Integrative Problem Presented here are a statement of income and retained earnings and comparative balance sheets for Gallagher, Inc., which operates a national chain of sporting goods stores. Gallagher, Inc. Statement of Income and Retained Earnings For the Year Ended December 31, 2016 (all amounts in thousands of dollars)
Net sales $48,000
Cost of goods sold 36,000
Gross profit $12,000
Selling, general, and administrative expense 6,000
Operating income $6,000
Interest expense 280
Income before tax $5,720
Income tax expense 2,280
Net income $3,440
Preferred dividends 100 Income available to common $3,340
Common dividends 500 To retained earnings $2,840
Retained earnings, 1/1 12,000
Retained earnings, 12/31 $14,840
Gallagher, Inc. Comparative Balance Sheets December 31, 2016 and 2015 (all amounts in thousands of dollars) December 31 2016 2015
Cash $840 $2,700
Accounts receivable 12,500 9,000
Inventory 8,000 5,500
Prepaid insurance 100 400
Total current assets $21,440 $17,600
Land $4,000 $4,000
Buildings and equipment 12,000 9,000
Accumulated depreciation (3,700) (3,000)
Total long-term assets $12,300 $10,000
Total assets $33,740 $27,600
Accounts payable $7,300 $5,000
Taxes payable 4,600 4,200
Notes payable 2,400 1,600
Current portion of bonds 200 200
Total current liabilities $14,500 $11,000
Bonds payable 1,400 1,600
Total liabilities $15,900 $12,600
Preferred stock, $5 par $1,000 $1,000
Common stock, $1 par 2,000 2,000
Retained earnings 14,840 12,000
Total stockholdersâ equity $17,840 $15,000
Total liabilities and stockholdersâ equity $33,740 $27,600
Required: 1. Prepare a statement of cash flows for Gallagher, Inc., for the year ended December 31, 2016, using the indirect method in the Operating Activities section of the statement. If an answer is zero, please enter zero ("0"). Use the minus sign to indicate cash outflows, a decrease in cash, or cash payments. Gallagher, Inc. Statement of Cash Flows For The Year Ended December 31, 2016 (In Thousands of Dollars)
Cash flows from operating activities $
Adjustments to reconcile net income to net cash provided by operating activities:
Net cash provided by operating activities $
Cash flows from investing activities $
Net cash used by investing activities $
Cash flows from financing activities $
Net cash provided by financing activities $
$
Cash balance, December 31, 2015
Cash balance, December 31, 2016 $
2. Gallagher's management is concerned with its short-term liquidity and its solvency over the long run. To help management evaluate these, compute the following ratios, rounding all answers to two decimal points. For percentages, round to two decimal places before converting to a percentage. For example, 0.881 would be entered as 88. Assume 360 days per year.
a. Current ratio to 1
b. Acid-test ratio to 1
c. Cash flow from operations to current liabilities ratio %
d. Accounts receivable turnover ratio times
e. Number of days' sales in receivables days
f. Inventory turnover ratio times
g. Number of days' sales in inventory days
h. Debt-to-equity ratio to 1
i. Debt service coverage ratio to 1
j. Cash flow from operations to capital expenditures ratio % 3.
