2009 06 18 092603 aiwais

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					14-1
revenue and expenses data at Rogan Technologies Co, are as follows;
                                          2010                  2009
Sales                                     500,000               440,000
Cost of goods sold                        325,000               242,000
Selling expenses                          70,000                79,200
Administrative expenses                   75,000                70,400
Income tax expenses                       25,000                26,400

a. prepare an income statement in comparative form, stating each item for both 2010
and 2009 as a percent of sales. Round to one decimal place.
b. comment on the significant changes disclosed by the comparative income statement

14-3
revenue and expense data from the current calendar year for Sorenson Electronics
company and for the electronics industry are as follows. the Sorenson electronics
company data are expressed in dollars. The Electronics industry averages are
expressed in percentages
                                          Sorenson Electronics Electronics industry
                                          Company              average
Sales                                     2,050,000            102.5%
Sales returns and allowances              50,000               2.5
Net sales                                 2,000,000            100.0%
Cost of goods sold                        1,100,000            61.0
Gross profit                              900,000              39.0%
Selling expense                           560,000              23.0%
Administrative expenses                   220,000              10.0
Total operating expenses                  780,000              33.0%
Operating income                          120,000              6.0%
Other income                              44,000               2.2
                                          164,000              8.2%

Other expense                             20,000               1.0
Income before tax                         144,000              7.2%
Income tax                                60,000               5.0
Net income                                84,000                 2.2%

a. prepare a common sized income statement comparing the results of operations for
Hrothgar Electronics company with industry average. round to one decimal place.
b. As far as the data permit, comment on significant relationships revealed by the
comparisons.
14-7
PepsiCo, Inc, the parent company of Frito- Lay snack food and pepsi beverages, had
the following current assets and current liabilities at the end of two recent years:
                                           Dec, 30,2006( in      Dec, 31,2005( In
                                           millions)             millions)
Cash and cash equivalents                  1,651                 1,716
Short term investment, at cost             1,171                 3,166
Accounts and notes receivable, net         3,725                 3,261
Inventories                                1,926                 1,693
Prepaid expenses and other current         657                   618
assets
Short term obligations                     274                   2,889
Accounts payable and other current         6,496                 5,971
liabilities
Income taxes payable                       90                    546

a. determine the (1) current ratio and (2) quick ratio for both years. Round to one
decimal place
b. what conclusions can you draw from these data?
14-14
Hasbro and Matte Incl are the two largest toy companies in North America. Condensed
liabilities and stockholders equity from recent balance sheet are shown each company
as follows in (thousands0:
                                           Hasbro                Mattel
Current liabilities                        $905,873              1,582,520
Long term debt                             494,917               653,714
Other liabilities                          -                     304,676

Total liabilities                          1,400,790             2,522,910
Shareholders equity:                       104,847               441,396
Additional paid in capital                   322,254                 1,613,307
Retaining earnings                           2,020,348               1,652,140
Accumulated other comprehensive
Loss and other equity items                  11,186                  (276,861)
Treasury stock at cost                       (920,475)               (996,981)
Total stockholder's equity                   1,538,160               2,432,974
Total liabilities and stockholder's equity   2,938,950               4,955,884
The income from operations and interest expense from the income statement for both
companies were as follows:
                               Hasbro                       Mattel
Income from operations         376,363                      728,818
Interest income                27,521                       79,853

a. determine the ratio of liabilities to stockholder equity for both companies. Round to
one decimal place
b. determine the number of times interest charges are earned for both companies
round to one decimal place.
c. interpret the ratio differences between the two companies

problem 14-2A
for 2010, other technology company initiated sales promotion campaign that included
the expenditure of an additional $20,000 for advertising. at the end of the year, George
Wallace, the president, is presented with the following condensed comparative income
statement:

Others technology Company
Comparative income Statement
For the year ended December 31,2010 and 2009
                                             2010                    2009
Sales                                        $714,000                $612,000
Sales return and allowances                  14,000                  12,000
Net sales                                    700,000                 600,000
Cost of goods sold                           322,000                 312,000
Gross profit                                 378,000                 288,000
Selling expense                              154,000                 120,000
Administrative expenses                      70,000                  66,000
Total operating expenses                                      224,000             186,000
Income from operations                                        154,000             102,000
Other income                                                  28,000              24,000
Income before income tax                                      182,000             126,000
Income tax                                                    70,000              60,000
Net income                                                    112,000             66,000

Instructions:
1. prepare a comparative income statement for the two year period, presenting an
analysis of each item in relationship to net sales for each of the years. Round to one
decimal places
2. To the extent the data permit, comment on the significant relationships revealed by
the vertical analysis prepared in (1)


14-1)

a.
                                   ROGAN TECHNOLOGIES CO.
                                    Comparative Income Statement
                           For the Years Ended December 31, 2010 and 2009
                                                                   2010                       2009
                                                             Amount     Percent        Amount     Percent
Sales ...................................................    $500,000   100.0%         $440,000   100.0%
Cost of goods sold .............................              325,000    65.0           242,000    55.0
Gross profit .......................................         $175,000    35.0%         $198,000    45.0%
Selling expenses ................................           $ 70,000     14.0%        $ 79,200     18.0%
Administrative operating
    expenses .......................................           75,000    15.0           70,400     16.0
Total expenses...................................            $145,000    29.0%        $149,600     34.0%
Income from operations ..................                   $ 30,000      6.0%       $ 48,400      11.0%
Income tax expense ..........................                  25,000     5.0           26,400      6.0
Net income ........................................         $ 5,000       1.0%       $ 22,000       5.0%


