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Assign_10_-_Solutions_to_Practice_Problem

100 0 current liabilities 525000 210 360000 160 long

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100 .0 % Current liabilities ............................. $ 525,000 21.0% $ 360,000 16.0% Long-term liabilities ........................ 900,000 36.0 855,000 38.0 Common stock ............................... 250,000 10.0 270,000 12.0 Retained earnings .......................... 825,000 33 .0 765,000 34 .0 Total liabilities and stockholders’ equity .................. $ 2,500,000 100 .0 % $ 2,250,000 100 .0 % Ex. 15–5 a. BOONE COMPANY Comparative Income Statement For the Years Ended December 31, 2012 and 2011 2012 2011 Increase (Decrease ) Amount Amount Amount Percent Sales ...................................... $446,400 $360,000 $86,400 24.0% Cost of goods sold ................. 387,450 315,000 72,450 23.0 Gross profit ............................ $ 58,950 $ 45,000 $ 13,950 31.0 Selling expenses .................... $ 27,900 $ 22,500 $ 5,400 24.0 Administrative expenses ........ 21,960 18,000 3,960 22.0 Total operating expenses ....... $ 49,860 $ 40,500 $ 9,360 23.1 Income before income tax ..... $ 9,090 $ 4,500 $ 4,590 102.0 Income tax expense ............... 5,400 2,700 2,700 100.0 Net income ............................. $ 3,690 $ 1,800 $ 1,890 105.0 b. The net income for Boone Company increased by approximately 105.0% from 2011 to 2012. This increase was the combined result of an increase in sales of 24.0% and lower percentage increases in operating expenses. The cost of goods sold increased at a slower rate than the increase in sales, thus causing the percentage increase in gross profit to exceed the percentage increase in sales.
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Ex. 15–6 a. (1) Working Capital = Current Assets – Current Liabilities 2012: $1,342,000 = $1,952,000 – $610,000 2011: $810,000 = $1,350,000 – $540,000 (2) Current Ratio = 2012: = 3.2 2011: = 2.5 (3) Quick Ratio = 2012: = 2.0 2011: = 1.7 b. The liquidity of Beatty has improved from the preceding year to the current year. The working capital, current ratio, and quick ratio have all increased. Most of these changes are the result of an increase in current assets. Ex. 15–7 a. (1) Current Ratio = Dec. 26, 2009: = 1.4 Dec. 27, 2008: = 1.2 (2) Quick Ratio = Dec. 26, 2009: = 1.0 Dec. 27, 2008: = 0.8 b. The liquidity of PepsiCo has increased some over this time period. Both the current and quick ratios have increased. The current ratio increased from 1.2 to 1.4, and the quick ratio increased from 0.8 to 1.0. PepsiCo is a strong company with ample resources for meeting short-term obligations.
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Ex. 15–8 a. The working capital, current ratio, and quick ratio are calculated incorrectly. The working capital and current ratio incorrectly include intangible assets and property, plant, and equipment as a part of current assets. Both are noncurrent. The quick ratio has both an incorrect numerator and denominator. The numerator of the quick ratio is incorrectly calculated as the sum of inventories, prepaid expenses, and property, plant, and equipment ($114,400 + $45,600 + $172,000). The denominator is also incorrect, as it does not include accrued liabilities. The denominator of the
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