chap005 2

# chap005 2 - Supply Company for 2009:Inventory turnover...

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Supply Company for 2009:Inventory turnover ratio = \$4,800,000 # [\$900,000 + 700,000] ÷ 2## = 6 timesReceivables turnover ratio = \$8,000,000 # [\$700,000 + 500,000] ÷ 2## = 13.33 timesAverage collection period = 365 # 13.33## = 27.4 daysAsset turnover ratio = \$8,000,000 # [\$4,300,000 + 3,700,000] ÷ 2## = 2 timesThe company turns its inventory over 6 times per year compared to the industry average of 5 times per year. The asset turnover ratio also is slightly better than the industry average (2 times per year versus 1.8 times). These ratios indicate that Anderson is able to generate more sales per dollar invested in inventory and in total assets than the industry averages. However, Anderson takes slightly longer to collect its accounts receivable (27.4 days compared to the industry average of 25 days).Exercise 5-21Requirement 1a. Profit margin on sales \$180 ÷ \$5,200 = 3.5%b. Return on assets \$180 ÷ [(\$1,900 + 1,700) ÷ 2] = 10%c. Return on shareholders& equity \$180 ÷ [(\$550 + 500) ÷ 2] = 34.3%Requirement 2Retained earnings beginning of period \$100,000Add: Net income 180,000 280,000Less: Retained earnings end of period 150,000Dividends paid \$130,000Exercise 5-22 Requirement 1a. Profit margin on sales \$180 ÷ \$5,200 = 3.5%b. Asset turnover \$5,200 ÷ [(\$1,900 + 1,700) ÷ 2] = 2.89c. Equity multiplier[(\$1,900 + 1,700) ÷ 2] ÷ [(\$550 + 500) ÷ 2] = 3.43d. Return on shareholders± equity \$180 ÷ [(\$550 + 500) ÷ 2] = 34.3%Requirement 2Profit margin x Asset turnover x Equity multiplier = ROE 3.5% x 2.89 x 3.43 = 34.7% ~ 34.3% (difference due # to rounding)Exercise 5-23 Quarter Q First Second ThirdCumulative income before taxes \$50,000 \$90,000 \$190,000 Estimated annual effective tax rate 34% 30% 36% 17,000 27,000 68,400Less: Income tax reported earlier 0 17,000 27,000Tax expense to be reported \$17,000 \$10,000 \$ 41,400

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Exercise 5-24Incentive compensation \$300 million ÷ 4 = \$ 75 million Depreciation expense \$60 million ÷ 4 = 15 millionGain on sale 23 millionExercise 5-25 1st 2nd 3rd 4thAdvertising \$200,000 \$200,000 \$200,000 \$200,000#Property tax 87,500 87,500 87,500 87,500#Equipment repairs 65,000 65,000 65,000 65,000#Extraordinary casualty loss 0 185,000 0 0#Research and development 0 32,000 32,000 32,000cpa / cma rEVIEW qUESTIONSCPA Exam Questions1. b. The earnings process is completed upon delivery of the product. Therefore, in 2009, revenue for 50,000 gallons at \$3 each is recognized. The payment terms do not affect revenue recognition.2. d. The deferred gross profit on the balance sheet at December 31, 2010 should be the balances in the accounts receivable accounts for 2009 and 2010 multiplied times the appropriate gross profit percentage:Accounts Receivable #2009#2010 ### Total Sales #600,000#900,000 ### Less: Collections #(300,000)#(300,000) ### Less: Write Offs #(200,000)#(50,000) ###Accounts Receivable Balance #100,000#550,000###x Gross Profit Rate #x 30%#x 40% ###Deferred Gross Profit 12/31/10#30,000#220,000 ########The Combined Deferred Gross Profit on the
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## This note was uploaded on 07/10/2011 for the course ACG 3101 taught by Professor Wodward during the Spring '08 term at FSU.

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chap005 2 - Supply Company for 2009:Inventory turnover...

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