INTERMEDIATE ACCOUNTING
3rd Edition
ISBN: 9780136946694
Author: GORDON
Publisher: RENT PEARS
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 5.10P
a.
To determine
To prepare: The common-size income statement.
b.
To determine
To identify: The profit margin, return on assets and return on
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Following are data for BioBeans and GreenKale, which sell organic produce and are of similar size.
GreenKale
$ 154,500
77,250
7,000
Average total assets
Net sales
Net income
1a. Compute the profit margin for both companies.
1b. Compute the return on total assets for both companies.
2. Based on analysis of these two measures, which company is the preferred investment?
BioBeans
$ 195,000
65,000
13,650
Complete this question by entering your answers in the tabs below.
Required 1A Required 1B Required 2
Compute the profit margin for both companies.
BioBeans
GreenKale
Numerator:
Profit margin
1
1
1
Denominator:
Required 1A
II
Profit margin ratio
= Profit margin ratio
=
Required 1B
%
%
Direction: Read the following independent cases given below. Provide necessary answer for all issues
being asked. Provide a separate answer sheet for all your specific answers.
A. The DIGITAL Company provided you with the following comparative Income Statement for your
analysis. He wants you to enlighten the management on why the net profit decline.
Sales
Cost of Sales
Gross Margin
Operating Expenses
Net Profit
2020
P680,000
170,000
P510,000
210,000
P300000
2021
P 570,000
200,000
P 370,000
100,000
P 270.000
Required:
1. Using Horizontal Analysis, calculate the peso change and the percentage changes.
2. Using Vertical Analysis, prepare the comparative common-size Income Statements.
3. Evaluate the results of your Analysis and explain to the management why the net profit declined.
Following are data for BioBeans and GreenKale, which sell organic produce and are of similar size. Average total assets Net sales Net income BioBeans $227,500 115,000 11,375 Greenkale $174,000 69,600 2,800 Required: 1a. Compute the profit margin for both companies. 1b. Compute the return on total assets for both companies. 2. Based on analysis of these two measures, which company is the preferred investment?
Chapter 5 Solutions
INTERMEDIATE ACCOUNTING
Ch. 5 - What are the three limitations of the income...Ch. 5 - In what way is the income statement useful for...Ch. 5 - Prob. 5.3QCh. 5 - Prob. 5.4QCh. 5 - What management behavior does the term earnings...Ch. 5 - What is the difference between permanent and...Ch. 5 - Prob. 5.7QCh. 5 - Prob. 5.8QCh. 5 - Prob. 5.9QCh. 5 - Prob. 5.10Q
Ch. 5 - What are the six key items to be reported on the...Ch. 5 - Explain why operating income is an important...Ch. 5 - Prob. 5.13QCh. 5 - Prob. 5.14QCh. 5 - What items are included in net income?Ch. 5 - Are items of other comprehensive income included...Ch. 5 - What two choices must companies make when...Ch. 5 - Prob. 5.18QCh. 5 - Prob. 5.19QCh. 5 - Are companies reporting under U.S. GAAP required...Ch. 5 - What accounts are summarized on the statement of...Ch. 5 - What is financial statement analysis?Ch. 5 - Prob. 5.23QCh. 5 - What are comparative financial statements and why...Ch. 5 - What is the difference between vertical and...Ch. 5 - Prob. 5.26QCh. 5 - Explain the difference between return on equity...Ch. 5 - How is a companys profit margin calculated?Ch. 5 - Prob. 5.1MCCh. 5 - Moore Furniture Inc., a public company, has...Ch. 5 - Beach and Poole, CPA is reviewing income statement...Ch. 5 - Prob. 5.4MCCh. 5 - Allison Corporations current year income from...Ch. 5 - Prob. 5.6MCCh. 5 - Chili Co. had the following balances at December...Ch. 5 - Szuba Corporation reported the following...Ch. 5 - Prob. 5.9MCCh. 5 - Prob. 5.1BECh. 5 - Prob. 5.2BECh. 5 - Advantages and Disadvantages of the Income...Ch. 5 - Identify each of the earnings items as primarily...Ch. 5 - Income Statement Presentation. Place the...Ch. 5 - Statement of Net Income Presentation, IFRS. Which...Ch. 5 - Single-Step Statement of Net Income. Carr...Ch. 5 - Statement of Net Income, IFRS. Using the...Ch. 5 - Multiple-Step Statement of Net Income. Using the...Ch. 5 - Condensed Statement of Net Income. Using the...Ch. 5 - Prob. 5.11BECh. 5 - Prob. 5.12BECh. 5 - Discontinued Operations. Jojo, Inc. held a...Ch. 5 - Prob. 5.14BECh. 5 - Prob. 5.15BECh. 5 - Prob. 5.16BECh. 5 - Computation of Retained Earnings. Taxi