Question: Schedule 1 THE LAKESIDE COMPANY INCOME STATEMENT For Year End... Sched
ID: 2430663 • Letter: Q
Question
Question: Schedule 1 THE LAKESIDE COMPANY INCOME STATEMENT For Year End...
Schedule 1
THE LAKESIDE COMPANY
INCOME STATEMENT
For Year Ending December 31, 2007
For Year Ending December 31, 2008
Company Stores
Distributorship
Lakeside Totals
Company Stores
Distributorship
Lakeside Totals
Sales
2,526,000
2,646,000
5,172,000
2,658,000
3,120,000
5,778,000
Sales Returns and Discounts
(131,000)
(194,000)
(325,000)
(168,000)
(233,000)
(401,000)
Net Sales
2,395,000
2,452,000
4,847,000
2,490,000
2,887,000
5,377,000
Cost of Goods Sold
(1,518,000)
(1,566,000)
(3,084,000)
(1,608,000)
(1,827,000)
(3,435,000)
Gross Profit
877,000
886,000
1,763,000
882,000
1,060,000
1,942,000
Salaries, Commissions, Bonuses
(581,000)
(335,000)
(916,000)
(641,000)
(380,000)
(1,021,000)
Advertising and Selling Expense
(91,000)
(112,000)
(203,000)
(89,000)
(127,000)
(216,000)
Rent Expense
(96,000)
(18,000)
(114,000)
(121,000)
(25,000)
(146,000)
Depreciation Expense
(33,000)
(12,000)
(45,000)
(34,000)
(12,000)
(46,000)
Other General and Administrative
(81,000)
(93,000)
(174,000)
(102,000)
(93,000)
(195,000)
Interest Expense
(52,000)
(35,000)
(87,000)
(70,000)
(44,000)
(114,000)
Income Before Income Taxes
(57,000)
281,000
224,000
(175,000)
379,000
204,000
Income Taxes
23,000
(112,000)
(89,000)
70,000
(152,000)
(82,000)
Net Income
(34,000)
169,000
135,000
(105,000)
227,000
122,000
Retained Earnings, January 1, 2008
193,000
257,000
Cash Dividends
(71,000)
(67,000)
Retained Earnings, January 1, 2008
257,000
312,000
Schedule 2
THE LAKESIDE COMPANY
BALANCE SHEET
As of December 31, 2007
As of December 31, 2008
Current Assets
Cash
68,000
71,000
Accounts Receivable - Distributorship
293,000
388,000
Allowance for Doubtful Accounts
(19,000)
274,000
(24,000)
364,000
Inventory - FIFO costing;
Lower of cost of market
786,000
946,000
Total Current Asssets
1,128,000
1,381,000
Land, Buildings and Equipment
Land
149,000
149,000
Buildings and Equipment
337,000
348,000
Accumulated Depreciation
(143,000)
194,000
(179,000)
169,000
Total Land, Buildings, and Equipment
343,000
318,000
Intangible Assets
Leasehold Improvements
208,000
211,000
Accumulated Depreciation
(86,000)
122,000
(96,000)
115,000
TOTAL ASSETS
1,593,000
1,814,000
Current Liabilities
Notes Payable - Current
20,000
20,000
Notes Payable - Trade
549,000
696,000
Accounts Payable - Cypress
156,000
166,000
Accrued Expenses and Taxes Payable
106,000
135,000
Total Current Liabilities
831,000
1,017,000
Notes Payable - Long Term
355,000
335,000
TOTAL LIABILITIES
Stockholders' Equity
Common Stock - 10,000 shares issued
10,000
10,000
and outstanding, $1.00 par value
Additional Paid-In Capital
140,000
140,000
Retained Earnings
257,000
312,000
TOTAL STOCKHOLDERS' EQUITY
407,000
462,000
TOTAL LIABILITIES AND
1,593,000
1,814,000
STOCKHOLDERS' EQUITY
Case Questions:
Using the financial information provided above for Lakeside Company, Perform the following analytical procedures for 2007 and 2008
Current ratio
# Days inventory on hand
Receivables collection period
Debt-to-total assets
Times interest earned
Profit Margin
Return on Assets
Return on Equity
** What is your overall assessment of the significance of the ratios in 2007 and 2008?
**What is your overall assessment of the change in ratios from 2007 to 2008?
Using the financial information that you prepared in Question #1, compare your calculations to the industry averages provided below:
RATIOS INDUSTRY AVERAGE 2008 LAKESIDE 2008
Current ratio 1.73
# Days inventory on hand 65
Receivables collection period 11
Debt-to-total assets 13%
Times interest earned 30 times
Profit Margin 2.93
Return on Assets 6.09
** What is your overall assessment of the comparison of the ratios for Lakeside in 2008 as compared with the industry average?
