Problem 23.01A
THE LACAL COMPANY
Comparative Income Statement
For the Years Ended December 31, 2013 and 2012
Percent
of Sales
2012

Increase
or Decrease
Amount
Percent

Percent of
Total Assets
2013
2012

Increase
or Decrease
Amount
Percent

Amounts
Revenue:
Sales
Less Sales Returns and Allowances
Net Sales

2013
905,000
15,000
890,000

2012
765,000
9,000
756,000

Cost of Goods Sold
Merchandise Inventory, January 1
Net Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, December 31
Cost of Goods Sold

84,000
306,000
390,000
86,000
304,000

80,000
262,000
342,000
84,000
258,000

Gross Profit on Sales

586,000

498,000

Operating Expenses
Selling Expenses
Sales Salary Expenses
Payroll Tax-Expense-Selling
Other Selling Expenses
Total Selling Expenses

87,000
8,700
25,200
120,900

80,000
8,000
15,200
103,200

General and Administrative Expenses
Officers Salary Expense
Payroll Tax Expense-Administrative
Depreciation Expense
Other General and Administrative Expenses
Total General and Administrative Expenses

130,000
13,000
8,250
9,450
160,700

110,000
11,000
8,250
7,000
136,250

Total Operating Expenses

281,600

239,450

Net Income Before Income Taxes

304,400
91,320
213,080

258,550
77,565
180,985

Net Income After Income Taxes

Correct!

2013

Correct!

THE LACAL COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012
Assets
Current Assets
Cash
Accounts Receivable
Merchandise Inventory
Prepaid Expenses
Supplies
Total Current Assets
Property, Plant, and Equipment
Land
Building and Equipment
Less Accumulated Depreciation
Net-Book Value-Building and Equipment
Total Property, Plant, and Equipment
Total Assets

Amounts
2013
111,022
95,000
86,000
9,500
1,200
302,722

2012
46,275
87,500
84,000
5,000
500
223,275

75,000
82,500
(33,000)
49,500
124,500

75,000
82,500
24,750
57,750
132,750

427,222
Correct!

356,025
Correct!

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable
Sales Tax Payable
Payroll Taxes Available
Income Taxes Payable
Total Current Liabilities

27,000
1,000
1,142
1,000
30,142

57,000
3,000
1,025
5,000
66,025

Long-Term Liabilities
Mortgage Payable
Total Long-Term Liabilities

39,000
39,000

45,000
45,000

Total Liabilities

69,142

111,025

10,000
10,000
338,080
358,080

10,000
10,000
225,000
245,000

Stockholders’ Equity
Common Stock ($1 par, 10,000 shares authorized;
10,000 shares issued and outstanding)
Paid-in Captial-Common Stock
Retained Earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity

427,222
Correct!

356,025
Correct!

(35,883)

Given Data P23.01A

THE LACAL COMPANY
Comparative Income Statement
For the Years Ended December 31, 2013 and 2012
Revenue:
Sales
Less Sales Returns and Allowances
Net Sales

2013
905,000
15,000
890,000

2012
765,000
9,000
756,000

Cost of Goods Sold
Merchandise Inventory, January 1
Net Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, December 31
Cost of Goods Sold
Gross Profit on Sales

84,000
306,000
390,000
86,000
304,000
586,000

80,000
262,000
342,000
84,000
258,000
498,000

Operating Expenses
Selling Expenses
Sales Salaries Expense
Payroll Tax Expense-Selling
Other Selling Expenses
Total Selling Expenses

87,000
8,700
25,200
120,900

80,000
8,000
15,200
103,200

General and Administrative Expenses
Officers Salaries Expense
Payroll Tax Expense-Administrative
Depreciation Expense
Other General and Administrative Expenses
Total General and Administrative Expenses

