Principles of Accounting
Objectives
• Perform ratio and financial statement analysis in the four areas of analysis
• Apply critical thinking skills (analysis, evaluation, inference)
This project will be submitted by scanning in the hard copies of your project and emailing them to me in D2L.
Problem Instructions
Follow the problem instructions below assigned by your instructor and based on Chapter 17 problems from the Fundamental Accounting Principles text attached to the Project page.
Resources
Resources include Chapter 17 of your accounting text and the Financial Ratios handout available through Lesson 5. You may also find resources on the Internet. Your instructor is also available to assist you as well.
Presentation
The work for this project should be neatly prepared and presented. Computer-generated work (charts, graphs) can be used to strengthen your presentation. Presentation is assessed and will be graded subjectively and competitively.
Analysis
A percentage of the project score is also based on your analysis and comments of the findings. You will be asked to select a path of action. Your analysis score will not be based on the options you choose, but on the data and reasoning you use to back up your decision.
Impact
The score earned on this project is worth 5% of your final course grade.
Project
Problem Data
A. Summary information from the financial statements of two companies competing in the same industry follows:
|
Data from the 2014 year-end balance sheets
|
|
Micron Co.
|
Baylee Co.
|
|
Assets
|
|
|
|
Cash
|
$19,500
|
$34,000
|
|
Accounts receivable, net
|
37,400
|
57,400
|
|
Notes receivable, current portion
|
9,100
|
7,200
|
|
Merchandise inventory
|
84,440
|
132,500
|
|
Prepaid Expenses
|
5,000
|
6,950
|
|
Plant assets, net
|
290,000
|
304,400
|
|
Total assets
|
$445,440
|
$542,450
|
|
|
|
|
Liabilities and Equity
|
|
Current liabilities
|
$ 61,340
|
$ 93,300
|
|
Long-term notes payable
|
80,800
|
101,000
|
|
Common stock, $5 par value
|
180,000
|
206,000
|
|
Retained earnings
|
123,300
|
142,150
|
|
Total liabilities and equity
|
$445,440
|
$542,450
|
|
|
|
|
Beginning-of-year balance sheet data:
|
|
Micron Co.
|
Baylee Co.
|
|
Accounts receivable, net
|
$29,800
|
$54,200
|
|
Notes receivable, current portion
|
0
|
0
|
|
Merchandise inventory
|
55,600
|
107,400
|
|
Total assets
|
398,000
|
382,500
|
|
Common stock, $5 par value
|
180,000
|
206,000
|
|
Retained earnings
|
98,300
|
93,600
|
|
|
|
|
Data from the 2014 income statement:
|
|
Micron Co.
|
Baylee Co.
|
|
Sales
|
$770,000
|
$880,200
|
|
Cost of goods sold
|
585,100
|
632,500
|
|
Interest expense
|
7,900
|
13,000
|
|
Income tax expense
|
14,800
|
24,300
|
|
Net income
|
162,200
|
210,400
|
|
Basic earnings per share
|
4.51
|
5.11
|
Requirements
1. Prepare common-size 2014 balance sheets (in good form) for each company. Round all percents to tenths (0.0%).
2. Prepare common-size 2014 income statements (in good form) for each company. Round all percents to tenths (0.0%).
3. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover, (e) days' sales in inventory, (f) days' sales uncollected. (g) profit margin, (h) return on total assets, and (i) return on common stockholders' equity.
4. Assuming that each company paid cash dividends of $.75 per share and each company's stock can be purchased at $32 per share, compute their (a) price-earnings ratios and (b) dividend yields.
For 3 & 4, state your answers in correct format with proper labels and rounding as shown in the textbook, i.e., turnover-3.4 times, Days' sales-42 days, profit margin-8.3%, etc.
5. Prepare a statement containing the following items:
a. Identify the company your group considers to have the better short-term financial position. Back up your decision with appropriate analysis and numbers.
b. Assuming that you had funds to invest in only one of these companies, identify the company your group would invest in. Back up your decision with appropriate analysis and numbers.
Your analysis statement should be prepared on a word processor. The document should contain precise, clear statements indicating your group's viewpoints and supporting computations. Complete sentences composed of correct grammar and spelling should be applied in your document. The length of the statement should be adequate to cover your decisions and provide supporting data.
B. Comparative statements for Manuel Corporation are shown below:
|
Manuel Corporation
Comparative Income Statements
For the years ended December 31,
|
|
2014
|
2013
|
2012
|
|
Sales
|
$14,800
|
$13,229
|
$13,994
|
|
Cost of Goods Sold
|
8,225
|
8,661
|
8,375
|
|
Gross profit
|
6,575
|
4,568
|
5,619
|
|
Operatintg Expenses
|
3,664
|
3,576
|
3,487
|
|
Operating income
|
$2,911
|
$992
|
$2,132
|
Requirements
Calculate trend percentages for all income statement amounts shown AND comment on the results. Use 2012 as the base year. Round all percents to tenths (0.0%).