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Copy of Chap004 1.doc
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Copy of Chap004 1.doc-Chapter 04 - Adjustments, Fi...
Copy_of_Chap004_1.doc-Chapter 04 - Adjustments, Financial Statements,
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Copy_of_Chap004_1.doc-Chapter 04 - Adjustments, Financial Statements,
Page 60
Chapter 04 - Adjustments, Financial Statements, and the Quality of Earnings
COMP4-2. (continued)
FURNITURE REFINISHERS, INC.
Statement of Cash Flows
For the Period Ended December 31, 2013
Cash from Operating Activities:
Cash collected from customers (
d
+
g
+
j
)
$
67,000
Cash paid to suppliers and employees (
e
+
h
)
(39,000)
Cash provided by operations
28,000
Cash from Investing Activities:
Purchase of equipment (
b
)
(18,000)
Purchase of small tools (
f
)
(3,000)
Cash used in investing activities
(21,000)
Cash from Financing Activities:
Borrowing from bank (
a
)
20,000
Issuance of stock (
c
)
5,000
Payment of dividends (
k
)
(10,000)
Cash provided by financing activities
15,000
Change in cash
22,000
Beginning cash balance, January 1, 2013
5,000
Ending cash balance, December 31, 2013
$ 27,000
Req. 5
December 31, 2013, Closing Entry
Service revenue (
R)
..........................................
70,000
Retained earnings (+SE)
..........................
16,000
Depreciation expense (
E)
.......................
2,000
Interest expense (
E)
................................
1,000
Wages expense (
E)
................................
3,000
Remaining expenses (
E)
........................
44,000
Income tax expense (
E)
..........................
4,000
4-60
Page 61
Chapter 04 - Adjustments, Financial Statements, and the Quality of Earnings
COMP4-2. (continued)
Req. 6
(a)
Current ratio
= Current assets
Current liabilities
= $49,000
$44,000
= 1.11
This result suggests that Furniture Refinishers, Inc., has sufficient current assets
to pay current liabilities in the coming period.
(b)
Total asset turnover
= Sales
Average total assets
= $70,000
[($26,000 + $74,000)
2]
= $70,000
$50,000
= 1.40
This suggests that Furniture Refinishers, Inc., generates $1.40 for every dollar of
assets.
(c)
Net profit margin
= Net income
Sales
= $16,000
$70,000
= 0.23
or 23%
This suggests that Furniture Refinishers, Inc., earns $0.23 for every dollar in
sales that it generates.
For all of the ratios, a comparison across time and a comparison against an
industry average or competitors will need to be analyzed to determine how liquid
(current ratio) the company is and how efficient (total asset turnover) and how
effective (net profit margin) Furniture Refinishers, Inc.’s management is.
4-61
Page 62
Chapter 04 - Adjustments, Financial Statements, and the Quality of Earnings
CASES AND PROJECTS
FINANCIAL REPORTING AND ANALYSIS CASES
CP4–1.
1.
American Eagle paid $132,234 thousand in income taxes in its 2008 fiscal year, as
disclosed in note 2 under “Supplemental Disclosures of Cash Flow Information.”
2.
The quarter ended January 31, 2009, was its best quarter in terms of sales at
$905,713,000 (this quarter covered the holiday shopping season, the biggest part of
the year for retailers).
The worst quarter ended May 3, 2008 (the quarter following
the holiday season).
This is a common pattern for retailers.
Note 13 discloses
quarterly information.
3.
Other income (net) is an aggregate of many accounts, but a summary entry for them
all would be:
Other income (net)
....................
17,790,000
Retained Earnings
..........
17,790,000
4.
As disclosed in Note 5, Accounts and Note Receivable consists of (in thousands):
Construction allowances
11,139
Merchandise sell-offs
17,057
Interest income
1,355
Marketing cost reimbursements
2,363
Credit card receivable
5,175
Merchandise vendor receivables
2,899
Other
1,483
Total
$41,471
5.
Fiscal year
(dollars are in thousands)
2008:
Net Profit Margin
=
Net Income
=
$179,061
=
0.060
Sales
$2,988,866
2007:
Net Profit Margin
=
Net Income
=
$400,019
=
0.131
Sales
$3,055,419
2006:
Net Profit Margin
=
Net Income
=
$387,359
=
0.139
Sales
$2,794,409
Over the past three years, the company’s net profit margin has declined each year.
Likely due to the deteriorating global economy over this time period, the company was
less effective over time at controlling costs, generating greater sales, or both.
4-62
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