130,000
13,000
8,250
9,450
160,700

110,000
11,000
8,250
7,000
136,250

Total Operating Expenses

281,600

239,450

Net Income Before Income Taxes
Income Tax Expense
Net Income After Income Taxes

304,400
91,320
213,080

258,550
77,565
180,985

THE LACAL COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012
Assets
Current Assets
Cash
Accounts Receivable
Merchandise Inventory
Prepaid Expenses
Supplies
Total Current Assets

111,022
95,000
86,000
9,500
1,200
302,722

46,275
87,500
84,000
5,000
500
223,275

Property, Plant, and Equipment
Land
Building and Equipment
Less Accumulated Depreciation
Net Book Value-Building and Equipment
Total Property, Plant, and Equipment

75,000
82,500
(33,000)
49,500
124,500

75,000
82,500
(24,750)
57,750
132,750

Total Assets

427,222

356,025

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable
Sales Tax Payable
Payroll Taxes Payable
Income Taxes Payable
Total Current Liabilities

27,000
1,000
1,142
1,000
30,142

57,000
3,000
1,025
5,000
66,025

Long-Term Liabilities
Mortgage Payable
Total Long-Term Liabilities

39,000
39,000

45,000
45,000

Total Liabilities

69,142

111,025

Stockholders’ Equity
Common Stock ($1 par, 10,000 shares authorized
10,000 shares issued and outstanding)
Paid-in-Capital – Common Stock
Retained Earnings
Total Stockholders’ Equity

10,000
10,000
338,080
358,080

10,000
10,000
225,000
245,000

Total Liabilities and Stockholders’ Equity

427,222

356,025

Student Name:
Class:
Problem 23.02A
Part I:
THE LACAL COMPANY
Financial Ratios
2013

2012

Current Ratio

=

Current Assets
Current Liabilities

=

=

Acid Test Ratio

=

Cash + Receivables + Marketable Securities
Current Liabilities

=

=

=

Inventory Turnover

=

Cost of Goods Sold
Average Merchandise Inventory

=

=

=

Return on Sales

=

Net Income after Taxes
Net Sales

=

=

=

Earnings per share of
Common Stock

=

Net Income after Taxes – Preferred Dividend Requirement
Average number of shares of Common Stock

=

=

=

Book Value per Share of
Common Stock

=

Total Stockholders’ Equity – Equity of Preferred Stock
Number of Common Stock shares outstanding

=

=

=

Return on Total Assets

=

Net Income before interest and taxes
Total Assets

=

=

=

Ratio of Stockholder’s Equity
=
to Total Equities

Stockholders’ Equity
Total Equities

=

=

=

Rate of Net Income on Total
=
Stockholders’ Equity

Net Income
Stockholders’ Equity

=

=

=

Net Sales
Total Assets

=

=

=

Asset Turnover

=

Part II:
1. Rate of return on stockholders’ equity

2. Stockholders’ equity to total equities

3. Asset turnover

4. Merchandise inventory turnover

Analyze: Expected return on sales if net sales and net income after taxes increase by 5% in 2014

:1

=

:1

Given Data P23.02A
THE LACAL COMPANY
Comparative Income Statement
For the Years Ended December 31, 2013 and 2012
Revenue:
Sales
Less Sales Returns and Allowances
Net Sales

2013
905,000
15,000
890,000

2012
765,000
9,000
756,000

Cost of Goods Sold
Merchandise Inventory, January 1
Net Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, December 31
Cost of Goods Sold
Gross Profit on Sales

84,000
306,000
390,000
86,000
304,000
586,000

80,000
262,000
342,000
84,000
258,000
498,000

Operating Expenses
Selling Expenses
Sales Salaries Expense
Payroll Tax Expense-Selling
Other Selling Expenses
Total Selling Expenses

87,000
8,700
25,200
120,900

80,000
8,000
15,200
103,200

General and Administrative Expenses
Officers Salaries Expense
Payroll Tax Expense-Administrative
Depreciation Expense
Other General and Administrative Expenses
Total General and Administrative Expenses

