![Cornerstones of Financial Accounting](https://www.bartleby.com/isbn_cover_images/9781337690881/9781337690881_largeCoverImage.gif)
(a)
Income statement shows that how much income and expense in the current a calendar or financial year.
Balance sheet shows that what is the position of the company in a particular date. Balance sheet also shows that the how much company has
To discuss:
Determine how much the Twisted’s company sale, net income and assets have grown during last in 3 years.
![Check Mark](/static/check-mark.png)
Answer to Problem 88PSB
This table shows that the change in the last 3 year in different item
Particular | 2019 | 2017 | Total change |
Sale | 54922 | 42893 | 35526 |
Net income | 2285 | 1376 | 227 |
Total assets | 16347 | 12501 | 10492 |
Explanation of Solution
Shows this table for Last year 3 sale, net income and fixed year
Particular | 2019 | 2018 | 2017 |
Sale | 54922 | 42893 | 35526 |
Net income | 2285 | 1376 | 227 |
Total assets | 16347 | 12501 | 10492 |
(b)
Increase in assets means the company increases the production for the expand the business so that the company finance the find from the different source and use for the purchase of different kind of assets.
To discuss:
Explain how twisted has financed the increase in assets.
![Check Mark](/static/check-mark.png)
Answer to Problem 88PSB
The company has increases its assets from 2017 to 2019. In the 2017 company assets, only $10492 but these assets in 2019 is $16347. Company’s resource fund has two types only first one is
Explanation of Solution
Particular | 2019 | 2018 | 2017 |
Property plant | 4912 | 3541 | 2937 |
Other assets | 592 | 592 | 552 |
Common stock | 4367 | 4598 | 4725 |
Retain earning | 3169 | 1951 | 1255 |
(c)
In the liquidity there is two types of formula which on is
Current ratio shows that the relationship between current assets and current liabilities.
To compute:
Find the Twisted’s liquidate is adequate.
![Check Mark](/static/check-mark.png)
Answer to Problem 88PSB
As per the current ratio the company is able to pay the all short-term debt because the standard ratio of current ratio is 1:1, and in this question the current ratio is 1.23 which shows the goods ratio.
But as per the quick ratio the company needs to improve the assets because due to heavy inventory in the hands of company shows the negative effect for the company.
Explanation of Solution
Current ratio shows that the company ability to cover its short-term obligation with its current assets.
Current ratio =
Quick ratio =
Quick assets = Current assets − inventory − prepaid assets
= $10843 - $5673 =$5170
(Note: this data is related for 2019).
(d)
Interest expense means if company taking the loan amount from the outside the business then the company pay the interest on the particular debt. Interest expense shows in the income statement and this expense reduce the company profit.
To discuss:
Define why interest expense increase.
![Check Mark](/static/check-mark.png)
Answer to Problem 88PSB
Company has two source of funds for taking the loan amount.
Company has little increase the long-term loan but company increase the company increase the short-term note payable so that the company increase the interest expense which shows in the income statement.
Explanation of Solution
This table shows that the increase the different amount in last 3 years
Particular | 2019 | 2018 | 2017 |
Interest expense | 1356 | 863 | 622 |
Short-term notes payable | 4341 | 1731 | 463 |
Long-term debt | 3241 | 3234 | 3266 |
(e)
The company wants to increase the sale proportion then definitely the company’s increase the variable expense in the same proportion, and net profit increase as per their ratio.
To compute:
Twisted company increase the sale proportion then what effect in the net profit.
![Check Mark](/static/check-mark.png)
Answer to Problem 88PSB
The net income increase by the $3962.67
Twisted company
Income statement
Particular | 2020 ($) |
Sale (54922 +25% of 54922) | 68652.5 |
Cost of goods sold (32936 + 25% of 32936) | 41170 |
Gross margin | 27482.5 |
Other income | 397 |
Total income (A) | 27879.5 |
Selling and expense | 17857 |
Interest | 1356 |
Total cost (B) | 19213 |
Income before tax | 8666.5 |
Tax | 2418.82 |
Net income | 6247.67 |
Explanation of Solution
- Net income increase by the 25% of the last year.
- Other expense to same and other income also to be same.
- Cost of goods sold to be increase in the sale ratio as the sale increase.
Particular | 2020 ($) |
Sale (54922 +25% of 54922) | 68652.5 |
Cost of goods sold (32936 + 25% of 32936) | 41170 |
Gross margin | 27482.5 |
Other income | 397 |
Total income (A) | 27879.5 |
Selling and expense | 17857 |
Interest | 1356 |
Total cost (B) | 19213 |
Income before tax | 8666.5 |
Tax | 2418.82 |
Net income | 6247.67 |
(f)
Company wants that company increase the shareholder worth and also increase the company earning per share and also increase the production for increase the sale so increase the net income.
To discuss:
Company want increase the 25% assets by the support the increase the 25% sale and also company wants that the dividend paid to the shareholder 50% of net income, the how much company take borrow by the capital or any other sources.
![Check Mark](/static/check-mark.png)
Answer to Problem 88PSB
Company assets in 2019 = $16347
Company want increase the assets by 25% of $16347 = $4086.75
Company paid the dividend 50% of net profit = 50% of $6247.67
= $3123.83
Company require total fund from capital = $4086.75- $3123.83 = $962.92.
