Page 715 - Accounting Principles (A Business Perspective)

17. Analysis and interpretation of financial statements

Currency translation and minimum pension (22,500) (22,900)
liability adjustments
Total common stockholders' equity $ 895,600 $ 1,125,800
Total liabilities and stockholders' equity $ 2,919,500 $ 3,163,500
Perform a horizontal and vertical analysis of Loom's financial statements in a manner similar to those illustrated
in this chapter. Comment on the results of the analysis in (a).
Problem B Deere & Company manufactures, distributes, and finances a full range of agricultural equipment; a
broad range of industrial equipment for construction, forestry, and public works; and a variety of lawn and grounds
care equipment. The company also provides credit, health care, and insurance products for businesses and the
general public. Consider the following information from the Deere & Company 2000 Annual Report:

(in millions) 1997 1998 1999 2000
Sales $12,791 $13,822 $11,751 $13,137
Cost of goods sold 8,481 9,234 8,178 8,936
Gross margin 4,310 4,588 3,573 4,201
Operating expenses 2,694 2,841 3,021 3,236
Net operating income $ 1,616 $ 1,747 $ 552 $ 965
a. Prepare a statement showing the trend percentages for each item using 1997 as the base year.

b. Comment on the trends noted in part (a).
Problem C The following data are for Toy Company:
December 31
2011 2010
Allowance for uncollectible accounts $72,000 $57,000
Prepaid expenses 34,500 45,000
Accrued liabilities 210,000 186,000
Cash in Bank A 1,095,000 975,000
Wages payable -0- 37,500
Accounts payable 714,000 585,000
Merchandise inventory 1,342,500 1,437,000
Bonds payable, due in 2005 615,000 594,000
Marketable securities 217,500 147,000
Notes payable (due in six months) 300,000 195,000
Accounts receivable 907,500 870,000
Cash flow from operating activities 192,000 180,000
a. Compute the amount of working capital at both year-end dates.

b. Compute the current ratio at both year-end dates.
c. Compute the acid-test ratio at both year-end dates.
d. Compute the cash flow liquidity ratio at both year-end dates.
e. Comment briefly on the company's short-term financial position.
Problem D On 2011 December 31, Energy Company's current ratio was 3:1 before the following transactions
were completed:
• Purchased merchandise on account.

• Paid a cash dividend declared on 2011 November 15.
• Sold equipment for cash.
• Temporarily invested cash in trading securities.
• Sold obsolete merchandise for cash (at a loss).
• Issued 10-year bonds for cash.
• Wrote off goodwill to retained earnings.
• Paid cash for inventory.
• Purchased land for cash.

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