Cabs, Inc...Ch. 5 - Computation of Contributed Capital. Using the...Ch. 5 - Prob. 5.19BECh. 5 - Prob. 5.20BECh. 5 - Prob. 5.21BECh. 5 - Ratio Analyses. Green Grasshopper Incorporated is...Ch. 5 - Multiple-Step and Single-Step Statements of Net...Ch. 5 - Condensed Statement of Net Income. Using the trial...Ch. 5 - Prob. 5.3ECh. 5 - Prob. 5.4ECh. 5 - Multiple-step Statement of Net Income. The current...Ch. 5 - Condensed Statement of Net Income. Using the...Ch. 5 - Multiple-step income Statement. Ciara s Cookie...Ch. 5 - Prob. 5.8ECh. 5 - Prepare Statement of Stockholders' Equity. Dane...Ch. 5 - Prepare Statement of Stockholders Equity. Ciaras...Ch. 5 - Prepare a Statement of Stockholders' Equity....Ch. 5 - Profitability Analyses. Use the following excerpt...Ch. 5 - Multiple-Step and Single-Step income Statement,...Ch. 5 - Condensed Income Statement. Using the information...Ch. 5 - Multiple-step, Single-step, and Condensed...Ch. 5 - Statement of Net Income Presentation. IFRS....Ch. 5 - Income Statement Presentation, Classification, and...Ch. 5 - Prob. 5.6PCh. 5 - Multiple-step, Single-step, and Condensed...Ch. 5 - Statement of Comprehensive Income Single-and...Ch. 5 - Prepare Statement of Stockholders Equity. Use the...Ch. 5 - Prob. 5.10PCh. 5 - Prob. 1JCCh. 5 - Prob. 1FSCCh. 5 - Prob. 2FSCCh. 5 - Prob. 1SSCCh. 5 - Surfing the Standards Case 2: Amounts Paid by...Ch. 5 - Prob. 1BCCCh. 5 - Prob. 2BCC
Knowledge Booster
Similar questions
- ! Required Information [The following information applies to the questions displayed below.] Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Investment Center Electronics Sporting goods Compute profit margin and investment turnover for each department. Which department generates the most net income per dollar of sales? Which department is most efficient at generating sales from average invested assets? Profit Margin Sales Income $39,840,000 $2,988,000 25,200,000 2,142,000 Complete this question by entering your answers in the tabs below. Investment Turnover Investment Center Electronics Compute investment turnover for each department. Which department is most efficient at generating sales from average invested assets? Choose Numerator: Average Invested Assets $16,600,000 12,600,000 Investment Turnover I I Choose Denominator: Sporting Goods Which department is most efficient at generating sales…arrow_forwardBased on the information below, calculate the profit margin for Starbuck’s and Dunkin and choose the company that is strongest. Starbuck's Dunkin Brands Revenues 6,310 Revenues 350 Net Income 852 Net Income 66 EBITDA 1,510 EBITDA 122arrow_forwardUse the following information to answer #7 and # 8 An investment banker is analyzing two companies as possible investments, but is concerned about the impact that each company's cost structure might have on its profitability. The following CVP income statements are available for Chantal Corp. and Mantle, Inc. Chantal Corp. Mantle, Inc. Sales revenue $700,000 $700,000 Variable costs 350,000 487,500 Contribution margin 350,000 212,500 Fixed costs 225.000 87,500 Net income $125,000 $125.000 If sales decrease by 20% for each company, the impact on net income will be: a decrease of 10% for Chantal and a decrease of 14% for Mantle. O a decrease of 20% for Chantal and a decrease of 20% for Mantle. O a decrease of 56% for Chantal and a decrease of 34% for Mantle. O a decrease of 56% for Chantal and a decrease of 78% for Mantle.arrow_forward
- Located below is a sample from the income statement for Walkout Ltd. Sales revenue Cost of sales 200,000 (110,000) Gross Profit 90,000 Selling expenses General expenses Depreciation Salaries and wages (15,500) (20,000) (12,000) (7,000) 35,500 Operating Profit Management of Walkout Ltd is looking to gather insights into their operating leverage and the effect of changes in the volume of their output on profitability. a) Indicate which of the following statements is most correct by placing the number in the marked square Analysing outcomes with Cost-Volume-Profit analysis is objective because it is based on calculations are requires on subjective inputs Cost-Volume-Profit analysis can precisely be applied to external financial reporting Cost-Volume-Profit analysis provides a simple way to estimate the effects of changes in demand for goods or services on profit As Cost-Volume-Profit analysis takes account of both variable and fixed costs, it