Exercise 1 Identify each of the following as (a) an underlying concept, (b) an objective of financial statement analysis, (c) a standard for financial statement analysis, (d) a source of information for financial statement analysis, or an executive compensation issue: Past Ratios of the company Linking performance to shareholder value Average ratios of other companies in the same industry Assessment of the future potential of an investment Timeliness Interim financial statements SEC Form 10-K Assessment of rick Comparability A company’s annual report Exercise 7 Elm Company had total assets of $640,000 in 2012. $680,000 in 2013, and $760.000 in 2014. In 2013, Elm had net income of $77,112 on revenues of $1,224,000. In 2014, it had net income of $98,952 on revenues of $1,596,000. Compute the profit margin, asset turnover, and return on assets for 2013 and 2014. Comment on the apparent cause of the increase or decrease in profitability. (Round to one decimal place). Exercise 12 Components of Van Corporation’s income statement for the year ended December 31, 2014 follow. Recast the income statement in multiple step form, including allocating income taxes to appropriate items (assume a 30 percent income tax rate) and showing earnings per share figures (200,000 shares outstanding). (Round earnings per share figures to the nearest cent.) Sales $1,110,000 Cost of goods sold (550,000) Operating expenses (225,000) Restructuring (110,000) Total income taxes expense for period (179,000) Income from discontinued operations 160,000 Gain on disposal of discontinued operations 140,000 Extraordinary gain 72,000 Net income $417,900 Earnings per share $ 2.09 Problem 1 Obras Corporation’s condensed comparative income statements and comparative balance sheets for 2014 and 2013 follow. Obras Corporation Comparative Income Statements For the Years Ended December 31, 2014 and 2013 2014 2013 Net sales $3,276,800 $3,146,400 Cost of goods sold 2,088,800 2,008,400 Gross margin $1,188,000 $1,138,000 Operating expenses: Selling expenses $476,800 $518,000 Administrative expenses 447,200 423,200 Total operating expenses $924,000 $941,200 Income from operations $264,000 $196,800 Interest expense 65,600 39,200 Interest before income taxes $198,400 $157,600 Income taxes expense 62,400 56,800 Net income $136,000 $100,800 Earnings per share $ 3.40 $ 2.52 Obras Corporation Comparative Balance Sheets December 31, 2014 and 2013 2014 2013 Assets Cash $81,200 $40,800 Accounts receivable (net) 235,600 229,200 Inventory 574,800 594,800 Property, plants and equipment (net) 750,000 720,000 Total assets $1,641,600 $1,584,800 Liabilities and Stockholders’ Equity Accounts payable $267,000 $477,200 Notes payable (short-term) 200,000 400,000 Bonds payable 400,000 --- Common stock, $10 par value 400,000 400,000 Retained earnings 374,000 307,600 Total liabilities and st.

1. Exercise 1
Identify each of the following as (a) an underlying concept, (b)
an objective of financial statement analysis, (c) a standard for
financial statement analysis, (d) a source of information for
financial statement analysis, or an executive compensation
issue:
Past Ratios of the company
Linking performance to shareholder value
Average ratios of other companies in the same industry
Assessment of the future potential of an investment
Timeliness
Interim financial statements
SEC Form 10-K
Assessment of rick
Comparability
A company’s annual report
Exercise 7
Elm Company had total assets of $640,000 in 2012. $680,000 in
2013, and $760.000 in 2014.
In 2013, Elm had net income of $77,112 on revenues of
$1,224,000.
In 2014, it had net income of $98,952 on revenues of
$1,596,000.
Compute the profit margin, asset turnover, and return on assets
for 2013 and 2014.

2. Comment on the apparent cause of the increase or decrease in
profitability.
(Round to one decimal place).
Exercise 12
Components of Van Corporation’s income statement for the year
ended December 31, 2014 follow.
Recast the income statement in multiple step form, including
allocating income taxes to appropriate items (assume a 30
percent income tax rate) and showing earnings per share figures
(200,000 shares outstanding).
(Round earnings per share figures to the nearest cent.)
Sales
$1,110,000
Cost of goods sold
(550,000)
Operating expenses
(225,000)
Restructuring

3. (110,000)
Total income taxes expense for period
(179,000)
Income from discontinued operations
160,000
Gain on disposal of discontinued operations
140,000
Extraordinary gain
72,000
Net income
$417,900
Earnings per share
$
2.09
Problem 1
Obras Corporation’s condensed comparative income statements
and comparative balance sheets for 2014 and 2013 follow.
Obras Corporation
Comparative Income Statements

