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Business Accounting Financial Accounting: Information for Decisions

1 Introduction: Current ratio refers to the ratio of current assets and current liabilities. This ratio shows the resources a company has to pay off its short term debts and obligations. To compute: The current ratio of the company. Current ratio for 2014 − 2.2 Current ratio for 2015 − 1.7 Current ratio for 2016 − 2.5 Calculation of current ratio for 2014 − Current ratio = Current assets Current liabilities = 36300 16500 = 2.2 Calculation of current ratio for 2015 − Current ratio = Current assets Current liabilities = 32660 19180 = 1.7 Calculation of current ratio for 2016 − Current ratio = Current assets Current liabilities = 54860 22370 = 2.5 2 Introduction: While making a common-size income statement, each line item is expressed as a percentage of sales or revenue. These percentages can be used to compare the performance of the company with the company itself or the competitors. To express: The income statement data in common-size percents. BG Corporation Common size Income Statement For years ended December 31, 2016, 2015 and 2014 Particulars 2016 (%) 2015 (%) 2014 (%) Sales 198800 198800 = 100 166000 166000 = 100 143800 143800 = 100 Cost of goods sold 108890 198800 = 54.77 86175 166000 = 51.91 66200 143800 = 46.04 Gross profit ( Sales − Cost of goods sold ) 45.23 48.09 53.96 Selling expenses 22680 198800 = 11.41 19790 166000 = 11.92 18000 143800 = 12.52 Administrative expenses 16760 198800 = 8.43 14610 166000 = 8.80 15700 143800 = 10.92 Total expenses ( Selling expenses + Administrative expenses ) 19.84 20.72 23.44 Income before taxes ( Gross profit − Total expenses ) 25.39 27.37 30.52 Income taxes 6050 198800 = 3.04 5910 166000 = 3.56 5300 143800 = 3.69 Net income ( Income before taxes − Income taxes ) 22.35 23.81 26.83 3 Introduction: The trend percentages help in analyzing the changes in financial statements of a company over a period of time. To express: The balance sheet data in trend percents with 2014 as the base year. BG Corporation Balance Sheet For years ended December 31, 2016, 2015 and 2014 Particulars 2016 2015 Assets Current assets 54860 36300 = 151.13 32660 36300 = 89.97 Long-term investments 0 10600 = 0.00 1700 10600 = 16.04 Plant assets, net 112810 79000 = 142.80 113660 79000 = 143.87 Total assets 167670 125900 = 133.18 148020 125900 = 117.57 Liabilities and equity Current liabilities 22370 16500 = 135.58 19180 16500 = 116.24 Common stock 46500 37000 = 125.68 46500 37000 = 125.68 Other paid-in capital 13850 11300 = 122.57 13850 11300 = 122.57 Retained earnings 84950 61100 = 139.03 68490 61100 = 112.09 Total liabilities and equity 167670 125900 = 133.18 148020 125900 = 117.57 4 Introduction: The trend percentages help in analyzing the changes in financial statements of a company over a period of time. To comment: The notable relations revealed by the ratios and percents computed. The current ratio of the company shows that the company was sound enough to pay its short term debts and obligations in the year 2014 but its current ratio dropped to 1.7 in the year 2015 indicating inadequate current assets that are not enough to pay for the current liabilities. The ratio is good in the year 2016 which means company is able to pay its short term obligations with the available current assets. Cost of goods sold was the lowest in the year 2014 which means the gross profit was the highest. On the other hand cost of goods sold has increased in the year 2015 resulting in lower gross profit. Cost of goods sold is the highest in the year 2016 and therefore the gross profit is the lowest. Trend in current assets is quite favorable in the year 2016 as compared to the year 2015. Although the long-term investments have reduced in the year 2016 but overall total assets are on the positive side. Current liabilities have also increased when compared to the year 2015 may be because of more selling on credit. Retained earnings also show an increasing trend.