130,000
13,000
8,250
9,450
160,700

110,000
11,000
8,250
7,000
136,250

Total Operating Expenses

281,600

239,450

Net Income Before Income Taxes
Income Tax Expense
Net Income After Income Taxes

304,400
91,320
213,080

258,550
77,565
180,985

THE LACAL COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012
Assets
Current Assets
Cash
Accounts Receivable
Merchandise Inventory
Prepaid Expenses
Supplies
Total Current Assets

111,022
95,000
86,000
9,500
1,200
302,722

46,275
87,500
84,000
5,000
500
223,275

Property, Plant, and Equipment
Land
Building and Equipment
Less Accumulated Depreciation
Net Book Value-Building and Equipment
Total Property, Plant, and Equipment

75,000
82,500
(33,000)
49,500
124,500

75,000
82,500
(24,750)
57,750
132,750

Total Assets

427,222

356,025

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable
Sales Tax Payable
Payroll Taxes Payable
Income Taxes Payable
Total Current Liabilities

27,000
1,000
1,142
1,000
30,142

57,000
3,000
1,025
5,000
66,025

Long-Term Liabilities
Mortgage Payable
Total Long-Term Liabilities

39,000
39,000

45,000
45,000

Total Liabilities

69,142

111,025

Stockholders’ Equity
Common Stock ($1 par, 10,000 shares authorized
10,000 shares issued and outstanding)
Paid-in-Capital – Common Stock
Retained Earnings
Total Stockholders’ Equity

10,000
10,000
338,080
358,080

10,000
10,000
225,000
245,000

Total Liabilities and Stockholders’ Equity

427,222

356,025

Additional Information:
Selected ratios for other common-size companies in the same industry:
1. Rate of return on stockholders’ equity
45%
2. Stockholders’ equity to total equities
0.6 to 1
3. Asset turnover
2.5 to 1
4. Merchandise inventory turnover
4.5 times

Student Name:
Class:
Problem 23.03A

FIVE, INC. and SIX, INC.
Financial Ratios
Five, Inc.
a.

b.

c.

d.

e.

f.

g.

h.

Rate of Return on Net Sale

Six, Inc.

=

=

=

=

Rate of Return on Total Assets =

=

=

=

Rate of Return on
Stockholders’ Equity

=

=

=

=

Earnings per share

=

=

=

=

Stockholder’s Equity to Total
=
Equities

=

=

=

Current Ratio

=

=

=

=

Asset Turnover

=

=

=

=

Book Value per Share of
Common Stock

=

=

=

=

2. Comment on similarities or differences in the two companies’ ratios.

3. From the investors’ point of view, is one company more at risk than the other?

4. Would you grant a five-year loan to either company? Explain.

Analyze: Discuss the implications to the rate of return on sales and earnings per share if the company can cut cost of goods by 5% in 2014
while maintaining net sales and operating expenses at 2013 levels. Assume a tax rate of 25%.
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Net Income from Operations
Interest Expense
Net Income Before Income Taxes
Income Tax
Net Income After Income Tax

Given Data P23.03A
FIVE, INC. and SIX, INC.
Condensed Financial Statements
Income Statements
Year Ended December 31, 2013
Five, Inc.
$795,000
505,000
290,000
169,500
120,500
10,000
110,500
27,625
$82,875

Sales (net)
Cost of Goods Sold
Gross Profit
Operating Expenses
Net Income From Operations
Interest Expense
Net Income Before Income Taxes
Income Tax
Net Income After Income Taxes

Six, Inc.
$650,000
350,000
300,000
125,000
175,000
175,000
43,750
$131,250

Five, Inc.
$125,000
225,000
$350,000

Six, Inc.
$104,900
196,000
$300,900

$98,500
100,000
198,500

$79,800
79,800

20,000
131,500
151,500
$350,000

20,000
201,100
221,100
$300,900

Balance Sheets
December 31, 2013
Assets
Current Assets
Property, Plant, and Equipment (net)
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Current Liabilities
Total Long-Term Liabilities (Bonds Payable)
Total Liabilities
Stockholders’ Equity
Common Stock ($10 par value)
Retained Earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity

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