Problem 1

1
REED COMPANY
Statement of Profit or Loss
for the Year Ended December 31, 2023

Years Ended December 31

2023 2022
Sales revenue $4,000,000 $ 3,000,000
Cost of goods sold (2,570,000) (1,680,000)
Gross profit 1,430,000 1,320,000

Operating expenses:
Selling (340,000) (282,00)
Administrative (750,000) (635,000)
Inventory write-down (35,000) ---------
Loss due to fire (50,000) ---------
Total operating expenses (1,175,000) (917,000)
Operating profit 255,000 403,000

Other income (expense):

Interest revenue 150,000 140,000
Interest expense (200,000) (200,000)
Total other income (expense), net (50,000) (60,000)
Profit before income taxes 205,000 343,000
Income tax expense (41,000) (68,600)
Profit from continuing operation $164,000 $ 274,400

Discontinued operations:
Profit (Loss) from operations of discontinued (10,000) 110,000
component (including loss on disposal of 50,000)
Income tax benefit(expense) 2,000 (22,000)
Loss on discontinued operations (8,000) 88,000
Net profit/(loss) 156,000 362,000

Earnings per share:

Profit from continuing operations 0.55 0.91
Profit (Loss) from discontinued operations (0.03) 0.29

Net Profit 0.52 1.20

Problem 2
 2(Req1)
JACKSON HOLDING COMPANY
Partial Statement of Profit or Loss
for the Year Ended December 31, 2023

Years Ended December 31

2023 2022

Profit from continuing operation before income tax $2,200,000 $ 700,000

Income Tax expense (440,000) (140,000)
Profit from continuing operation 1,760,000 560,000
Discontinued operations:
Profit (Loss) from operations of discontinued component, 400,000 300,000
net of tax
Gain on disposal, net of tax 600,0000 ---------
Tax (expense) benefit (200,000) (60,000)
Profit (Loss) on discontinued operations 800,000 240,000
Net profit/(loss) 2,560,000 800,000

2(Req2)
JACKSON HOLDING COMPANY
Partial Statement of Profit or Loss
for the Year Ended December 31, 2023

Years Ended December 31

2023 2022
Profit from continuing operation before income tax $2,200,000 $ 700,000
Income Tax expense (440,000) (140,000)
Profit from continuing operation 1,760,000 560,000
Discontinued operations:
Profit (Loss) from operations of discontinued component, 400,000 300,000
net of tax
*
Tax (expense) benefit (80,000) (60,000)
The
Profit (Loss) on discontinued operations 320,000 240,000
Net profit/(loss) 2,080,000 800,000
2023 income from discontinued operations would include only the profit from operations of $400,000.
Since no impairment loss is indicated, none is included. The anticipated gain on disposal is not recognized
until it is realized, presumably in the following year.
2(Req3) *T
JACKSON HOLDING COMPANY he 2023
Partial Statement of Profit or Loss income
for the Year Ended December 31, 2023 from

Years Ended December 31

2023 2022
Profit from continuing operation before income tax $2,200,000 $ 700,000
Income Tax expense (440,000) (140,000)
Profit from continuing operation 1,760,000 560,000
Discontinued operations:
Profit (Loss) from operations of discontinued component, 320,000 240,000
net of tax
Impairment Loss, net of tax benefit (400,0000) ---------
Profit (Loss) on discontinued operations (80,000) 240,000
Net profit/(loss) 1,680,000 800,000
discontinued operations would include the profit from operations of $400,000 as well as an impairment
loss of $500,000 ($4,400,000 book value of assets less $3,900,000 fair value).

Problem 3

3
MICRON CORPORATION
Partial Statement of Profit or Loss
for the Year Ended December 31, 2023

Profit from continuing operations before income taxes...................... $ 1,300,000

Income tax expense (260,000)
Profit from continuing operations $ 1,040,000
Discontinued operations:
Profit (Loss) from operations of discontinued component 160,000
Loss disposal, (300,000)
Income tax benefit (expense) 28,000
Profit (Loss) on discontinued operations (112,000)
Net profit/(loss) 928,000

Problem 4

4(1). Restructuring costs should be included in income from continuing operations but reported as a separate
income statement component. The item is reported gross, not net of tax as with extraordinary gains and losses.
4(2). The extraordinary gain should be presented in the other income below income from continuing operations.
The profit and gain on discontinued operations should be presented in separate line item.
4(3). The correction of the error should be treated as a prior period adjustment to beginning retained earnings,
not as an adjustment to current year's cost of goods sold.
 Problem 5

