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Financial ratios

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Profit margin on sales for 2013. Net income/net sales. receivables turnover ratio net sales/average A/R inventory turnover ratio for 2013. COGs/average inventory asset turnover ratio for 2013.Net sales/average total sales average collection period for 2013.365/receive turnover ratio. average days in inventory for 2013.365 / inventory turnover ratio decimal place. return on assets for 2013. Profit margin*assets turnover. return on stockholders’ equity for 2013. Net income/ average stockholder’s On December 15, 2013, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2014, and December 15, 2015. Ignore interest charges. Rigsby has a December 31 year-end.

In 2013, Rigsby would recognize realized gross profit of entry at December 31, 2013?

Gross profit % = ($4,500,000-3,600,000)/$4,500,000=20%2013:20%x$500,000=$100,000

In its December 31, 2013, balance sheet, Rigsby would report In 2013, