In: Accounting
Question: Schedule 1 THE LAKESIDE COMPANY INCOME STATEMENT For Year End...
Schedule 1 |
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THE LAKESIDE COMPANY |
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INCOME STATEMENT |
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For Year Ending December 31, 2007 |
For Year Ending December 31, 2008 |
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Company Stores |
Distributorship |
Lakeside Totals |
Company Stores |
Distributorship |
Lakeside Totals |
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Sales |
2,526,000 |
2,646,000 |
5,172,000 |
2,658,000 |
3,120,000 |
5,778,000 |
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Sales Returns and Discounts |
(131,000) |
(194,000) |
(325,000) |
(168,000) |
(233,000) |
(401,000) |
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Net Sales |
2,395,000 |
2,452,000 |
4,847,000 |
2,490,000 |
2,887,000 |
5,377,000 |
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Cost of Goods Sold |
(1,518,000) |
(1,566,000) |
(3,084,000) |
(1,608,000) |
(1,827,000) |
(3,435,000) |
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Gross Profit |
877,000 |
886,000 |
1,763,000 |
882,000 |
1,060,000 |
1,942,000 |
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Salaries, Commissions, Bonuses |
(581,000) |
(335,000) |
(916,000) |
(641,000) |
(380,000) |
(1,021,000) |
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Advertising and Selling Expense |
(91,000) |
(112,000) |
(203,000) |
(89,000) |
(127,000) |
(216,000) |
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Rent Expense |
(96,000) |
(18,000) |
(114,000) |
(121,000) |
(25,000) |
(146,000) |
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Depreciation Expense |
(33,000) |
(12,000) |
(45,000) |
(34,000) |
(12,000) |
(46,000) |
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Other General and Administrative |
(81,000) |
(93,000) |
(174,000) |
(102,000) |
(93,000) |
(195,000) |
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Interest Expense |
(52,000) |
(35,000) |
(87,000) |
(70,000) |
(44,000) |
(114,000) |
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Income Before Income Taxes |
(57,000) |
281,000 |
224,000 |
(175,000) |
379,000 |
204,000 |
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Income Taxes |
23,000 |
(112,000) |
(89,000) |
70,000 |
(152,000) |
(82,000) |
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Net Income |
(34,000) |
169,000 |
135,000 |
(105,000) |
227,000 |
122,000 |
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Retained Earnings, January 1, 2008 |
193,000 |
257,000 |
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Cash Dividends |
(71,000) |
(67,000) |
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Retained Earnings, January 1, 2008 |
257,000 |
312,000 |
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Schedule 2 |
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THE LAKESIDE COMPANY |
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BALANCE SHEET |
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As of December 31, 2007 |
As of December 31, 2008 |
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Current Assets |
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Cash |
68,000 |
71,000 |
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Accounts Receivable - Distributorship |
293,000 |
388,000 |
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Allowance for Doubtful Accounts |
(19,000) |
274,000 |
(24,000) |
364,000 |
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Inventory - FIFO costing; |
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Lower of cost of market |
786,000 |
946,000 |
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Total Current Asssets |
1,128,000 |
1,381,000 |
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Land, Buildings and Equipment |
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Land |
149,000 |
149,000 |
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Buildings and Equipment |
337,000 |
348,000 |
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Accumulated Depreciation |
(143,000) |
194,000 |
(179,000) |
169,000 |
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Total Land, Buildings, and Equipment |
343,000 |
318,000 |
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Intangible Assets |
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Leasehold Improvements |
208,000 |
211,000 |
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Accumulated Depreciation |
(86,000) |
122,000 |
(96,000) |
115,000 |
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TOTAL ASSETS |
1,593,000 |
1,814,000 |
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Current Liabilities |
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Notes Payable - Current |
20,000 |
20,000 |
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Notes Payable - Trade |
549,000 |
696,000 |
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Accounts Payable - Cypress |
156,000 |
166,000 |
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Accrued Expenses and Taxes Payable |
106,000 |
135,000 |
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Total Current Liabilities |
831,000 |
1,017,000 |
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Notes Payable - Long Term |
355,000 |
335,000 |
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TOTAL LIABILITIES |
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Stockholders' Equity |
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Common Stock - 10,000 shares issued |
10,000 |
10,000 |
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and outstanding, $1.00 par value |
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Additional Paid-In Capital |
140,000 |
140,000 |
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Retained Earnings |
257,000 |
312,000 |
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TOTAL STOCKHOLDERS' EQUITY |
407,000 |
462,000 |
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TOTAL LIABILITIES AND |
1,593,000 |
1,814,000 |
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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?
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