SCh13 - Student Name Instructor Class McGraw-Hill/Irwin...

Student Name: Instructor
Class: McGraw-Hill/Irwin
Coached Problem 13-1
Requirement 1:
GOLDEN CORPORATION
Comparative Financial Statements
December 31, 2010
Increase (Decrease)
2006 over 2005
2010 2009 Amount Percentage
Income Statement
Sales revenue $180,000 $165,000 $15,000 9.09%
<-- Correct!
Cost of goods sold 110,000 100,000 10,000 10.00%
<-- Correct!
Gross profit 70,000 65,000 5,000 7.69%
<-- Correct!
Operating expenses 53,300 50,400 2,900 5.75%
<-- Correct!
Interest expense 2,700 2,600 100 3.85%
<-- Correct!
Income before taxes 14,000 12,000 2,000 16.67%
<-- Correct!
Income tax expense 4,000 3,000 1,000 33.33%
<-- Correct!
Net income $10,000 $9,000 $1,000 11.11%
<-- Correct!
Balance Sheet
Cash $4,000 $8,000 ($4,000) -50.00%
<-- Correct!
Accounts receivable (net) 19,000 23,000 (4,000) -17.39%
<-- Correct!
Inventory 40,000 35,000 5,000 14.29%
<-- Correct!
Property and equipment (net) 45,000 38,000 7,000 18.42%
<-- Correct!
$108,000 $104,000 $4,000 3.85%
<-- Correct!
Current liabilities $16,000 $19,000 ($3,000) -15.79%
<-- Correct!
Long-term liabilities 45,000 45,000 0 0.00%
<-- Correct!
Common stock (par $5) 30,000 30,000 0 0.00%
<-- Correct!
Additional paid-in capital 5,000 5,000 0 0.00%
<-- Correct!
Retained earnings 12,000 5,000 7,000 140.00%
<-- Correct!
$108,000 $104,000 $4,000 3.85%
<-- Correct!
Requirement 2:
The percentage change in Cash (50%) is big but it results from the small prior year balance. The
percentage change in Retained Earnings (140%) also is big, but it too is the consequence of a small
prior year balance and it can be explained by the net income and dividends in the current year. One
really unusual change is that although sales increased by 9.09%, accounts receivable decreased by
17.4%. Typically, an increase in sales would be accompanied by an increase in accounts receivable.
One potential explanation of this odd pattern is that the company might have factored some of its
accounts receivable during 2010, but this is just speculation at this point. Another oddity is that
inventory increased 14.3% but current liabilities decreased by 15.8%. One would expect an increase
in inventory to be accompanied by an increase in accounts payable.

Given Data CP13-1:
GOLDEN CORPORATION
Comparative Financial Statements
December 31, 2010
2010 2009
Income Statement
Sales revenue $180,000 $165,000
Cost of goods sold 110,000 100,000
Gross profit 70,000 65,000
Operating expenses 53,300 50,400
Interest expense 2,700 2,600
Income before income taxes 14,000 12,000
Income tax expense 4,000 3,000
Net income $10,000 $9,000
Balance Sheet
Cash 4,000 8,000
Accounts receivable (net) 19,000 23,000
Inventory 40,000 35,000
Property and equipment (net) 45,000 38,000
$108,000 $104,000
Current liabilities (no interest) 16,000 19,000
Long-term liabilities (6% interest) 45,000 45,000
Common stock (par $5) 30,000 30,000
Additional paid-in capital 5,000 5,000
Retained earnings 12,000 5,000
$108,000 $104,000