Schedule 1
THE LAKESIDE COMPANY
INCOME STATEMENT
For Year Ending December 31, 2007
For Year Ending December 31, 2008
Company Stores
Distributorship
Lakeside Totals
Company Stores
Distributorship
Lakeside Totals
Sales
2,526,000
2,646,000
5,172,000
2,658,000
3,120,000
5,778,000
Sales Returns and Discounts
(131,000)
(194,000)
(325,000)
(168,000)
(233,000)
(401,000)
Net Sales
2,395,000
2,452,000
4,847,000
2,490,000
2,887,000
5,377,000
Cost of Goods Sold
(1,518,000)
(1,566,000)
(3,084,000)
(1,608,000)
(1,827,000)
(3,435,000)
Gross Profit
877,000
886,000
1,763,000
882,000
1,060,000
1,942,000
Salaries, Commissions, Bonuses
(581,000)
(335,000)
(916,000)
(641,000)
(380,000)
(1,021,000)
Advertising and Selling Expense
(91,000)
(112,000)
(203,000)
(89,000)
(127,000)
(216,000)
Rent Expense
(96,000)
(18,000)
(114,000)
(121,000)
(25,000)
(146,000)
Depreciation Expense
(33,000)
(12,000)
(45,000)
(34,000)
(12,000)
(46,000)
Other General and Administrative
(81,000)
(93,000)
(174,000)
(102,000)
(93,000)
(195,000)
Interest Expense
(52,000)
(35,000)
(87,000)
(70,000)
(44,000)
(114,000)
Income Before Income Taxes
(57,000)
281,000
224,000
(175,000)
379,000
204,000
Income Taxes
23,000
(112,000)
(89,000)
70,000
(152,000)
(82,000)
Net Income
(34,000)
169,000
135,000
(105,000)
227,000
122,000
Retained Earnings, January 1, 2008
193,000
257,000
Cash Dividends
(71,000)
(67,000)
Retained Earnings, January 1, 2008
257,000
312,000
Explanation / Answer
Solution:-
1. Current ratio = Current assets / Current liabilities
2007 = 1128000 / 831000 = 1.3574
2008 = 1381000 / 1017000 = 1.3579
2. Days Inventory on Hand = Average Inventory / Cost of goods sold * 365
2007 = 786000 / 3084000 * 365 = 92.79 days
2008 = 946000 / 3435000 * 365 = 100.52 days
Note:- As we have taken amount of average inventory which is given in balance sheet, but correct method to calculate average inventory = { opening inventory + closing inventory / 2 }
3. Receivables collection period = { Average accounts receivable / (Annual sales / 365 days) }
2007 = 293000 / ( 4847000 / 365 ) = 293000 / 13279.45 = 22.06 days
2008 = 388000 / ( 5377000 / 365 ) = 388000 / 14731.51 = 26.34 days
Note:- As we have taken amount of average accounts receivable which is given in balance sheet, but correct method to calculate average receiveble = { opening receivable + closing receivable / 2 }
4. Debt to total assets = Short term debt + Long term debt / Total assets
2007 = 831000 + 355000 / 1593000 = 0.7445
2008 = 1017000 + 335000 / 1814000 = 0.7453
Note:- Short term debt means total current liabilities nas long term debt means long term liabilities.
5. Times interest earned = Earning before Interest & Tax / Interest Payable
2007 = 311000 / 87000 = 3.5747
2008 = 318000 / 114000 = 2.789
Notes:- Earning before Interest tax = Net income + Interest payable expenses
2007 = 224000 + 87000 = 311000
2008 = 204000 + 114000 = 318000
6. Return on assets = Net profits / Total assets
2007 = 135000 / 1593000 = 8.77
2008 = 122000 / 1814000 = 6.725
7. Return on equity = Net profits / shareholders equity
2007 = 135000 / 407000 = 33.16
2008 = 122000 / 462000 = 26.41
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