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Teaching Since:	May 2017
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Education

MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011

Experience

Professor
Phoniex University
Oct-2001 - Nov-2016

Category > Accounting Posted 19 Aug 2017 My Price 15.00

Bettancort Inc.

Nineteen measures of solvency and profitability

The comparative financial statements of Bettancort Inc. are as follows. The market price of Bettancort Inc. common stock was $71.25 on December 31, 2016.

Bettancort Inc.

Comparative Retained Earnings Statement For the Years Ended December 31, 2016 and 2015

2016 2015

Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,655,000 $2,400,000

Add net income for year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 280,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,955,000 $2,680,000 Deduct dividends:

On preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 $ 15,000

On common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,000 $ 25,000 Retained earnings, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,930,000 $2,655,000

Bettancort Inc. Comparative Income Statement For the Years Ended December 31, 2016 and 2015
	2016	2015
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$1,200,000	$1,000,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	500,000	475,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 700,000	$ 525,000
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 240,000	$ 200,000
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	180,000	150,000
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 420,000	$ 350,000
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 280,000	$ 175,000
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	166,000	225,000
	$ 446,000	$ 400,000
Other expense (interest) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	66,000	60,000
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 380,000	$ 340,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	80,000	60,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 300,000	$ 280,000

Current assets:

Bettancort Inc.

Comparative Balance Sheet December 31, 2016 and 2015

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 450,000	$ 400,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	300,000	260,000
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	130,000	110,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	67,000	58,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	153,000	139,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$1,100,000	$ 967,000
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2,350,000	2,200,000
Property, plant, and equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,320,000	1,188,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$4,770,000	$4,355,000
Liabilities
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term liabilities:	$ 440,000	$ 400,000
Mortgage note payable, 8%, due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 100,000	$ 0
Bonds payable, 5%, due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,000,000	1,000,000
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$1,100,000	$1,000,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ Equity	$1,540,000	$1,400,000
Preferred $0 .75 stock, $10 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 200,000	$ 200,000
Common stock, $10 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100,000	100,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2,930,000	2,655,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$3,230,000	$2,955,000
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$4,770,000	$4,355,000

Instructions

Determine the following measures for 2016, rounding to one decimal place:

1. Working capital

2. Current ratio

3. Quick ratio

4. Accounts receivable turnover

5. Number of days’ sales in receivables

6. Inventory turnover

7. Number of days’ sales in inventory

8. Ratio of fixed assets to long-term liabilities

9. Ratio of liabilities to stockholders’ equity

10. Number of times interest charges are earned

11. Number of times preferred dividends are earned

12. Ratio of sales to assets

13. Rate earned on total assets

14. Rate earned on stockholders’ equity

15. Rate earned on common stockholders’ equity

16. Earnings per share on common stock

17. Price-earnings ratio

18. Dividends per share of common stock

19. Dividend yield

Solvency and profitability trend analysis

Addai Company has provided the following comparative information:

2016 2015 2014 2013 2012

Net income	$ 273,406	$ 367,976	$ 631,176	$ 884,000	$ 800,000
Interest expense	616,047	572,003	528,165	495,000	440,000
Income tax expense	31,749	53,560	106,720	160,000	200,000
Total assets (ending balance)	4,417,178	4,124,350	3,732,443	3,338,500	2,750,000
Total stockholders’ equity (ending balance)	3,706,557	3,433,152	3,065,176	2,434,000	1,550,000
Average total assets	4,270,764	3,928,396	3,535,472	3,044,250	2,475,000
Average total stockholders’ equity	3,569,855	3,249,164	2,749,588	1,992,000	1,150,000

You have been asked to evaluate the historical performance of the company over the last five years.

Selected industry ratios have remained relatively steady at the following levels for the last five years:

2012–2016

Rate earned on total assets	28%
Rate earned on stockholders’ equity	18%
Number of times interest charges are earned	2 .7
Ratio of liabilities to stockholders’ equity	0 .4

Instructions

1. Prepare four line graphs with the ratio on the vertical axis and the years on the hori- zontal axis for the following four ratios (rounded to one decimal place):

a. Rate earned on total assets

b. Rate earned on stockholders’ equity

c. Number of times interest charges are earned

d. Ratio of liabilities to stockholders’ equity

Display both the company ratio and the industry benchmark on each graph. That is, each graph should have two lines.

2. Prepare an analysis of the graphs in (1).

Answers

Maurice Tutor

(5)

Status NEW Posted 19 Aug 2017 11:08 PM My Price 15.00

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