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ch13 - SOLUTIONS TO PROBLEMS PROBLEM 13-1C(a Condensed...

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SOLUTIONS TO PROBLEMS PROBLEM 13-1C (a) Condensed Income Statement For the Year Ended December 31, 2007 Mickey Company Minnie Company Dollars Percent Dollars Percent Net sales Cost of goods sold Gross profit Operating expenses Income from operations Other expenses and losses Interest expense Income before income taxes Income tax expense Net income \$490,000 231,000 259,000 29,000 230,000 5,000 225,000 68,000 \$157,000 100.0% 47.1% 52.9% 6.0% 46.9% 1.0% 45.9% 13.9% 32.0% \$620,000 274,000 346,000 97,000 249,000 3,000 246,000 75,000 \$171,000 100.0% 44.2% 55.8% 15.6% 40.2% .5% 39.7% 12.1% 27.6% (b) Mickey Company appears to be more profitable. It has lower relative gross profit but higher income from operations, income before taxes, and net in come. Also, Minnie’s return on assets of 41.5% \$171,000 \$412,500 a is lower than Mickey’s return on assets of 58.4% \$157,000 \$269,000 b , and Minnie’s 13-1

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return on common stockholders’ equity of 54.3% \$171,000 \$315,000 c is lower than Mickey’s return on common stockholders’ equity of 89.7% \$157,000 \$175,000 d . 13-2
PROBLEM 13-1C (Continued) a \$171,000 is Minnie’s 2007 net income. \$412,500 is Minnie’s 2007 average a assets: 2007 2006 Current assets Plant assets Total assets \$120,000 310,000 \$430,000 + \$105,000 290,000 \$395,000 = \$825, 000 2 b \$157,000 is Mickey’s 2007 net income. \$269,000 is Mickey’s 2007 average a assets: 2007 2006 Current assets Plant assets Total assets \$110,000 170,000 \$280,000 + \$ 98,000 160,000 \$258,000 = \$538, 000 2 c \$171,000 is Minnie’s 2007 net income. \$315,000 is Minnie’s 2007 average s

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