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Chapter 17

# Chapter 17 - Problem 17-1B(60 minutes Part 1 Current ratio...

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Problem 17-1B (60 minutes) Part 1 Current ratio: December 31, 2009: \$54,860 / \$22,370 = 2.5 to 1 December 31, 2008: \$32,660 / \$19,180 = 1.7 to 1 December 31, 2007: \$36,300 / \$16,500 = 2.2 to 1 Part 2 BLUEGRASS CORPORATION Common-Size Comparative Income Statements For Years Ended December 31, 2009, 2008, and 2007 2009 2008 2007 Sales .................................................... 100.00% 100.00% 100.00% Cost of goods sold ............................. 54 .77 51 .91 46 .04 Gross profit ......................................... 45.23 48.09 53.96 Selling expenses ................................ 11.41 11.92 12.52 Administrative expenses ................... 8 .43 8 .80 10 .92 Total expenses ................................... 19 .84 20 .72 23 .44 Income before taxes ........................... 25.39 27.36 30.53 Income taxes ....................................... 3 .04 3 .56 3 .69 Net income .......................................... 22 .34 % 23 .80 % 26 .84 % * Some totals do not reconcile due to rounding.

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Problem 17-1B (Concluded) Part 3 BLUEGRASS CORPORATION Balance Sheet Data in Trend Percents December 31, 2009, 2008, and 2007 2009 2008 2007 Assets Current assets .................................... 151.13% 89.97% 100.00% Long-term investments ...................... 0.00 16.04 100.00 Plant assets ........................................ 142.80 143.87 100.00 Total assets ......................................... 133.18 117.57 100.00 Liabilities and Equity Current liabilities ................................ 135.58% 116.24% 100.00% Common stock ................................... 125.68 125.68 100.00 Other paid in capital ........................... 122.57 122.57 100.00 Retained earnings .............................. 139.03 112.09 100.00 Total liabilities and equity ................. 133.18 117.57 100.00 Part 4 Significant relations revealed Bluegrass's cost of goods sold took a larger percent of sales each year. Selling and administrative expenses and income taxes took a somewhat smaller portion each year, but not enough to offset the effect of cost of goods sold. As a result, income became a smaller percent of sales each year. The large expansion of plant assets in 2008 was financed by a reduction in current assets, an increase in current liabilities, a large reduction in long-term investments, and apparently by a stock sale. One effect of this plan was to reduce the current ratio. However, the current ratio recovered in 2009. This apparently resulted from profits, limiting the amount of dividends paid, and the liquidation of long-term investments.
Problem 17-2B (120 minutes) Part 1 TRIPOLY COMPANY Income Statement Trends

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Chapter 17 - Problem 17-1B(60 minutes Part 1 Current ratio...

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