is always likely to mirror the cost-structure…arrow_forwardProfit margins and turnover ratios vary from one industry to another. What differences would you expect to find between a grocery chain and a steel company? Think particularly about the turnover ratios, the profit margin, and the DuPont equation.arrow_forwardCastle Home Industries is looking to invest in either Company A, B, or C. Calculate the ROI and residual income for each company and based on the results, indicate which one is the best choice for Castle Home Industries. Show your calculations for full points. Company A. B. C Sales $3,600,000 $6,000,000 $1,500,000 Net Operating Income 120,000 220,000 90,000 Average Operating Assets 1,000,000 2,000,000 900,000 Minimum required rate of return: 14% 6% 10%arrow_forward
- Segment analysis for a service company Charles Schwab Corporation (SCHW) is one of the more innovative brokerage and financial service companies in the United States. The company recently provided information about its major business segments as follows (in millions): InvestorServices AdvisorServices Revenues $5,411 $2,067 Operating income 2,031 962 Depreciation 180 54 a. The Investor Services segment serves the retail customer, you and me. These are the brokerage, Internet, and mutual fund services used by individual Investors. The Advisor Services segment includes the same services provided for financial institutions, such as banks, mutual fund managers, insurance companies, and pension plan administrators. b. Indicate whether the following costs are a “Variable Cost” or a “Fixed Cost” in the “Investor Services” segment. 1. Commissions to brokers Variable Cost 2. Fees paid to exchanges for executing trades Variable Cost 3. Depreciation on brokerage…arrow_forwardTisdale Incorporated reports the following amount in its December 31, 2021, income statement. Sales revenue Nonoperating revenue Selling expenses General expenses $300,000 110,000 60,000 50,000 Income tax expense Cost of goods sold Administrative expenses $ 30,000 190,000 40,000 Required:1. Prepare a multiple-step income statement.2. Explain how analyzing the multiple levels of profitability can help in understanding the future profit-generating potential of Tisdale Incorporated.arrow_forwardYou are given the following information for Smashville, Incorporated. Cost of goods sold: Investment income: Net sales: Operating expense: Interest expense: Dividends: Tax rate: Current liabilities: Cash: $ 184,000 $ 1,600 $ 387,000 $ 88,000 $ 7,400 $ 6,000 21% $ 12,000 $ 21,000 Long-term debt: $ 32,000 $ 40,000 Other assets: Fixed assets: Other liabilities: Investments: Operating assets: $ 125,000 $ 5,000 $ 36,000 $ 64,000 During the year, Smashville, Incorporated, had 17,000 shares of stock outstanding and depreciation expense of $19,000. At the end of the year, Smashville stock sold for $42 per share. Calculate the price-book ratio, price-earnings ratio, and price-cash flow ratio. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Answer is not complete. Price-book ratio Price-earnings ratio Price-cash flow ratio 15.19arrow_forward
- Calculate the net margin and indicate which of the two companies is more profitable. Agricorp Multigrain Net sales ( all on credit) $603,000 $519,000 Cost of goods sold $454,000 $387,000 Income from operations $93,000 $72,000 Interest expense $- $8,000 Net income $93,000 $38,000 Group of answer choices Agricorp Multigrain Non of the two companies are profitable Both companies are equally profitable Previousarrow_forwardThe following are the income statements for Ace and Diamond Companies. Diamond $ 76,000 49,000 45,600 21,000 30,400 9,500 12,500 $ 11,500 $ 17,900 What are the net income percentages for Ace and Diamond, respectively? Revenue Cost of goods sold Gross margin Operating expenses Net income Multiple Choice 6.09% and 4.25% 16.4% and 23.6% 1.83% and 1.70% 30% and 40% Ace $ 70,000arrow_forwardCompute profit margin for each of the 3 separate companies. Which company is the most profitable based on the profit margin ratio? Net income Net sales Total assets Kerr $ 6,450 43,000 48,000 Jax $ 1,640 41,000 45,000 Profit Margin Conclusion Bron $ 3,420 38,000 43,000 Complete this question by entering your answers in the tabs below. Compute profit margin for each of the 3 separate companies. Company Profit Margin (%) Kerr Jax Bronarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning