Chapter 17

Revenue and expense data for Home-Mate Appliance Co. are as follows: \begin{tabular}{lrr} & \multicolumn{1}{c}{2006} & \multicolumn{1}{c}{2005} \\ \hline Sales & \(\$ 500,000\) & \(\$ 450,000\) \\ Cost of goods sold & 275,000 & 234,000 \\ Selling expenses & 90,000 & 94,500 \\ Administrative expenses & 60,000 & 63,000 \\ Income tax expense & 25,000 & 22,500 \end{tabular} a. Prepare an income statement in comparative form, stating each item for both 2006 and 2005 as a percent of sales. b. Comment on the significant changes disclosed by the comparative income statement.

The following comparative income statement (in thousands of dollars) for the fiscal years 2001 and 2002 was adapted from the annual report of Speedway Motorsports, Inc., owner and operator of several major motor speedways, such as the Atlanta, Texas, and Las Vegas Motor Speedways. \begin{tabular}{lrr} & Fiscal Year & Fiscal Year \\ & 2002 & 2001 \\ \hline Revenues: & & \\ Admissions & \(\$ 141,315\) & \(\$ 136,362\) \\ Event-related revenue & 122,172 & 133,289 \\ NASCAR broadcasting revenue & 77,936 & 67,488 \\ Other operating revenue & 34,537 & 38,111 \\ Total revenue & \(\underline{\$ 375,960}\) & \(\underline{\$ 375,250}\) \\ Expenses and other: & \(\$ 69,297\) & \(\$ 76,579\) \\ Direct expense of events & 61,217 & 54,479 \\ NASCAR purse and sanction fees & 87,427 & 88,582 \\ Other direct expenses & 57,235 & 59,331 \\ General and administrative & \(\$ 275,176\) & \(\$ 278,971\) \\ Total expenses and other & \(\$ 100,784\) & \(\$ 96,279\) \\ Income from continuing operations & & \end{tabular} a. Prepare a comparative income statement for fiscal years 2001 and 2002 in vertical form, stating each item as a percent of revenues. Round to one digit after the decimal place. b. Comment on the significant changes.

Revenue and expense data for the current calendar year for Horizon Publishing Company and for the publishing industry are as follows. The Horizon Publishing Company data are expressed in dollars. The publishing industry averages are expressed in percentages. \begin{tabular}{lrc} & Horizon Publishing Company & Publishing Industry Average \\ \hline Sales & \(\$ 1,414,000\) & \(101.0 \%\) \\ Sales returns and allowances & 14,000 & \(1.0\) \\ Cost of goods sold & 504,000 & \(40.0\) \\ Selling expenses & 574,000 & \(39.0\) \\ Administrative expenses & 154,000 & \(10.5\) \\ Other income & 16,800 & \(1.2\) \\ Other expense & 23,800 & \(1.7\) \\ Income tax expense & 56,000 & \(4.0\) \end{tabular} a. Prepare a common-size income statement comparing the results of operations for Horizon Publishing Company with the industry average. Round to one digit after the decimal place. b. As far as the data permit, comment on significant relationships revealed by the comparisons.

Balance sheet data for Santa Fe Tile Company on December 31 , the end of the fiscal year, are as follows: \begin{tabular}{lrr} & \multicolumn{1}{c}{2006} & \multicolumn{1}{c}{2005} \\ \hline Current assets & \(\$ 260,000\) & \(\$ 200,000\) \\ Property, plant, and equipment & 500,000 & 450,000 \\ Intangible assets & 40,000 & 50,000 \\ Current liabilities & 170,000 & 150,000 \\ Long-term liabilities & 210,000 & 200,000 \\ Common stock & 50,000 & 50,000 \\ Retained earnings & 370,000 & 300,000 \end{tabular} Prepare a comparative balance sheet for 2006 and 2005 , stating each asset as a percent of total assets and each liability and stockholders' equity item as a percent of the total liabilities and stockholders' equity. Round to two digits after the decimal place.

The following data were taken from the balance sheet of Marine Equipment Company: \begin{tabular}{lrr} & Dec. 31, 2006 & Dec. 31, 2005 \\ \hline Cash & \(\$ 118,000\) & \(\$ 95,000\) \\ Marketable securities & 152,000 & 131,000 \\ Accounts and notes receivable (net) & 210,000 & 198,000 \\ Inventories & 345,000 & 326,000 \\ Prepaid expenses & 50,000 & 45,000 \\ Accounts and notes payable (short-term) & 190,000 & 208,000 \\ Accrued liabilities & 60,000 & 57,000 \end{tabular} a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. b. What conclusions can be drawn from these data as to the company's ability to meet its currently maturing debts?

PepsiCo, Inc., the parent company of Frito-Lay snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years: \begin{tabular}{lcc} & Dec. 28, 2002 (in millions) & Dec. 28, 2001 (in millions) \\ \hline Cash and cash equivalents & \(\$ 1,638\) & \(\$ 683\) \\ Short-term investments, at cost & 207 & 966 \\ Accounts and notes receivable, net & 2,531 & 2,142 \\ Inventories & 1,342 & 1,310 \\ Prepaid expenses and other current assets & 695 & 752 \\ Short-term obligations & 562 & 354 \\ Accounts payable and other current liabilities & 4,998 & 4,461 \\ Income taxes payable & 492 & 183 \end{tabular} a. Determine the (1) current ratio and (2) quick ratio for both years. Round to two digits after the decimal place. b. What conclusions can you draw from these data?

The bond indenture for the 10 -year, \(91 / 2 \%\) debenture bonds dated January 2,2005 , required working capital of \(\$ 350,000\), a current ratio of \(1.5\), and a quick ratio of 1 at the end of each calendar year until the bonds mature. At December 31 , 2006, the three measures were computed as follows: 1\. Current assets: 2\. Current ratio \(=1.68(\$ 1,050,000 \div \$ 625,000)\) 3\. Quick ratio \(=1.52(\$ 570,000 \div \$ 375,000)\) a. List the errors in the determination of the three measures of current position analysis. b. Is the company satisfying the terms of the bond indenture?

The following data are taken from the financial statements of Ovation Industries Inc. Terms of all sales are \(1 / 10, \mathrm{n} / 60\). \begin{tabular}{lcr} & Current Year & Preceding Year \\ \hline Accounts receivable, end of year & \(\$ 48,219\) & \(\$ 52,603\) \\ Monthly average accounts receivable (net) & 45,070 & 46,154 \\ Net sales & 320,000 & 300,000 \end{tabular} a. Determine for each year (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round to nearest dollar and one digit after the decimal place. b. What conclusions can be drawn from these data concerning accounts receivable and credit policies?

The following data were extracted from the income statement of Mountain Sports Inc.: \begin{tabular}{lrr} & \multicolumn{1}{c}{2006} & \multicolumn{1}{c}{2005} \\ \hline Sales & \(\$ 656,000\) & \(\$ 774,000\) \\ Beginning inventories & 42,000 & 44,000 \\ Cost of goods sold & 328,000 & 430,000 \\ Ending inventories & 40,000 & 42,000 \end{tabular} a. Determine for each year (1) the inventory tumover and (2) the number of days' sales in inventory. Round to nearest dollar and two digits after the decimal place. b. What conclusions can be drawn from these data concerning the inventories?

Recent balance sheet information for two companies in the food industry, H.J. Heinz Co. and Hershey Foods Corp., are as follows (in thousands of dollars): \begin{tabular}{lrr} & H.J. Heinz & Hershey Foods \\ \hline Net property, plant, and equipment & \(\$ 2,250,074\) & \(\$ 1,534,901\) \\\ Current liabilities & \(2,509,169\) & 606,444 \\ Long-term debt & \(4,642,968\) & 876,972 \\ Other liabilities (pensions, deferred taxes) & \(1,407,607\) & \(1,223,254\) \\ Stockholders' equity & \(1,718,616\) & \(1,147,204\) \end{tabular} a. Determine the ratio of liabilities to stockholders' equity for both companies. Round to two digits after the decimal place. b. Determine the ratio of fixed assets to long-term liabilities for both companies. Round to two digits after the decimal place. c. 1_ Interpret the ratio differences between the two companies.

Three major segments of the transportation industry are motor carriers, such as Yellow Corp.; railroads, such as Union Pacific Corp.; and transportation arrangement services, such as C.H. Robinson Worldwide. Recent financial statement information for these three companies is shown as follows (in thousands of dollars): \begin{tabular}{lrrr} & Yellow & Union Pacific & C.H. Robinson Worldwide \\ \hline Net sales & \(\$ 3,276,651\) & \(\$ 11,973,000\) & \(\$ 3,090,072\) \\ Average total assets & \(1,285,777\) & \(31,551,000\) & 683,490 \end{tabular} a. Determine the ratio of net sales to assets for all three companies. Round to two digits after the decimal place. b. 1 . Assume that the ratio of net sales to assets for each company represents their respective industry segment. Interpret the differences in the ratio of net sales to assets in terms of the operating characteristics of each of the respective segments.

The balance sheet for Collier Medical, Inc. at the end of the current fiscal year indicated the following: \(\begin{array}{lr}\text { Bonds payable, } 12 \% \text { (issued in 1996, due in 2016) } & \$ 1,500,000 \\ \text { Preferred } \$ 10 \text { stock, } \$ 100 \text { par } & 250,000 \\ \text { Common stock, } \$ 20 \text { par } & 2,500,000\end{array}\) Income before income tax was \(\$ 450,000\), and income taxes were \(\$ 125,000\) for the current year. Cash dividends paid on common stock during the current year totaled \(\$ 100,000\). The common stock was selling for \(\$ 50\) per share at the end of the year. Determine each of the following: (a) number of times bond interest charges were earned, (b) number of times preferred dividends were earned, (c) earnings per share on common stock, (d) price-earnings ratio, (e) dividends per share of common stock, and (f) dividend yield. Round to two digits after the decimal place.

The net income reported on the income statement of Cincinnati Soap Co. was \(\$ 890,000\). There were 500,000 shares of \(\$ 20\) par common stock and 40,000 shares of \(\$ 8\) cumulative preferred stock outstanding throughout the current year. The income statement included two extraordinary items: a \(\$ 256,000\) gain from condemnation of land and a \(\$ 166,000\) loss arising from flood damage, both after applicable income tax. Determine the per share figures for common stock for (a) income before extraordinary items and (b) net income.

The table below shows the stock price, earnings per share, and dividends per share for three companies as of February 10, 2003: \begin{tabular}{lccc} & Price & Earnings per Share & Dividends per Share \\ \cline { 2 - 5 } Bank of America Corp. & \(\$ 68.20\) & \(\$ 5.91\) & \(\$ 2.56\) \\\ eBay, Inc. & \(73.56\) & \(0.85\) & \(0.00\) \\ Coca-Cola Company & \(40.06\) & \(1.68\) & \(0.80\) \end{tabular} a. Determine the price-earnings ratio and dividend yield for the three companies. Round to two digits after the decimal place. b. Explain the differences in these ratios across the three companies.