Integrative Problem Presented here are a statement of income and retained earnings and comparative balance sheets for Gallagher, Inc., which operates a national chain of sporting goods stores. Gallagher, Inc. Statement of Income and Retained Earnings For the Year Ended December 31, 2016 (all amounts in thousands of dollars)
Net sales $48,000
Cost of goods sold 36,000
Gross profit $12,000
Selling, general, and administrative expense 6,000
Operating income $6,000
Interest expense 280
Income before tax $5,720
Income tax expense 2,280
Net income $3,440
Preferred dividends 100 Income available to common $3,340
Common dividends 500 To retained earnings $2,840
Retained earnings, 1/1 12,000
Retained earnings, 12/31 $14,840
Gallagher, Inc. Comparative Balance Sheets December 31, 2016 and 2015 (all amounts in thousands of dollars) December 31 2016 2015
Cash $840 $2,700
Accounts receivable 12,500 9,000
Inventory 8,000 5,500
Prepaid insurance 100 400
Total current assets $21,440 $17,600
Land $4,000 $4,000
Buildings and equipment 12,000 9,000
Accumulated depreciation (3,700) (3,000)
Total long-term assets $12,300 $10,000
Total assets $33,740 $27,600
Accounts payable $7,300 $5,000
Taxes payable 4,600 4,200
Notes payable 2,400 1,600
Current portion of bonds 200 200
Total current liabilities $14,500 $11,000
Bonds payable 1,400 1,600
Total liabilities $15,900 $12,600
Preferred stock, $5 par $1,000 $1,000
Common stock, $1 par 2,000 2,000
Retained earnings 14,840 12,000
Total stockholdersâ equity $17,840 $15,000
Total liabilities and stockholdersâ equity $33,740 $27,600
Required: 1. Prepare a statement of cash flows for Gallagher, Inc., for the year ended December 31, 2016, using the indirect method in the Operating Activities section of the statement. If an answer is zero, please enter zero ("0"). Use the minus sign to indicate cash outflows, a decrease in cash, or cash payments. Gallagher, Inc. Statement of Cash Flows For The Year Ended December 31, 2016 (In Thousands of Dollars)
Cash flows from operating activities $
Adjustments to reconcile net income to net cash provided by operating activities:
Net cash provided by operating activities $
Cash flows from investing activities $
Net cash used by investing activities $
Cash flows from financing activities $
Net cash provided by financing activities $
$
Cash balance, December 31, 2015
Cash balance, December 31, 2016 $
2. Gallagher's management is concerned with its short-term liquidity and its solvency over the long run. To help management evaluate these, compute the following ratios, rounding all answers to two decimal points. For percentages, round to two decimal places before converting to a percentage. For example, 0.881 would be entered as 88. Assume 360 days per year.
a. Current ratio to 1
b. Acid-test ratio to 1
c. Cash flow from operations to current liabilities ratio %
d. Accounts receivable turnover ratio times
e. Number of days' sales in receivables days
f. Inventory turnover ratio times
g. Number of days' sales in inventory days
h. Debt-to-equity ratio to 1
i. Debt service coverage ratio to 1
j. Cash flow from operations to capital expenditures ratio % 3.
Related questions
The comparative financial statements of Bettancort Inc. are as follows. The market price of Bettancort Inc. common stock was $71.25 on December 31, 2016.
| Bettancort Inc. | ||||||
| Comparative Retained Earnings Statement | ||||||
| For the Years Ended December 31, 2016 and 2015 | ||||||
| 2016 | 2015 | |||||
| Retained earnings, January 1 | $2,655,000 | $2,400,000 | ||||