5
ALEXIAN SYSTEM LTD
Statement of Profit or Loss
for the Year Ended December 31, 2023
($ in millions, except earnings per share)

Sales revenue $ 425

Cost of goods sold (265)
Gross profit 160

Operating expenses:
Selling and Administrative (128)
Restructuring Cost (26)
Total operating expenses (154)
Operating profit 6

Other income (expense):

Interest revenue 3
Gain on sale of investment 6
Total other income (expense), net 9
Profit before income taxes 15
Income tax expense (3)
Profit from continuing operation $ 12

Discontinued operations:
Profit (Loss) from operations of 90
discontinued component
Gain on Disposal 30
Income tax benefit(expense) (24)
Profit (Loss) on discontinued operations 96
Net profit/(loss) 108

Earnings per share:

Profit from continuing operations 0.6
Profit (Loss) from discontinued operations 4.8
Net Profit 5.4
 Problem 6

6
REMBRANDT PAINT COMPANY
Statement of Profit or Loss
for the Year Ended December 31, 2023
($ in thousands, except earnings per share)

Sales revenue $ 18
Cost of goods sold (10
Gross profit

Operating expenses:
Selling and Administrative (2
Restructuring Cost (800
Total operating expenses (3
Operating profit

Other income (expense):

Interest revenue 200
Interest Expense (350
Total other income (expense), net (150
Profit before income taxes
Income tax expense (810
Profit from continuing operation $3

Discontinued operations:
Profit (Loss) from operations of (1,600)
discontinued component
Gain on Disposal 2,000
Income tax benefit(expense) (80)
Profit (Loss) on discontinued operations 320
Net profit/(loss)

Earnings per share:

Profit from continuing operations 6.48
Profit (Loss) from discontinued operations 0.64
Net Profit 7.12

Problem 7
 7(Req1) )
SCHEMBRI MANUFACTURING CORPORATION
Statement of Profit or Loss and Other Comprehensive Income
for the Year Ended December 31, 2023
($ in thousands, except earnings per share)

Sales revenue $ 15,300

Cost of goods sold (6,200)
Gross profit 9,100
Operating expenses:
Selling (1,300)
General and Administrative (800)
Restructuring Cost (1,200)
Total operating expenses (3,300)
Operating profit 5,800
Other income (expense):
Interest revenue $85
Interest Expense (180)
Loss on sale of investments (220)
Total other income (expense), net (315)
Profit before income taxes 5,485
Income tax expense (1,097)
Profit from continuing operation $ 4,388
Discontinued operations:
Profit (Loss) from operations of (560)
discontinued component
Gain on Disposal 1,400
Income tax benefit(expense) (168)
Profit (Loss) on discontinued operations 672
Net profit/(loss) $ 5,060
Other Comprehensive Income (loss)
Loss on foreign currency translation $ (240)
Unrealized gain on investment 320
Income tax (expense) benefit (16)
Other Comprehensive Income (loss) 64
Comprehensive income 5,124
Earnings per share:
Profit from continuing operations 3.66
Profit (Loss) from discontinued 0.56
operations
Net Profit 4.22

*
 7(Req2)
SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
for the Year Ended December 31, 2023
($ in thousands, except earnings per share)

Net profit $5,060

Other comprehensive income (loss):
Foreign currency translation loss, net of tax ................. $(192)
Unrealized gain on investment securities,
net of tax 256
Total other comprehensive income 64
Comprehensive income $5,124
4,388,000
=3.66
1,200,000
672.000
=0.56
1,200,000

8 )
DUKE COMPANY
Statement of Profit or Loss and Other Comprehensive Income
for the Year Ended December 31, 2023

Sales revenue $
15,000,000
Cost of goods sold (9,000,000)
Gross profit 6,000,000
Operating expenses:
Selling (500,000)
Problem 8 General and Administrative (1,000,000)
Restructuring Cost (300,000)
Inventory write-down (400,000)
Total operating expenses (2,200,000)
Operating profit 3,800,000
Other income (expense):
Interest Expense (700,000)
Total other income (expense), net (700,000
)
Profit before income taxes 3,100,000
Income tax expense (620,000)
Net profit/(loss) $ 2,480,000
Other Comprehensive Income (loss)
Loss on foreign currency translation (160,000)
Unrealized gain on investment 144,000
Other Comprehensive Income (loss) (16,000)
Comprehensive income 2,464,000
 Problem 9

