Problem 13-2A OSBORNE COMPANY Income Statements For the Years Ended December 31
ID: 2450555 • Letter: P
Question
Problem 13-2A
OSBORNE COMPANY
Income Statements
For the Years Ended December 31
2014
2013
$1,899,234
$1,759,194
1,067,234
1,014,694
832,000
744,500
508,694
487,694
323,306
256,806
23,566
21,566
299,740
235,240
93,566
74,566
$ 206,174
$ 160,674
OSBORNE COMPANY
Balance Sheets
December 31
Assets
2014
2013
$ 60,100
$ 64,200
74,000
50,000
126,494
111,494
127,566
117,066
388,160
342,760
663,009
534,309
$1,051,169
$877,069
Liabilities and Stockholders’ Equity
$ 168,694
$154,094
45,066
43,566
213,760
197,660
234,009
214,009
447,769
411,669
290,000
300,000
313,400
165,400
603,400
465,400
$1,051,169
$877,069
Problem 13-2A
The comparative statements of Osborne Company are presented here.OSBORNE COMPANY
Income Statements
For the Years Ended December 31
2014
2013
Net sales$1,899,234
$1,759,194
Cost of goods sold1,067,234
1,014,694
Gross profit832,000
744,500
Selling and administrative expenses508,694
487,694
Income from operations323,306
256,806
Other expenses and losses Interest expense23,566
21,566
Income before income taxes299,740
235,240
Income tax expense93,566
74,566
Net income$ 206,174
$ 160,674
OSBORNE COMPANY
Balance Sheets
December 31
Assets
2014
2013
Current assets Cash$ 60,100
$ 64,200
Debt investments (short-term)74,000
50,000
Accounts receivable126,494
111,494
Inventory127,566
117,066
Total current assets388,160
342,760
Plant assets (net)663,009
534,309
Total assets$1,051,169
$877,069
Liabilities and Stockholders’ Equity
Current liabilities Accounts payable$ 168,694
$154,094
Income taxes payable45,066
43,566
Total current liabilities213,760
197,660
Bonds payable234,009
214,009
Total liabilities447,769
411,669
Stockholders’ equity Common stock ($5 par)290,000
300,000
Retained earnings313,400
165,400
Total stockholders’ equity603,400
465,400
Total liabilities and stockholders’ equity$1,051,169
$877,069
All sales were on account. Net cash provided by operating activities for 2014 was $232,490. Capital expenditures were $136,140, and cash dividends were $58,174.
Compute the following ratios for 2014. (Round all answers to 2 decimal places, e.g. 1.83 or 12.61%.)
(a) Earnings per share
$
(b) Return on common stockholders’ equity % (c) Return on assets % (d) Current ratio :1 (e) Accounts receivable turnover times (f) Average collection period days (g) Inventory turnover times (h) Days in inventory days (i) Times interest earned times (j) Asset turnover times (k) Debt to assets % (l) Current cash debt coverage times (m) Cash debt coverage times (n) Free cash flow$
Explanation / Answer
(a) Earnings per share
Earnings per share = (Net Income - Prefered Stock Dividend)/Weighted Avg Outstanding Share
Weighted Avg Outstanding Share =290000/5 = 58000
Earnings per share = (206174-0)/58000
Earnings per share = 3.55
(b) Return on common stockholders’ equity %
Return on common stockholders’ equity= (Net Income - Prefered Stock Dividend)/Average common stockholders’ equity
Average common stockholders’ equity = (603400+465400)
Average common stockholders’ equity = 534400
Return on common stockholders’ equity =(206174-0)/534400
Return on common stockholders’ equity = 38.58%
(c) Return on assets %
Return on assets = Net Income /Average Total Asset
Average Total Asset =(1051169+877069)/2
Average Total Asset = 964119
Return on assets = 206174/964119
Return on assets = 21.38%
(d) Current ratio :1
Current ratio = Total Current Asset/Total Current Liability
Current ratio =388160/213760
Current ratio = 1.82 : 1
(e) Accounts receivable turnover times
Accounts receivable turnover = Net Sale/Average Accounts receivable
Average Accounts receivable =(126494+111494)/2
Average Accounts receivable = 118994
Accounts receivable turnover =1899234/118994
Accounts receivable turnover = 15.96
(f) Average collection period days
Average collection period = 365/Accounts receivable turnover
Average collection period = 365/15.96
Average collection period = 22.87 days
(g) Inventory turnover times
Inventory turnover = Cost of goods sold/Average Inventory
Average Inventory =(127566+117066)/2
Average Inventory = 122316
Inventory turnover =1067234/122316
Inventory turnover = 8.73 times
(h) Days in inventory days
Days in inventory = 365/Inventory turnover
Days in inventory = 365/8.7252
Days in inventory = 41.83 Days
(i) Times interest earned times
Times interest earned = EBIT/Interest Expenses
Times interest earned = 323306/23566
Times interest earned = 13.72 times
(j) Asset turnover times
Asset turnover = Net Sale/Average Total Asset
Average Total Asset =(1051169+877069)/2
Average Total Asset = 964119
Asset turnover = 1899234/964119
Asset turnover = 1.97 times
(k) Debt to assets %
Debt to assets = Total liabilities/Total Asset
Debt to assets = 447769/1051169
Debt to assets = 42.60%
(l) Current cash debt coverage times
Current cash debt coverage = Net cash provided by operating activities/average current liabilities
average current liabilities = (213760+197660)/2
average current liabilities = 205710
Current cash debt coverage = 232490/205710
Current cash debt coverage = 1.13
(m) Cash debt coverage times
Cash debt coverage = Net cash provided by operating activities/average current liabilities
average total liabilities = (447769+411669)/2
average total liabilities = 429719
Cash debt coverage = 232490/ 429719
Cash debt coverage = 0.54 times
(n) Free cash flow
Free cash flow = Net cash provided by operating activities - Capital expenditures - cash dividends
Free cash flow = 232490 - 136140 - 58174
Free cash flow = $ 38,176