| Add net income for year | 300,000 | 280,000 | ||||
| Total | $2,955,000 | $2,680,000 | ||||
| Deduct dividends: | ||||||
| On preferred stock | $15,000 | $15,000 | ||||
| On common stock | 10,000 | 10,000 | ||||
| Total | $25,000 | $25,000 | ||||
| Retained earnings, December 31 | $2,930,000 | $2,655,000 | ||||
| Bettancort Inc. | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31, 2016 and 2015 | ||||
| 2016 | 2015 | |||
| Sales (all on account) | $1,212,000 | $1,010,000 | ||
| Sales returns and allowances | 12,000 | 10,000 | ||
| Sales | $1,200,000 | $1,000,000 | ||
| Cost of goods sold | 500,000 | 475,000 | ||
| Gross profit | $700,000 | $525,000 | ||
| Selling expenses | $240,000 | $200,000 | ||
| Administrative expenses | 180,000 | 150,000 | ||
| Total operating expenses | $420,000 | $350,000 | ||
| Income from operations | $280,000 | $175,000 | ||
| Other income | 166,000 | 225,000 | ||
| $446,000 | $400,000 | |||
| Other expense (interest) | 66,000 | 60,000 | ||
| Income before income tax | $380,000 | $340,000 | ||
| Income tax expense | 80,000 | 60,000 | ||
| Net income | $300,000 | $280,000 | ||
| Bettancort Inc. | |||||||
| Comparative Balance Sheet | |||||||
| December 31, 2016 and 2015 | |||||||
| Dec. 31, 2016 | Dec. 31, 2015 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash | $450,000 | $400,000 | |||||
| Marketable securities | 300,000 | 260,000 | |||||
| Accounts receivable (net) | 130,000 | 110,000 | |||||
| Inventories | 67,000 | 58,000 | |||||
| Prepaid expenses | 153,000 | 139,000 | |||||
| Total current assets | $1,100,000 | $967,000 | |||||
| Long-term investments | 2,350,000 | 2,200,000 | |||||
| Property, plant, and equipment (net) | 1,320,000 | 1,188,000 | |||||
| Total assets | $4,770,000 | $4,355,000 | |||||
| Liabilities | |||||||
| Current liabilities | $440,000 | $400,000 | |||||
| Long-term liabilities: | |||||||
| Mortgage note payable, 8%, due 2021 | $100,000 | $0 | |||||
| Bonds payable, 5%, due 2017 | 1,000,000 | 1,000,000 | |||||
| Total long-term liabilities | $1,100,000 | $1,000,000 | |||||
| Total liabilities | $1,540,000 | $1,400,000 | |||||
| Stockholders' Equity | |||||||
| Preferred $0.75 stock, $10 par | $200,000 | $200,000 | |||||
| Common stock, $10 par | 100,000 | 100,000 | |||||
| Retained earnings | 2,930,000 | 2,655,000 | |||||
| Total stockholders' equity | $3,230,000 | $2,955,000 | |||||
| Total liabilities and stockholders' equity | $4,770,000 | $4,355,000 | |||||
Required:
Determine the following measures for 2016, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.
| 1. Working capital | $ | |
| 2. Current ratio | ||
| 3. Quick ratio | ||
| 4. Accounts receivable turnover | ||
| 5. Number of days' sales in receivables | days | |
| 6. Inventory turnover | ||
| 7. Number of days' sales in inventory | days | |
| 8. Ratio of fixed assets to long-term liabilities | ||
| 9. Ratio of liabilities to stockholders' equity | ||
| 10. Number of times interest charges are earned | ||
| 11. Number of times preferred dividends are earned | ||
| 12. Ratio of sales to assets | ||
| 13. Rate earned on total assets | % | |
| 14. Rate earned on stockholders' equity | % | |
| 15. Rate earned on common stockholders' equity | % | |
| 16. Earnings per share on common stock | $ | |
| 17. Price-earnings ratio | ||
| 18. Dividends per share of common stock | $ | |
| 19. Dividend yield | % |
The comparative financial statements of Bettancort Inc. are as follows. The market price of Bettancort Inc. common stock was $71.25 on December 31, 2016.
