Accounting ACCT 2610 Lecture 2: Unit 2 Equations Acct2610 (1)

Ratio Analysis

The comparative statements offinancial position of IKEA Furniture Outlay Retail Shop in Sydneyfor the current year and previous year are given below. Calculatethe ratios necessary to evaluate the shop’s performance

IKEA Furniture Outlay Profit & Loss Statement

For the year ended30^th June 2012 & 2013

IKEA Furniture OutlayBalance Sheet as at 30^th June2012/2013

Required:

Prepare Ratio Analysis based on the formula distributed toyou

Make comments about how to improve the business performance.

Note:

All sales are on credit. Accounts receivable balance on1/07/2011 was $66 800 and Business works 5 days a week.

Retained Profit = Net Profit – Dividend paid

Formula:

Current ratio = Current assets/Currentliabilities

Liquid ratio = Current assets —Inventory (Closing Stocks)/Current liabilities — Bank overdraft

Gross profit ratio = Grossprofit/Sales

Net profit ratio = Net profit aftertax/Sales

Accounts receivable rate = Creditsales/Average accounts receivable Collection days = 365 days /Accounts receivable rate

Return on equity = Net profit aftertax/Owners equity Debt to Equity = Total debt/Equity

Total asset turnover = Totalsales/Total assets

Return on investment (ROI) = Netprofit after tax/Total assets Inventory turnover = Cost of Goodssold/Average Inventories Times Interest cover = Net Profit beforeInterest & tax / Interest

Earnings per share = (Net profitbefore tax – Preference Dividend) / Number of Ordinary shares

The following accounts (in no particular order) are for PerfectReb Corporation for the fiscal year ended December

31, 2015. (S/T = Short-Term; L/T = Long-Term)

REQUIRED:

A) Calculate Perfect Reb Corporation’s net income or net lossfor the 2015 fiscal year. You may solve this in any

manner that you wish, but it is highly recommended to prepare amultiple step income statement.

B) Using proper form, prepare Perfect Reb Corporation’s balancesheet for 2015.

C) Using the information provided, solve for the requestedratios and respond to the corresponding questions.

Common Stock (13,000 shares

outstanding)

$52,000 Sales Discounts $5,000

Accrued Expenses (Payables)

20,000 Income Tax Expense (25% of IBIT) ???

Miscellaneous Operating Expenses

50,000 Cash 142,000

Accounts Receivable

20,000 Interest Expense 4,000

Buildings

186,000 Marketable Securities 62,000

Retained Earnings

??? Notes Payable (due in 5 years) 12,000

Wages Expense

60,000 Rent Expense 11,000

Inventory

40,000 Unearned Revenue 19,000

Accumulated Depreciation – Buildings

48,000 Allowance for Uncollectible

Accounts

15,000

Accounts Payable

41,000 Sales 433,000

Gain on Sale of Equipment

62,000 Mortgage Payable ($12,000 S/T) 144,000

Land

50,000 Sales Returns & Allowances 12,000

Bad Debt Expense

2,000 Depreciation Expense 11,000

L/T Investments

7,000 Cost of Goods Sold 109,000

Notes Receivable ($2,000 S/T)

13,000 Interest Revenue 3,000

A) NET INCOME (10 points) – SHOW ALL WORK ANDCALCULATIONS!!!!

B) CLASSIFIED BALANCE SHEET (15 points)

Perfect Reb Corporation

Balance Sheet

December 31, 2015

ASSETS LIABILITIES

Current Assets Current Liabilities

Total Current Liabilities

Total Current Assets

Long-Term Assets Long-Term Liabilities

Total Long-Term Assets Total Long Term Liabilities

Fixed Assets

Total Liabilities

EQUITY

Total Fixed Assets

Total Equity

TOTAL ASSETS

TOTAL LIABILITIES & EQUITY

C) RATIOS AND ANALYSIS (15 points):

Use the financial statements and additional information tocalculate the ratios. Round your answers to two decimal

places. Be sure to label your answer correctly (example, %,times, days, etc.). IF AN ANSWER SHOULD BE

EXPRESSED AS A PERCENTAGE, DO NOT LEAVE IT IN DECIMAL FORM!!!!(i.e. 0.5015 = 50.15%!!!!)

Previous (December 31, 2014) year end balances for:

Accounts receivable, net of allowance $2,000

Inventory 15,000

Stockholders’ Equity 139,000

Market price per share for one share of common stock at Dec 31,2015 $94.50/share

Dividend per share for one share of common stock for FYE Dec 31,2015 $1.25/share

No new shares of common stock were issued during 2015. Thecompany’s credit policy is net 15.

RATIO CALCULATION ANSWER

1) Quick (Acid-Test) Ratio (2 points)

2) Dividend Yield (2 points)

3) Gross Profit Percentage (2 points)

4) Average Days’ Sales Uncollected 2 points)

5) Inventory Turnover (2 points)

6) Price-Earnings Ratio (2 points)

7) Using the liquidity ratios (and general accepted norms forthe current ratio and quick/acid-test ratio), comment

on the company’s financial position. (3 points)

The following accounts (in no particular order) are for PerfectReb Corporation for the fiscal year ended December 31, 2015. (S/T =Short-Term; L/T = Long-Term)

REQUIRED:

A) Calculate Perfect Reb Corporation’s netincome or net loss for the 2015 fiscal year. You may solve this inany

manner that you wish, but it is highly recommended to prepare amultiple step income statement.

B) Using proper form, prepare Perfect RebCorporation’s balance sheet for 2015.

C) Using the information provided, solve forthe requested ratios and respond to the correspondingquestions.

A) NET INCOME (10 points) – SHOW ALL WORK ANDCALCULATIONS!!!!

B) CLASSIFIED BALANCE SHEET (15 points)

C) RATIOS AND ANALYSIS (15 points):

Use the financial statements and additional information tocalculate the ratios. Round your answers to two decimalplaces. Be sure to label your answer correctly (example,%, times, days, etc.). IF AN ANSWER SHOULD BE EXPRESSED ASA PERCENTAGE, DO NOT LEAVE IT IN DECIMAL FORM!!!! (i.e. 0.5015 =50.15%!!!!)

Previous (December 31, 2014) year end balancesfor:

Accounts receivable, net of allowanceInventory

Stockholders’ Equity

Market price per share for one share of common stock atDec 31, 2015 Dividend per share for one share of common stock forFYE Dec 31, 2015

$2,000 15,000 139,000

$94.50/share $1.25/share

No new shares of common stock were issued during 2015.The company’s credit policy is net 15.

7) Using the liquidity ratios (and generalaccepted norms for the current ratio and quick/acid-test ratio),comment on the company’s financial position. (3points)