b.    The vertical analysis indicates that the cost of goods sold as a percent of sales
      increased by 10 percentage points (65.0% – 55.0%), while selling expenses
      decreased by 4 percentage points (14% – 18%), administrative expenses
      decreased by 1% (15% – 16%), and Income Tax Expense decreased by 1
      percentage point (5% – 6%). Thus, net income as a percent of sales dropped by
      4% (4% + 1% + 1% – 10%).
14-3)

a.
                                 SORENSON ELECTRONICS COMPANY
                                    Common-Sized Income Statement
                                  For the Year Ended December 31, 20—
                                                                                          Sorenson         Electronics
                                                                                         Electronics        Industry
                                                                                         Company            Average
                                                                                     Amount      Percent
Sales ...........................................................................   $ 2,050,000   102.5%     102.5%
Sales returns and allowances ..................................                          50,000     2.5        2.5
Net sales.....................................................................      $ 2,000,000   100.0%     100.0%
Cost of goods sold .....................................................              1,100,000    55.0       61.0
Gross profit ...............................................................        $   900,000    45.0%      39.0%
Selling expenses ........................................................           $   560,000    28.0%      23.0%
Administrative expenses ..........................................                      220,000    11.0       10.0
Total operating expenses .........................................                  $   780,000    39.0%      33.0%
Operating income .....................................................              $   120,000     6.0%       6.0%
Other income ............................................................                44,000     2.2        2.2
                                                                                    $   164,000     8.2%       8.2%
Other expense ...........................................................                20,000     1.0        1.0
Income before income tax .......................................                    $   144,000     7.2%       7.2%
Income tax expense ..................................................                    60,000     3.0        5.0
Net income ................................................................         $    84,000     4.2%       2.2%


b.     The cost of goods sold is 6 percentage points lower than the industry average,
       but the selling expenses and administrative expenses are five percentage points
       and 1 percentage point higher than the industry average. The combined impact
       is for net income as a percent of sales to be 2 percentage points better than the
       industry average. Apparently, the company is managing the cost of
       manufacturing product better than the industry but has slightly higher selling
       and administrative expenses relative to the industry. The cause of the higher
       selling and      administrative expenses as a percent of sales, relative to the
       industry, can be investigated further.


14-7)
                                                Current As sets
a.     (1) Current Ratio =
                                               Current Liabilities
                              $9,130
          Dec. 30, 2006:             = 1.3                 Dec.        31,     2005:
                              $6,860
           $10,454
                   = 1.1
            $9,406

                                Quick Assets
     (2) Quick Ratio =
                              Current Liabilities

                              $6,547                                         $8,143
          Dec. 30, 2006:             = 1.0                 Dec. 31, 2005:
                              $6,860                                         $9,406
          = 0.9

b.   The liquidity of PepsiCo has increased some over this time period. Both the
     current and quick ratios have increased. The current ratio increased from 1.1 to
     1.3, and the quick ratio increased from 0.9 to 1.0. PepsiCo is a strong company
     with ample resources for meeting short-term obligations.

14-14)

                                                            Total Liabilities
a.   Ratio of Liabilities to Stockholders’ Equity =
                                                      Total Stockholde rs' Equity
               $1,400,790
     Hasbro:              = 0.9
               $1,538,160

                     $2,522,910
     Mattel, Inc.:              = 1.0
                     $2,432,974


b.
     Numberof Times              Income Before Tax + Interest Expense
                               =
     InterestChargesAre Earned            Interest Expense

               $376,363 + $27,521
     Hasbro:                      = 14.7
                    $27,521

                     $728,818 + $79,853
     Mattel, Inc.:                      = 10.1
                          $79,853


c.   Both companies carry a moderate proportion of debt to the stockholders’
     equity, near 1.0 times stockholders’ equity. The companies’ debt as a percent of
     stockholders’ equity is similar. Both companies also have very strong interest
     coverage, earning in excess of 10 times interest charges. Together, these ratios
      indicate that both companies provide creditors with a margin of safety, and that
      earnings appear more than enough to make interest payments.


P14-2A)

1.
                                OTHERE TECHNOLOGY COMPANY
                                    Comparative Income Statement
                           For the Years Ended December 31, 2010 and 2009
                                                                     2010                2009
                                                            Amount     Percent    Amount Percent
Sales ...................................................   $ 714,000   102.0%   $ 612,000   102.0%
Sales returns and allowances ..........                        14,000     2.0       12,000     2.0
Net sales.............................................      $ 700,000   100.0%   $ 600,000   100.0%
Cost of goods sold .............................              322,000    46.0      312,000    52.0
Gross profit .......................................        $ 378,000    54.0%   $ 288,000    48.0%
Selling expenses ................................           $ 154,000    22.0%   $ 120,000    20.0%
Administrative expenses ..................                     70,000    10.0       66,000    11.0
Total operating expenses .................                  $ 224,000    32.0%   $ 186,000    31.0%
Income from operations ..................                   $ 154,000    22.0%   $ 102,000    17.0%
Other income ....................................              28,000     4.0       24,000     4.0
Income before income tax ...............                    $ 182,000    26.0%   $ 126,000    21.0%
Income tax expense ..........................                  70,000    10.0       60,000    10.0
Net income ........................................         $ 112,000    16.0%   $ 66,000
    11.0%

2.    The vertical analysis indicates that the costs other than selling expenses (cost of
      goods sold and administrative expenses) improved as a percentage of sales. As a
      result, net income as a percentage of sales increased from 11.0% to 16.0%. The
      sales promotion campaign appears to have been successful. While selling
      expenses as a percent of sales increased slightly (2%), the increased cost was
      more than made up for by increased sales.

				
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