The comparative financial statements prepared at December 31 for Golden followin
ID: 2525770 • Letter: T
Question
The comparative financial statements prepared at December 31 for Golden following summarized data: showed the Current Previous Income Statement Sales revenue Cost of goods sold 5220,000 197,000 116,000 26,000 Gross proft 94,000 61,300 3,500 81,000 56,800 3,400 Interest expense Income before income taxes Income tax expense 29,200 8,760 20,800 3,800 Net income 5 20,440 17,000 Balance Sheet Cash Accounts receivable (ne:) Inventory Property and equipment (net) S 6,140 S 8,800 27,000 43,000 48,000 27,000 48,000 53,000 5134,140 5124,800 Current liabilities Note payable (long-term) Common stock (par $5) Additional paid-in capital Retained earnings 5 16,500 53,000 34,800 6,800 23,240 24,800 53,000 34,800 5,800 6,800 5134,140 5124,800 During the current year, cash dividends of S3,800 were declared and paid.Explanation / Answer
Answer 5-a.
Current Year:
Average Net Fixed Assets = ($53,000 + $46,000) / 2
Average Net Fixed Assets = $49,500
Fixed Asset Turnover = Sales Revenue / Average Net Fixed Assets
Fixed Asset Turnover = $220,000 / $49,500
Fixed Asset Turnover = 4.44 times
Previous Year:
Average Net Fixed Assets = ($46,000 + $39,000) / 2
Average Net Fixed Assets = $42,500
Fixed Asset Turnover = Sales Revenue / Average Net Fixed Assets
Fixed Asset Turnover = $197,000 / $42,500
Fixed Asset Turnover = 4.64 times
Answer 5-b.
Current year results is worse than those for the previous year.
Answer 6-a.
Current Year:
Debt-to-Assets Ratio = (Current Liabilities + Notes Payable) / Total Assets
Debt-to-Assets Ratio = ($16,500 + $53,000) / $134,140
Debt-to-Assets Ratio = 0.52
Previous Year:
Debt-to-Assets Ratio = (Current Liabilities + Notes Payable) / Total Assets
Debt-to-Assets Ratio = ($24,600 + $53,000) / $124,800
Debt-to-Assets Ratio = 0.62
Answer 6-b.
Debt providing financing for a smaller proportion of the company’s asset growth.
Answer 7-a.
Current Year:
Times Interest Earned = (Gross Profit - Operating Expenses) / Interest Expense
Times Interest Earned = ($94,000 - $61,300) / $3,500
Times Interest Earned = 9.34
Previous Year:
Times Interest Earned = (Gross Profit - Operating Expenses) / Interest Expense
Times Interest Earned = ($81,000 - $56,800) / $3,400
Times Interest Earned = 7.12
Answer 7-b.
Current year results is better than those for the previous year.
Answer 8-a.
Current Year:
Number of shares outstanding = Common Stock / Par Value
Number of shares outstanding = $34,800 / 5
Number of shares outstanding = 6,960
EPS = Net Income / Number of shares outstanding
EPS = $20,440 / 6,960
EPS = $2.94
P/E Ratio = Market Price / EPS
P/E Ratio = $38.0 / $2.94
P/E Ratio = 12.93
Previous Year:
Number of shares outstanding = Common Stock / Par Value
Number of shares outstanding = $34,800 / 5
Number of shares outstanding = 6,960
EPS = Net Income / Number of shares outstanding
EPS = $17,000 / 6,960
EPS = $2.44
P/E Ratio = Market Price / EPS
P/E Ratio = $29.0 / $2.44
P/E Ratio = 11.89
Answer 8-b.
Investor have become more optimistic about Golden’s future success.