4. For the Years Ended December 31, 2014 and 2013
2014
2013
Net sales
$3,276,800
$3,146,400
Cost of goods sold
2,088,800
2,008,400
Gross margin
$1,188,000
$1,138,000
Operating expenses:
Selling expenses
$476,800
$518,000
Administrative expenses
447,200

5. 423,200
Total operating expenses
$924,000
$941,200
Income from operations
$264,000
$196,800
Interest expense
65,600
39,200
Interest before income taxes
$198,400
$157,600
Income taxes expense
62,400
56,800
Net income

6. $136,000
$100,800
Earnings per share
$
3.40
$
2.52
Obras Corporation
Comparative Balance Sheets
December 31, 2014 and 2013
2014
2013
Assets
Cash
$81,200
$40,800
Accounts receivable (net)
235,600
229,200
Inventory

7. 574,800
594,800
Property, plants and equipment (net)
750,000
720,000
Total assets
$1,641,600
$1,584,800
Liabilities and Stockholders’ Equity
Accounts payable
$267,000
$477,200
Notes payable (short-term)
200,000
400,000
Bonds payable
400,000

8. ---
Common stock, $10 par value
400,000
400,000
Retained earnings
374,000
307,600
Total liabilities and stockholders’ equity
$ 1,641,600
$1,584,800
REQUIRED:
Prepare schedules showing the amount and percentage changes
from 2013 to 2014 for the comparative income statements and
the balance sheets (Round to the one decimal place.)
Prepare common-size income statements and balance sheets for
2013 and 2014.
(Round to the one decimal place).
Comment on the results in requirements 1 and 2 by identifying
favorable and unfavorable changes in the components and
composition of the statements.

9. Problem 3
Tuxedo Corporation’s condensed comparative income
statements and balance sheets follow.
All figures are given in thousands of dollars, except for
earnings per share.
Tuxedo Corporation
Comparative Income Statements
For the Years Ended December 31, 2014 and 2013
2014
2013
Net sales
$800,400
$742,600
Cost of goods sold
454,100
396,200
Gross margin
$346,300
$346,400
Operating expenses:

10. Selling expenses
$130,100
$104,600
Administrative expenses
140,300
115,500
Total operating expenses
$270,400
$220,100
Income from operations
$
75,900
$126,300
Interest expense
25,000

11. 20,000
Income before income taxes
$
50,900
$106,300
Income taxes expense
14,000
35,000
Net income
$
36,900
$
71,300
Earnings per share
$
2.46
$
4.76

12. Tuxedo Corporation
Comparative Balance Sheets
December 31, 2014 and 2013
2014
2013
Assets
Cash
$
31,100
$
27,200
Accounts receivable (net)
72,500
42,700
Inventory
122,600

13. 107,800
Property, plant, and equipment (net)
577,700
507,500
Total assets
$803,900
$685,200
Liabilities and Stockholders’ Equity
Accounts payable
$104,700
$
72,300
Notes payable (short-term)
50,000
50,000
Bonds payable

14. 200,000
110,000
Common stock, $10 par value
300,000
300,000
Retained earnings
149,200
152,900
Total liabilities and stockholders’ equity
$803,900
$685,200
Additional data for Tuxedo in 2014 and 2013 follow:
2014
2013
Net cash flows from operating activities

15. $
64,000
$
99,000
Net capital expenditures
$119,000
$
38,000
Dividends paid
$31,400
$35,000
Number of common shares
30,000
30,000
Market price per share
$80
$120
Balances of selected accounts at the end of 2012 were accounts
receivable (net), $52,700; inventory, $99,300; accounts payable,
$64,800; total assets, $647,800; and stockholders’ equity,
$376,600.
All of the bonds payable were long-term liabilities.

16. REQUIRED:
Perform the following analyses.
(Round to one decimal place.)
Prepare an operating asset management analysis by calculating
for each year the (a) current ratio, (b) quick ratio, (c)
receivables turnover, (d) days’ sales uncollected, (e) inventory
turnover, (f) days’ inventory on hand, (g) payables turnover, (h)
days’ payable, and (i) financing period.
Prepare a profitability and total asset management analysis by
calculating for each year the (a) profit margin, (b) asset
turnover, and (c) return on assets.
Prepare a financial risk analysis by calculating for each year the
(a) debt to equity ratio, (b) return on equity, and (c) interest
coverage ratio.
Prepare a liquidity analysis by calculating for each year the (a)
cash flow yield, (b) cash flows to sales, (c) cash flows to assets,
and (d) free cash flow.
Prepare an analysis of market strength by calculating for each
year the (a) price/earnings (P/E) ratio and (b) dividend yield.
Accounting connection: After making the calculations, indicate
whether each ratio improved or deteriorated from 2013 to 2014
(use
F
for favorable and
U
for unfavorable and consider changes of 0.1 or less to be
neutral).