9(Req1)
Inventory turnover ratio = Cost of goods sold
Average inventory

= $6,300,000
[$600,000 + 800,000] ÷ 2

= 9 times

9(Req2)

Average days in inventory = 365

Inventory turnover ratio
= 365 9(Req3)
Receivables turnover ratio = Net9sales
= Average Accounts
40.6 daysReceivable
$9,000,000 9(Req4)
=
[$400,000 + 600,000] ÷ 2

= 18 times
 Average collection period = 365
Receivables turnover ratio
9(Req5)
= 365
Asset turnover ratio = Net18sales
Average total assets
== 20.3 days 9(Req6)
$9,000,000
Profit margin on sales = [$3,600,000 Net+$4,000,000]
profit ÷2
Net Sales
= 2.37 times 9(Req7)
= $300,000
Return on Assets = Net profit +$9,000.000
Interest Expense (1-tax rate)
Average total assets
=
= 3%
$300,000
[$3,600,000 +$4,000,000] ÷ 2

= 7.89%
9(Req8)
Return on Shareholder’s Equity = Net profit
Average Total Equity
= $300,000
[$1,350,000 + 1,500,000] ÷ 2

= 21.06%

9(Req9)
Equity Multiplier = Average Total Assets
Average Total Equity
9(Req10)
= [$3,600,000 +$4,000,000] ÷ 2
[$1,350,000 + 1,500,000] ÷ 2
Return on Shareholder’s Equity = = Profit Margin x2.67
Asset Turnover x Equity Multiplier
times
300,000 9,000,000 3,800,000
¿ x x
9,000,000 3,800,000 1,425,000 = 21.06%

Receivable turnover ratio Problem 10

J&J = $41,862
$6,574
= 6.37 times 10 (Req1)
Pfizer = $45,188
$8,775

= 5.15 times
 Average days in inventory
J&J = 365
6.37
Inventory turnover ratio = 57.30 days
J&J = $12,176
Pfizer = 365
$3,588
= 3.39 times 5.15
= 70.87 days
Average
Pfizer days in inventory = $9,832
J&J = 365
$5,837
3.39
= 107.67
= 1.68 days
times

Pfizer = 365
1.68
= 217.26 days
*J&J is more efficient
in collecting its accounts receivable and managing its inventory

10(Req2)
Return on Assets
J&J = $7,197
$48,263
= 14.91% *J&J had greater
earnings relative to
Pfizer = $1,639 resources available
$116,775
= 1.40% 10(Req3)

Return on Assets
7,197 41,862 *Yes.
J&J = x
41,862 48,263 10(Req4)

= 14.91%
Return on Shareholder’s Equity
Pfizer =
J&J 1,639 45.188 = $7,197
x *J&J provided a
45,188 116,775 $26,869
= 26.79% greater rate of return
in the perspective of a
= 1.40% shareholder
Pfizer = $1,639
Multiplier $65,377
J&J = 2.51% $48,263
= 10(Req5)
$26,869
= 1.80 times

Pfizer = $116,775
$65,377
= 1.79 times
*J&J use leverage more effectively to provide a return to shareholders above the rate of return of asset

Problem 11

11
CADUX CANDY COMPANY
Statement of Financial Position
for the Year Ended December 31, 2023
All $ are in millions
Asset
Current Assets
Cash
Accounts Receivable
Inventory
Total Current Assets
Property, Plant, Equipment
Total Assets
Liabilities and Shareholder’s Equity
Current Liabilities
Long Term Liabilities
Shareholder’s Equity
Total Liabilities and Shareholder’s Equity

Solution:
Times interest earned ratio
= (Net income + Interest + Taxes) ÷ Interest = 17
= (Net income + $2 + 12) ÷ $2 = 17
= Net income + $14 = 17 × $2
Net income = $20
Return on assets
= Net income ÷ Total assets = 10%
Total assets = $20 ÷ 10%
Total Assets = $200
Profit margin on sales
= Net income ÷ Net Sales = 5%
Net Sales = $20 ÷ 5%
Net Sales = $400
Gross profit margin
= Gross profit ÷ Net sales = 40%
Gross profit = $400 × 40%
Gross Profit = $160
Cost of goods sold
= Sales – Gross profit
= $400 – 160
COGS = $240
Inventory turnover ratio
= Cost of goods sold ÷ Inventory = 8
Inventory = $240 ÷ 8
Inventory = $30
Receivables turnover ratio
= Sales ÷ Accounts receivable = 20
Accounts receivable = $400 ÷ 20
Accounts Receivable= $20

