# Practice Problems

## Demonstration Problems

### Solution to demonstration problems

a.

##### Kellogg CompanyCommon-size comparative income statementsFor the year ended 2003 December 31, and 2002
 Per cent 2003 2002 Net revenues 100.00 % 100.00% Cost of goods sold 47.84 47.61 Gross margin 52.16 52.39 Operating expenses 36.69 37.02 Nonoperating expense (interest) 1.98 1.70 Income before income taxes 13.49 %* 13.67 % Income taxes 4.03 2.84 Net earnings 9.46 %* 10.83%

*Difference due to rounding.

b.

##### Kellogg companyComparative balance sheets2003 December 31, and 2002(USD millions)
 Increase or Decrease 2003 2002 2003 amount 2002 per cent Assets Cash and temporary investments; $204.4$150.6 $53.8 0.3572 Accounts receivable, net 685.3 678.5 6.8 1 Inventories 443.8 503.8 (60) (11.91) Other current assets 273.3 236.3 37 15.66 Property, net 2526.9 2640.9 (114) (4.32) Other assets 762.9 589.6 164 27.4 Total assets$4,896.3 $4,808.7$87.6 0.0182 Liabilities and stockholders' equity Current liabilities $2,492.6$1,587.8 $904.8 0.5698 Long-term liabilities 1506.2 2407.7 (901.5) (37.44) Common stock 103.8 103.8 0 0 Capital in excess of par value 102 104.5 (2.5) (2.39) Retained earnings 1501 1317.2 183.8 13.95 Treasury stock (374 (380.9 6.9 (1.81) Currency translation adjustment (435.3) (331.4) (103.9) 31.35 Total liabilities and stockholders' equity$4,896.3 $4,808.7$87.6 0.0182

#### Solution to demonstration problem B

1. Current ratio:
$\frac{\text { Currentassets }}{\text { Current liabilities }}=\frac{\text { USD 13,022,000,000 }}{\text { USD 6,268,000,000 }}=2.08: 1$
2. Acid-test ratio:
3. $\frac{\text { Quick assets }}{\text { Current liabilities }}=\frac{\text { USD } 9,119,000,000}{\text { USD } 6,268,000,000}=1.45: 1$
4. Accounts receivable turnover:

$\dfrac{\text { Net sales }}{\text { Average net accounts receivable }}=\dfrac{\operatorname{USD} 18,701,000,000}{\operatorname{USD} 2,457,000,000}=\text{7.61 time}$

1. Inventory turnover:
$\frac{\text { Net sales }}{\text { Average total assets }}=\frac{ USD 18,701,000,000}{ USD 29,003,000,000}=.64 \text { time }$
2. Total assets turnover:
$\frac{\text { Stockholders 'equity }}{\text { Total assets }}=\frac{\text { USD } 4,140,000,000}{\text { USD } 29,475,000,000}=14.05 \text { per cent }$
3. Equity ratio:
$\dfrac{\text { Income before interest also taxes }}{\text { Interest expense }}=\dfrac{\text{USD 647,000,000}}{\text{USD 1,031,000,000}}=.63 \text { time}$
4. Times interest earned ratio:
$\frac{\text { Income before interest also taxes }}{\text { Interest expense }}=\frac{\operatorname{USD} 647,000,000}{\operatorname{USD} 1,031,000,000}=.63 \text { time }$