - Ratios that measure liquidity include all of the...Ch. 12 - Verba Corporation has an inventory turnover of 15...Ch. 12 - The measure of a companys ability to collect cash...

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Solution Summary: The author explains that Trend Analysis is one form of horizontal analysis. It helps the user calculate the changes that occur in the economic cycle of a business for many years in terms of percentage change.

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