| Bettancort Inc. | ||||||
| Comparative Retained Earnings Statement | ||||||
| For the Years Ended December 31, 2016 and 2015 | ||||||
| 2016 | 2015 | |||||
| Retained earnings, January 1 | $2,655,000 | $2,400,000 | ||||
| Add net income for year | 300,000 | 280,000 | ||||
| Total | $2,955,000 | $2,680,000 | ||||
| Deduct dividends: | ||||||
| On preferred stock | $15,000 | $15,000 | ||||
| On common stock | 10,000 | 10,000 | ||||
| Total | $25,000 | $25,000 | ||||
| Retained earnings, December 31 | $2,930,000 | $2,655,000 | ||||
| Bettancort Inc. | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31, 2016 and 2015 | ||||
| 2016 | 2015 | |||
| Sales (all on account) | $1,212,000 | $1,010,000 | ||
| Sales returns and allowances | 12,000 | 10,000 | ||
| Sales | $1,200,000 | $1,000,000 | ||
| Cost of goods sold | 500,000 | 475,000 | ||
| Gross profit | $700,000 | $525,000 | ||
| Selling expenses | $240,000 | $200,000 | ||
| Administrative expenses | 180,000 | 150,000 | ||
| Total operating expenses | $420,000 | $350,000 | ||
| Income from operations | $280,000 | $175,000 | ||
| Other income | 166,000 | 225,000 | ||
| $446,000 | $400,000 | |||
| Other expense (interest) | 66,000 | 60,000 | ||
| Income before income tax | $380,000 | $340,000 | ||
| Income tax expense | 80,000 | 60,000 | ||
| Net income | $300,000 | $280,000 | ||
| Bettancort Inc. | |||||||
| Comparative Balance Sheet | |||||||
| December 31, 2016 and 2015 | |||||||
| Dec. 31, 2016 | Dec. 31, 2015 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash | $450,000 | $400,000 | |||||
| Marketable securities | 300,000 | 260,000 | |||||
| Accounts receivable (net) | 130,000 | 110,000 | |||||
| Inventories | 67,000 | 58,000 | |||||
| Prepaid expenses | 153,000 | 139,000 | |||||
| Total current assets | $1,100,000 | $967,000 | |||||
| Long-term investments | 2,350,000 | 2,200,000 | |||||
| Property, plant, and equipment (net) | 1,320,000 | 1,188,000 | |||||
| Total assets | $4,770,000 | $4,355,000 | |||||
| Liabilities | |||||||
| Current liabilities | $440,000 | $400,000 | |||||
| Long-term liabilities: | |||||||
| Mortgage note payable, 8%, due 2021 | $100,000 | $0 | |||||
| Bonds payable, 5%, due 2017 | 1,000,000 | 1,000,000 | |||||
| Total long-term liabilities | $1,100,000 | $1,000,000 | |||||
| Total liabilities | $1,540,000 | $1,400,000 | |||||
| Stockholders' Equity | |||||||
| Preferred $0.75 stock, $10 par | $200,000 | $200,000 | |||||
| Common stock, $10 par | 100,000 | 100,000 | |||||
| Retained earnings | 2,930,000 | 2,655,000 | |||||
| Total stockholders' equity | $3,230,000 | $2,955,000 | |||||
| Total liabilities and stockholders' equity | $4,770,000 | $4,355,000 | |||||
Required:
Determine the following measures for 2016, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.
| 5. Number of days' sales in receivables | days | |
| 6. Inventory turnover | ||
| 7. Number of days' sales in inventory | days | |
| 8. Ratio of fixed assets to long-term liabilities | ||
| 9. Ratio of liabilities to stockholders' equity | ||
| 10. Number of times interest charges are earned | ||
| 11. Number of times preferred dividends are earned | ||
| 12. Ratio of sales to assets | ||
| 13. Rate earned on total assets | % | |
| 14. Rate earned on stockholders' equity | % | |
| 15. Rate earned on common stockholders' equity | % | |
| 16. Earnings per share on common stock | $ | |
| 17. Price-earnings ratio | ||
| 18. Dividends per share of common stock | $ | |
| 19. Dividend yield | % |
Nineteen Measures of Solvency and Profitability
The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $60 on December 31, 2016.