Current ratio = Current assets ÷ Current liabilities = 2.0

Acid-test ratio = Quick assets ÷ Current liabilities = 1.0
= Current assets ÷ 2.0 = Current liabilities
= Quick assets ÷ 1.0 = Current liabilities
= Current assets ÷ 2.0 = Quick assets ÷ 1.0
= Current assets = 2.0 × Quick assets
= Cash + Accts. rec. + Inventory = 2.0 × (Cash + Accounts receivable)
Cash + $20 + 30 = (2.0 × Cash) + 2 × $20)
Cash + $50 = Cash + Cash + $40
Cash = $10
Acid-test ratio
= (Cash + Accounts receivable) ÷ Current liabilities = 1.0
Current liabilities = ($10 + 20) ÷ 1.0
Current Liabilities = $30

Noncurrent assets
= Total assets – Current assets
= $200 – ($10 + 20 + 30)
Noncurrent Asset = $140
Return on shareholders' equity
= Net income ÷ Shareholders' equity = 20%
Shareholders' equity = $20 ÷ 20%
Shareholder’s Equity = $100
Debt to equity ratio
= Total liabilities ÷ Shareholders' equity = 1.0
Total liabilities = $100 × 1.0
Total Liabilities = $100
Long-term liabilities
= Total liabilities – Current liabilities
= $100 – 30
Long Term Liabilities = $70

Problem 12

Return on Assets
12(Req1)
Metropolitan = $593.8
$4,021.5
= 14.77%

Republican = $424.6
$4,008
= 10.59%
*Metropolitan had greater earnings relative to resources available
12(Req2)

Return on Assets
$ 593.8 5,698
Metropolitan = x
5,698 4,021.5

= 14.77%

Republic =
424.6 7,768.2
x
7,768.2 4,008

= 10.59%
*Yes

12(Req3)

Return on Shareholder’s Equity

Metropolitan = $593.8
$1,717.1

= 34.58%

Republic = $424.6
$972.8
= 43.64% * Republic provided a
greater rate of return
in the perspective of a shareholder
12(Req4)
Multiplier
Metropolitan = $4,021
*Republic use
$1,717.1
= 2.34 times leverage more
effectively to provide
Republic = $4,008 a return to
$972.8 shareholders above
= 4.12 times the rate of return of
asset
12(Req5)
Current ratio
Metropolitan = $1,203
Acid Test Ratio
$1,280.2
Metropolitan = $1,203-466.4-134.6
= 0.94 times *Republic appears
$1,280.2
= 0.47 times$1,478.7 riskier in terms of its
Republic = ability to pay short-
$1,787.1 term obligation
Republic = $1,478.7-635.2-476.7
= 0.83 times
Current ratio $1,787.1
Metropolitan = = 0.21 times $1,203
$1,280.2
= 0.94 times *Republic appears
riskier in terms of its
Republic = $1,478.7 ability to pay short
$1,787.1 term obligation
= 0.83 times
12(Req6)
Inventory turnover ratio
Metropolitan = $2,909
$466.4
Receivable turnover ratio = 6.24 times
Metropolitan = $5,698
Republican = $4,481.7
$422.7
= 13.48 times$635.2 *both are efficiently
= 7.06 times managing their
Republic = $7,768.2 current assets but
$325 Republic is more
= 23.90 times efficient in managing
current assets than
Metropolitan
12(Req7)
Interest Earned ratio
Metropolitan = $593.8 +56.8+394.7
56.8
= 18.40 times *Metropolitan offers
the most comfortable
Republic = $424.6+46.6+276.1 margin of safety in
46.6 terms of its ability to
= 16.04 times pay fixed interest
charges

Problem 13
13
BRANSON ELECTRONICS COMPANY
Consolidated Condensed Statements of Earnings
First quarter of Interim Report

Sales revenue $ 180,000

Cost of goods sold (35,000)
Gross profit 145,000

Operating expenses:
Fixed (9,000)
Variable (48,000)
Total operating expenses (57,000)
Operating profit 88,000
Income tax expense (5,720)
Net Earnings $ 82,280