1 Introduction: Current ratio refers to the ratio of current assets and current liabilities. This ratio shows the resources a company has to pay off its short term debts and obligations. To compute: The current ratio of the company. Current ratio for 2014 − 2.2 Current ratio for 2015 − 1.7 Current ratio for 2016 − 2.5 Calculation of current ratio for 2014 − Current ratio = Current assets Current liabilities = 36300 16500 = 2.2 Calculation of current ratio for 2015 − Current ratio = Current assets Current liabilities = 32660 19180 = 1.7 Calculation of current ratio for 2016 − Current ratio = Current assets Current liabilities = 54860 22370 = 2.5 2 Introduction: While making a common-size income statement, each line item is expressed as a percentage of sales or revenue. These percentages can be used to compare the performance of the company with the company itself or the competitors. To express: The income statement data in common-size percents. BG Corporation Common size Income Statement For years ended December 31, 2016, 2015 and 2014 Particulars 2016 (%) 2015 (%) 2014 (%) Sales 198800 198800 = 100 166000 166000 = 100 143800 143800 = 100 Cost of goods sold 108890 198800 = 54.77 86175 166000 = 51.91 66200 143800 = 46.04 Gross profit ( Sales − Cost of goods sold ) 45.23 48.09 53.96 Selling expenses 22680 198800 = 11.41 19790 166000 = 11.92 18000 143800 = 12.52 Administrative expenses 16760 198800 = 8.43 14610 166000 = 8.80 15700 143800 = 10.92 Total expenses ( Selling expenses + Administrative expenses ) 19.84 20.72 23.44 Income before taxes ( Gross profit − Total expenses ) 25.39 27.37 30.52 Income taxes 6050 198800 = 3.04 5910 166000 = 3.56 5300 143800 = 3.69 Net income ( Income before taxes − Income taxes ) 22.35 23.81 26.83 3 Introduction: The trend percentages help in analyzing the changes in financial statements of a company over a period of time. To express: The balance sheet data in trend percents with 2014 as the base year. BG Corporation Balance Sheet For years ended December 31, 2016, 2015 and 2014 Particulars 2016 2015 Assets Current assets 54860 36300 = 151.13 32660 36300 = 89.97 Long-term investments 0 10600 = 0.00 1700 10600 = 16.04 Plant assets, net 112810 79000 = 142.80 113660 79000 = 143.87 Total assets 167670 125900 = 133.18 148020 125900 = 117.57 Liabilities and equity Current liabilities 22370 16500 = 135.58 19180 16500 = 116.24 Common stock 46500 37000 = 125.68 46500 37000 = 125.68 Other paid-in capital 13850 11300 = 122.57 13850 11300 = 122.57 Retained earnings 84950 61100 = 139.03 68490 61100 = 112.09 Total liabilities and equity 167670 125900 = 133.18 148020 125900 = 117.57 4 Introduction: The trend percentages help in analyzing the changes in financial statements of a company over a period of time. To comment: The notable relations revealed by the ratios and percents computed. The current ratio of the company shows that the company was sound enough to pay its short term debts and obligations in the year 2014 but its current ratio dropped to 1.7 in the year 2015 indicating inadequate current assets that are not enough to pay for the current liabilities. The ratio is good in the year 2016 which means company is able to pay its short term obligations with the available current assets. Cost of goods sold was the lowest in the year 2014 which means the gross profit was the highest. On the other hand cost of goods sold has increased in the year 2015 resulting in lower gross profit. Cost of goods sold is the highest in the year 2016 and therefore the gross profit is the lowest. Trend in current assets is quite favorable in the year 2016 as compared to the year 2015. Although the long-term investments have reduced in the year 2016 but overall total assets are on the positive side. Current liabilities have also increased when compared to the year 2015 may be because of more selling on credit. Retained earnings also show an increasing trend.

Solution Summary: The author explains that the current ratio is the ratio of current assets and current liabilities, which shows the resources a company has to pay off its short-term debts.

Financial Accounting: Information for Decisions

Financial Accounting: Information for Decisions

8th Edition

ISBN: 9781259533006

Author: John J Wild

Publisher: McGraw-Hill Education

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Financial Accounting: Information for Decisions

Ch. 13 - Explain the difference between financial reporting...Ch. 13 - Prob. 2DQ Ch. 13 - Prob. 3DQ Ch. 13 - Prob. 4DQ Ch. 13 - Prob. 5DQ Ch. 13 - Prob. 6DQ Ch. 13 - Prob. 7DQ Ch. 13 - Prob. 8DQ Ch. 13 - Prob. 9DQ Ch. 13 - Prob. 10DQ

Ch. 13 - Prob. 11DQ Ch. 13 - Prob. 12DQ Ch. 13 - Prob. 13DQ Ch. 13 - Prob. 14DQ Ch. 13 - Prob. 15DQ Ch. 13 - Prob. 16DQ Ch. 13 - Prob. 17DQ Ch. 13 - Financial reporting Cl. Which of the following...Ch. 13 - Prob. 2QS Ch. 13 - Prob. 3QS Ch. 13 - Prob. 4QS Ch. 13 - Prob. 5QS Ch. 13 - Prob. 6QS Ch. 13 - Prob. 7QS Ch. 13 - Prob. 8QS Ch. 13 - Prob. 9QS Ch. 13 - Prob. 1E Ch. 13 - Prob. 2E Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Prob. 5E Ch. 13 - Prob. 6E Ch. 13 - Prob. 7E Ch. 13 - Prob. 8E Ch. 13 - Risk and capital structure analysis P3 Refer to...Ch. 13 - Prob. 10E Ch. 13 - Prob. 11E Ch. 13 - Prob. 12E Ch. 13 - Prob. 14E Ch. 13 - Prob. 15E Ch. 13 - Prob. 1PSA Ch. 13 - Prob. 2PSA Ch. 13 - Prob. 3PSA Ch. 13 - Prob. 4PSA Ch. 13 - Prob. 5PSA Ch. 13 - Prob. 6PSA Ch. 13 - Prob. 1PSB Ch. 13 - Prob. 2PSB Ch. 13 - Prob. 3PSB Ch. 13 - Prob. 4PSB Ch. 13 - Prob. 5PSB Ch. 13 - Prob. 6PSB Ch. 13 - Prob. 13SP Ch. 13 - Prob. 1BTN Ch. 13 - Prob. 2BTN Ch. 13 - Prob. 3BTN Ch. 13 - Prob. 7BTN Ch. 13 - Prob. 9BTN

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