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Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.
(Round percentages to 2 decimal places, e.g. 2.25

%

. If $ or % change are in decrease, enter amounts or percentages using either a negative sign preceding the number e.g. -45, -2.25% or parentheses e.g. (45), (2.25)%.)

GILMOUR COMPANY
Comparative Balance Sheet
December 31, 2

0

13 and 2012

December 31

 

Increase or (Decrease)

Assets

2013

 

2012

 

$ Change

 

% Change

Cash

$ 180,000

$ 275,000

$

%

$-95,000

-34.55%

Accounts receivable (net)

219,500

155,300

64,200

41.34%

Short-term investments

269,300

149,600

119,700

80.01%

Inventories

1,059,600

979,300

80,300

8.20%

Prepaid expenses

24,750

24,750

0

0.00%

Fixed assets

2,585,200

1,949,400

635,800

32.62%

Accumulated depreciation

( 1,000,500

 )

( 750,

100

 )

-250,400

33.38%

     Total

$ 3,337,850

 

$ 2,783,250

 

$

%

554,600

19.93%

 

Liabilities and Stockholders’ Equity

Accounts payable

$ 50,020

$ 74,100

$

%

-24,080

-32.50%

Accrued expenses

170,400

199,400

-29,000

-14.54%

Bonds payable

450,500

189,600

260,900

137.61%

Capital stock

2,100,000

1,769,300

330,700

18.69%

Retained earnings

566,930

 

550,850

 

16,080

2.92%

     Total

$ 3,337,850

 

$ 2,783,250

 

$

%

554,600

19.93%

 

 

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Answer each of the questions in the following unrelated situations.
(a) The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $492,400, what is the amount of current liabilities?

Current Liabilities

$

(b) A company had an average inventory last year of $209,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 9 this year, what will average inventory have to be during the current year?
(Round answer to 0 decimal places, e.g. 125.)

$

Average Inventory

(c) A company has current assets of $88,790 (of which $37,160 is inventory and prepaid items) and current liabilities of $37,160. What is the current ratio? What is the acid-test ratio? If the company borrows $13,870 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be?
(Round answers to 2 decimal places, e.g. 2.50.)

 :1

 :1

 :1

Current Ratio

 :1

Acid Test Ratio

New Current Ratio

New Acid Test Ratio

(d) A company has current assets of $605,100 and current liabilities of $239,000. The board of directors declares a cash dividend of $191,200. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend?
(Round answers to 2 decimal places, e.g. 2.50.)

Current ratio after the declaration but before payment

 :1

Current ratio after the payment of the dividend

 :1, Corrected answer 1.73:1

New Answer – Current ratio after the payment of the dividend 1.73:1

Presented below are comparative balance sheets for the Gilmour Company.

GILMOUR COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2013 AND 2012

December 31

2013

2012

Assets

Cash

$180,200

$275,700

Accounts receivable (net)

220,400

154,300

Short-term investments

270,100

149,400

Inventories

1,061,000

980,700

Prepaid expenses

24,140

24,140

Fixed assets

2,585,600

1,949,300

Accumulated depreciation

(1,000,900

)

(750,100

)

$3,340,540

 

$2,783,440

 

 

Liabilities and Stockholders’ Equity

Accounts payable

$50,700

$75,180

Accrued expenses

169,500

200,500

Bonds payable

450,100

190,600

Capital stock

2,100,000

1,770,300

Retained earnings

570,240

 

546,860

 

$3,340,540

 

$2,783,440

 

(a)

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Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity.
(Round percentages to 2 decimal places, e.g. 2.25%. For accumulated depreciation, enter percentages using either a negative sign preceding the number e.g. -2.25% or parentheses e.g. (2.25)%.)

December 31

Assets

2013

 

2012

Cash

$ 180,200

%

$ 275,700

%

Accounts receivable (net)

220,400

154,300

Short-term investments

270,100

149,400

Inventories

1,061,000

980,700

Prepaid expenses

24,140

24,140

Fixed assets

2,585,600

1,949,300

Accumulated depreciation

( 1,000,900

 )

 

 )

 

     Total

$ 3,340,540

 

%

$ 2,783,440

 

%

 

Liabilities and Stockholders’ Equity

Accounts payable

$ 50,700

%

$ 75,180

%

Accrued expenses

169,500

200,500

Bonds payable

450,100

190,600

Capital stock

2,100,000

1,770,300

Retained earnings

570,240

 

 

546,860

 

 

     Total

$ 3,340,540

 

%

$ 2,783,440

 

%

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GILMOUR COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012

( 750,100

(b)

Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.
(Round percentages to 2 decimal places, e.g. 2.25%. If $ or % change are in decrease, enter amounts or percentages using either a negative sign preceding the number e.g. -45, -2.25% or parentheses e.g. (45), (2.25)%.)

