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SCh13

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

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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.

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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
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