Page 712 - Accounting Principles (A Business Perspective)

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Exercises
Exercise A Income statement data for Boston Company for 2009 and 2010 follow:
2009 2010
Net sales $2,610,000 $1,936,000
Cost of goods sold 1,829,600 1,256,400
Selling expenses 396,800 350,000
Administrative expenses 234,800 198,400
Federal income taxes 57,600 54,000
Prepare a horizontal and vertical analysis of the income data in a form similar to Exhibit 134. Comment on the

results of this analysis.
Exercise B A company engaged in the following three independent transactions:
• Merchandise purchased on account, USD 2,400,000.
• Machinery purchased for cash, USD 2,400,000.
• Capital stock issued for cash, USD 2,400,000.
a. Compute the current ratio after each of these transactions assuming current assets were USD 3,200,000 and
the current ratio was 1:1 before the transactions occurred.

b. Repeat part (a) assuming the current ratio was 2:1.
c. Repeat part (a) assuming the current ratio was 1:2.
Exercise C A company has sales of USD 3,680,000 per year. Its average net accounts receivable balance is USD
920,000.
a. What is the average number of days accounts receivable are outstanding?
b. By how much would the capital invested in accounts receivable be reduced if the turnover could be increased
to 6 without a loss of sales?
Exercise D Columbia Corporation had the following selected financial data for 2009 December 31: Net cash
provided by operating activities

Net sales $1,800,000
Cost of goods sold 1,080,000
Operating expenses 315,000
Net income 195,000
Total assets 1,000,000
Net cash provided by operating 25,000
activities
Compute the cash flow margin.
Exercise E From the following partial income statement, calculate the inventory turnover for the period.
Net sales $2,028,000
Cost of goods sold:
Beginning inventory $ 234,000
Purchases 1,236,000
Cost of goods available for sale $1,560,000
Less: Ending inventory 265,200
Cost of goods sold 1,294,800
Gross margin $ 733,200
Operating expenses 327,600
Net operating income $ 405,600
Exercise F Eastern, Inc., had net sales of USD 3,520,000, gross margin of USD 1,496,000, and operating
expenses of USD 904,000. Total assets (all operating) were USD 3,080,000. Compute Eastern's rate of return on
operating assets.

Accounting Principles: A Business Perspective 713 A Global Text