GILMOUR COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012

December 31

 

Increase or (Decrease)

Assets

2013

 

2012

 

$ Change

 

% Change

Cash

$ 180,200

$ 275,700

$

%

Accounts receivable (net)

220,400

154,300

Short-term investments

270,100

149,400

Inventories

1,061,000

980,700

Prepaid expenses

24,140

24,140

Fixed assets

2,585,600

1,949,300

Accumulated depreciation

( 1,000,900

 )

( 750,100

 )

     Total

$ 3,340,540

 

$ 2,783,440

 

$

%

 

Liabilities and Stockholders’ Equity

Accounts payable

$ 50,700

$ 75,180

$

%

Accrued expenses

169,500

200,500

Bonds payable

450,100

190,600

Capital stock

2,100,000

1,770,300

Retained earnings

570,240

 

546,860

 

     Total

$ 3,340,540

 

$ 2,783,440

 

$

%

Robbins Company is a wholesale distributor of professional equipment and supplies. The company’s sales have averaged about $900,000 annually for the 3-year period 2011-2013. The firm’s total assets at the end of 2013 amounted to $850,000.
The president of Robbins Company has asked the controller to prepare a report that summarizes the financial aspects of the company’s operations for the past 3 years. This report will be presented to the board of directors at their next meeting.
In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the 3-year period 2011–2013.

2011

2012

2013

Current ratio

1.80

1.89

1.96

Acid-test (quick) ratio

1.04

0.99

0.87

Accounts receivable turnover

8.75

7.71

6.42

Inventory turnover

4.91

4.32

3.72

Total debt to total assets

51.0

%

46.0

%

41.0

%

Long-term debt to total assets

31.0

%

27.0

%

24.0

%

Sales to fixed assets (fixed asset turnover)

1.58

1.69

1.79

Sales as a percent of 2011 sales

1.00

1.03

1.05

Gross margin percentage

36.0

%

 

35.1

%

34.6

%

Net income to sales

6.9

%

7.0

%

7.2

%

Return on total assets

7.7

%

7.7

%

7.8

%

Return on stockholders’ equity

13.6

%

 

13.1

%

12.7

%

In preparation of the report, the controller has decided first to examine the financial ratios independent of any other data to determine if the ratios themselves reveal any significant trends over the 3-year period.

The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend.

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In terms of the ratios provided, what conclusion(s) can be drawn regarding the company’s use of financial leverage during the 2011–2013 period?

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Using the ratios provided, what conclusion(s) can be drawn regarding the company’s net investment in plant and equipment?

Howser Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Howser and the industry averages for firms of similar size are presented below.

Howser

2013
Industry
Average

2011

2012

2013

Current ratio

2.09

2.27

2.51

2.24

Quick ratio

1.15

1.12

1.19

1.22

Inventory turnover

2.40

2.18

2.02

3.50

Net sales to stockholders’ equity

2.75

2.80

2.95

2.85

Net income to stockholders’ equity

0.14

0.15

0.17

0.11

Total liabilities to stockholders’ equity

1.41

1.37

1.44

0.95

Howser is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Howser’s financial position.
Citizens National Bank. The bank is processing Howser’s application for a new 5-year term note. Citizens National has been Howser’s banker for several years but must reevaluate the company’s financial position for each major transaction.
Charleston Company. Charleston is a new supplier to Howser and must decide on the appropriate credit terms to extend to the company.
Shannon Financial. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Shannon Financial must decide if it will include Howser in a new fund being established for sale to Shannon Financial’s clients.
Working Capital Management Committee. This is a committee of Howser’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.

Describe the analytical use of each of the six ratios presented above.

Link to Text

For each of the four entities described above, identify two financial ratios, that would be most valuable as a basis for its decision regarding Howser.

Link to Text

Discuss what the financial ratios presented in the question reveal about Howser. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.

6.58

77.40

70.03

-29.96

-26.95

100
100

1.52

2.70

5.07

7.20

5.58

13.47

6.85

62.86

63.60

17.07

19.65

100
100

-95,500

-34.64%

8.07

66,100

42.84%

120,700

80.79%

80,300

8.19%

0

0.00%

636,300

32.64%

5.38

-250,800

33.44%

557,100

20.01%

-24,480

-32.56%

-31,000

-15.46%

259,500

136.15%

31.74

329,700

18.62%

23,380

4.28%

557,100
20.01%

35.19

0.74

0.89

77.45

70.04

(29.97)

(26.95)

100
100

1.50

2.66

5.11

7.16

13.50

6.81

62.91

63.57

16.98

19.79

100

5.39

100

123100

116111

2.39

1.39

2.01

1.28

1.41

1.71

9.88

5.39

9.91

6.60

5.54

8.09

5.37

31.76

35.23

0.72

0.87

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