| Blige Inc. | ||||||
| Comparative Retained Earnings Statement | ||||||
| For the Years Ended December 31, 2016 and 2015 | ||||||
| 2016 | 2015 | |||||
| Retained earnings, January 1 | $3,632,050 | $3,080,450 | ||||
| Add net income for year | 795,200 | 630,900 | ||||
| Total | $4,427,250 | $3,711,350 | ||||
| Deduct dividends | ||||||
| On preferred stock | $10,500 | $10,500 | ||||
| On common stock | 68,800 | 68,800 | ||||
| Total | $79,300 | $79,300 | ||||
| Retained earnings, December 31 | $4,347,950 | $3,632,050 | ||||
| Blige Inc. | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31, 2016 and 2015 | ||||
| 2016 | 2015 | |||
| Sales | $4,536,160 | $4,173,300 | ||
| Sales returns and allowances | 22,570 | 14,670 | ||
| Sales | $4,513,590 | $4,158,630 | ||
| Cost of goods sold | 1,708,200 | 1,571,540 | ||
| Gross profit | $2,805,390 | $2,587,090 | ||
| Selling expenses | $903,620 | $1,111,450 | ||
| Administrative expenses | 769,750 | 652,760 | ||
| Total operating expenses | 1,673,370 | 1,764,210 | ||
| Income from operations | $1,132,020 | $822,880 | ||
| Other income | 59,580 | 52,520 | ||
| $1,191,600 | $875,400 | |||
| Other expense (interest) | 288,000 | 158,400 | ||
| Income before income tax | $903,600 | $717,000 | ||
| Income tax expense | 108,400 | 86,100 | ||
| Net income | $795,200 | $630,900 | ||
| Blige Inc. | |||||||
| Comparative Balance Sheet | |||||||
| December 31, 2016 and 2015 | |||||||
| Dec. 31, 2016 | Dec. 31, 2015 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash | $738,250 | $829,890 | |||||
| Temporary investments | 1,117,360 | 1,375,230 | |||||
| Accounts receivable (net) | 861,400 | 810,300 | |||||
| Inventories | 642,400 | 496,400 | |||||
| Prepaid expenses | 139,670 | 165,980 | |||||
| Total current assets | $3,499,080 | $3,677,800 | |||||
| Long-term investments | 2,545,230 | 1,080,435 | |||||
| Property, plant, and equipment (net) | 4,680,000 | 4,212,000 | |||||
| Total assets | $10,724,310 | $8,970,235 | |||||
| Liabilities | |||||||
| Current liabilities | $1,166,360 | $1,748,185 | |||||
| Long-term liabilities | |||||||
| Mortgage note payable, 8%, due 2021 | $1,620,000 | $0 | |||||
| Bonds payable, 8%, due 2017 | 1,980,000 | 1,980,000 | |||||
| Total long-term liabilities | $3,600,000 | $1,980,000 | |||||
| Total liabilities | $4,766,360 | $3,728,185 | |||||
| Stockholders' Equity | |||||||
| Preferred $0.7 stock, $50 par | $750,000 | $750,000 | |||||
| Common stock, $10 par | 860,000 | 860,000 | |||||
| Retained earnings | 4,347,950 | 3,632,050 | |||||
| Total stockholders' equity | $5,957,950 | $5,242,050 | |||||
| Total liabilities and stockholders' equity | $10,724,310 | $8,970,235 | |||||
Required:
Determine the following measures for 2016, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.
| 1. Working capital | $ | |
| 2. Current ratio | ||
| 3. Quick ratio | ||
| 4. Accounts receivable turnover | ||
| 5. Number of days' sales in receivables | days | |
| 6. Inventory turnover | ||
| 7. Number of days' sales in inventory | days | |
| 8. Ratio of fixed assets to long-term liabilities | ||
| 9. Ratio of liabilities to stockholders' equity | ||
| 10. Number of times interest charges are earned | ||
| 11. Number of times preferred dividends are earned | ||
| 12. Ratio of sales to assets | ||
| 13. Rate earned on total assets | % | |
| 14. Rate earned on stockholders' equity | % | |
| 15. Rate earned on common stockholders' equity | % | |
| 16. Earnings per share on common stock | $ | |
| 17. Price-earnings ratio | ||
| 18. Dividends per share of common stock | $ | |
| 19. Dividend yield | % |