Explanation of Solution
The net income increase by the 2769.22
Twisted company
Income statement
Particular | 2020 ($) |
Sale (54922 +25% of 54922) | 68652.5 |
Cost of goods sold (32936 + 25% of 32936) | 41170 |
Gross margin | 27482.5 |
Other income | 397 |
Total income (A) | 27879.5 |
Selling and expense | 17857 |
Interest | 1356 |
Total cost (B) | 19213 |
Income before tax | 8666.5 |
Tax | 2418.82 |
Net income | 6247.67 |
Company assets in 2019 = $16347
Company want increase the assets by 25% of $16347 = $4086.75
Company paid the dividend 50% of net profit = 50% of $6247.67
= $3123.83
Company require total fund from capital = $4086.75- $3123.83 = $962.92.
Want to see more full solutions like this?
Chapter 12 Solutions
Cornerstones of Financial Accounting
- Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the companys financial statements for the 2 most recent years. Required: Note: Round all answers to two decimal places. 1. Compute the following for each year: (a) return on assets, (b) return on stockholders equity, (c) earnings per share, (d) price-earnings ratio, (e) dividend yield, and (f ) dividend payout ratio. 2. CONCEPTUAL CONNECTION Based on the analysis in Requirement 1, would you invest in the common stock of Kepler?arrow_forwardWhy are Old Men so Daggum Stubborn (OMDS) had the following information for the previous calendar year: Operating income: $66,880 Invested assets: $167,200 Sales: $836,000 What is OMDS' return on investment? For percentages, please enter your answer as a decimal (i.e., 20% is 0.20). For dollar amounts, please provide your answer to two decimal places (i.e. $3.00 is 3.00)arrow_forwardWhy are Old Men so Daggum Stubborn (OMDS) had the following information for the previous calendar year: Operating income: $66,880 Invested assets: $167,200 Sales: $836,000 What is OMDS' investment turnover? For percentages, please enter your answer as a decimal (i.e., 20% is 0.20). For dollar amounts, please provide your answer to two decimal places (i.e. $3.00 is 3.00)arrow_forward
- Need Answerarrow_forwardUsing this same data, create apro forma income statement fornext year using the followingassumptions: sales increase by5%, cost of goods sold increaseby 3%, SG&A increase by 7%,taxes and interest remain thesame. Sales are $5, 500, 000SG&A is $700, 000 Interest is $50, 000 Tax rate is 40% Cost ofGoods Sold is $4, 000, 000arrow_forwardAssume that you are purchasing an investment and have decided to invest in a company in the digital phone business. You have narrowed the choice to Digitized Corp. and Very Network, Inc. and have assembled the following data. LOADING... (Click to view the income statement data.) Data Table Selected income statement data for the current year: Digitized Very Network Net Sales Revenue (all on credit) $418,290 $494,940 Cost of Goods Sold 210,000 256,000 Interest Expense 0 15,000 Net Income 62,000 70,000 (Click to view the balance sheet and market price data.) Data Table Selected balance sheet and market price data at the end of the current year: Digitized Very Network Current Assets: Cash $24,000 $21,000 Short-term Investments 42,000 19,000 Accounts Receivables, Net 36,000 46,000 Merchandise Inventory 67,000 98,000 Prepaid Expenses 22,000 18,000 Total…arrow_forward
- Following are financial statement numbers and ratios for Martin Corp. for the year ended December 31, Year 1. Total revenue (in millions) $47,248 Net operating profit margin (NOPM) 8.8% Net operating asset turnover (NOAT) 3.3 If we expected revenue growth of 3.5% in the next year, what would projected revenue be for Year 2? Select one: a. $47,248.0 b. $44,598.3 c. None of these are correct d. $48,901.7 e. $53,205.0arrow_forwardAnswer Pleasearrow_forwardHey, I'm having problems trying to find the solution for e and f. can you guys help! Six Measures of Solvency or Profitability The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) $3,200,000 Liabilities: Current liabilities $1,000,000 Mortgage note payable, 6%, issued 2005, due 2021 2,000,000 Total liabilities $3,000,000 Stockholders’ equity: Preferred $10 stock, $100 par (no change during year) $1,000,000 Common stock, $10 par (no change during year) 2,000,000 Retained earnings: Balance, beginning of year $1,570,000 Net income 930,000 $2,500,000 Preferred dividends $100,000 Common dividends 400,000 500,000 Balance, end of year 2,000,000 Total stockholders’ equity $5,000,000 Sales $18,900,000 Interest expense…arrow_forward
- Home Demo reported the following results. Sales $ 95 billion Net income $ 8 billion Average total assets $ 42 billion (a) Compute Home Demo's return on assets. (b) Is Home Demo's return on assets better than the 11% return of Lows Hardware (a competitor)?arrow_forwardAssume the following sales data for a company:Current year$832,402 Preceding year608,082What is the percentage increase in sales from the preceding year to the current year? a.136.89% b.36.89% c.73.05% d.26.95% The relationship of $242,729 to $104,267, expressed as a ratio, is a.0.8 b.2.3 c.0.4 d.0.7arrow_forwardQuestionarrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337690881/9781337690881_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337115773/9781337115773_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)