Solution to QS and Exercises-Chapter 13

Solution to QS and Exercises-Chapter 13 - Exercise 13-3(20...

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Exercise 13-3 (20 minutes) 2015 2014 2013 2012 2011 Sales ........................................ 189 181 168 156 100 Cost of goods sold ................. 191 182 172 159 100 Accounts receivable .............. 201 192 182 169 100 Analysis : The trend in sales is positive. While this is better than no growth, one cannot definitively say whether the sales trend is favorable without additional information about the economic conditions in which this trend occurred such as inflation rates and competitors’ performances. Given the trend in sales, the comparative trends in both cost of goods sold and accounts receivable are somewhat unfavorable. In particular, for the most recent year, both are increasing at slightly faster rates (indexes for cost of goods sold is 191 and accounts receivable is 201) compared to sales (index is 189). Exercise 13-7 (20 minutes) Simon Company Common-Size Comparative Balance Sheets December 31, 2012-2014 At December 31 2014 2013 * 2012 Assets Cash .................................................................... 6.1% 8.0% 10.0% Accounts receivable, net .................................. 17.1 14.0 13.3 Merchandise inventory ..................................... 21.5 18.5 14.3 Prepaid expenses .............................................. 2.0 2.1 1.3 Plant assets, net ............................................... 53.3 57.3 61.1 Total assets ....................................................... 100.0 % 100.0 % 100.0 % Liabilities and Equity Accounts payable .............................................. 24.8% 16.9% 13.6% Long-term notes payable secured by mortgages on plant assets ........................... 18.8 22.9 22.1 Common stock, $10 par value .......................... 31.3 36.7 43.3
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Retained earnings ............................................ 25.1 23.5 21.0 Total liabilities and equity ................................. 100.0 % 100.0 % 100.0 % * Column does not equal 100.0 due to rounding. Analysis : Several observations can be made. (1) Cash as a percent of assets has declined—this is favorable provided sufficient cash is available for operations. (2) Accounts receivable have increased as a percent of assets—this may be unfavorable in that assets are tied up in an unproductive manner and there would be additional assets exposed to the risk of uncollection; it could be favorable if increased sales outweigh these costs and risk. (3) Plant assets have declined as a percent of assets—this is favorable if the company is operating more efficiently; it could be unfavorable if the company is downsizing due to poor performance.
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