Practice Problems

Demonstration Problems

Demonstration problem A Comparative financial statements of Kellogg Company for 2003 and 2002 follow:

Kellogg Company
Comparative income statements
Fore the years ended 2003 December 31, and 2002
(USD millions)

 

2003

2002

Net revenues

$6,954.7

$6,984.2

Cost of goods sold

3,327.0

3,325.1

Gross margin

$3,627.7

$3,659.1

Operating expense

2,551.4

2,585.7

Nonoperating expense (interest)

137.5

118.8

Income before income taxes

$ 938.8

$ 954.6

Income taxes

280.0

198.4

Net earnings

$ 658.8

$ 756.2

 

Kellogg Company
Comparative Balance sheets
2003 December 31, and 2002

 

(USD millions)

Assets

2003

2002

Cash and temporary investments

$ 204.4

$ 150.6

Accounts receivable, net

685.3

678.5

Inventories

443.8

503.8

Other current assets

273.3

236.3

Property, net

2,526.90

2,640.90

Other assets

762.6

589.6

Total assets

$4,896.3

$4,808.7

Liabilities and stockholders' equity

Current liabilities

$2,492.6

$1,587.8

Long-term liabilities

1,506.20

2,407.70

 

 

 

Common stock

103.8

103.8

Capital in excess of par value

102

104.5

Retained earnings

1,501.00

1,317.20

Treasury stock

-374

-380.9

Currency translation adjustment

-435.3

-331.4

Total liabilities and stockholders' equity

$4,896.3

$4,808.7

  1. Prepare comparative common-size income statements for 2003 and 2002.
  2. Perform a horizontal analysis of the comparative balance sheets.

Demonstration problem B The balance sheet and supplementary data for Xerox Corporation follow:

Xerox corporation
Balance sheet with IOFS on an equity basis
2003 December 31
(USD millions)

Assets

2003

Cash

$1,741

Accounts receivable, net

2,281

Finance receivables, net

5,097

Inventories

1,932

Deferred taxes and other current assets

1,971

Total current assets

$13,022

Finance receivables due after one year, net

7,957

Land, buildings, and equipment, net

2,495

Investments in affiliates, at equity

1,362

Goodwill

1,578

Other assets

3,061

Total assets

$ 29,475

Liabilities and stockholders' equity

 

Short-term debt and current portion of long-term debt

$2,693

Accounts payable

1,033

Accrued compensation and benefit costs

662

Unearned income

250

Other current liabilities

1,630

Total current liabilities

$6,268

Long-term debt

15,404

Liabilities for post-retirement medical benefits

1,197

Deferred taxes and other liabilities

1,876

Discontinued policyholders' deposits and other operations liabilities

670

Deferred ESOP benefits

-221

Minorities' interests in equity of subsidiaries

141

Preferred stock

647

Common shareholders' equity (108.1 million)

3,493

Total liabilities and shareholders' equity

$29,475

 

  • Cost of goods sold, USD 6,197.
  • Net sales, USD 18,701.
  • Inventory, January 1, USD 2,290.
  • Net interest expense, USD 1,031.
  • Net income before interest and taxes, USD 647.
  • Net accounts receivable on January 1, USD 2,633.
  • Total assets on January 1, USD 28,531.

Compute the following ratios:

  1. Current ratio.
  2. Acid-test ratio.
  3. Accounts receivable turnover.
  4. Inventory turnover.
  5. Total assets turnover.
  6. Equity ratio.
  7. Times interest earned ratio.


Source: James Don Edwards and Roger H. Hermanson, https://s3.amazonaws.com/saylordotorg-resources/wwwresources/site/wp-content/uploads/2012/10/Accounting-Principles-Vol.-1.pdf
Creative Commons License This work is licensed under a Creative Commons Attribution 3.0 License.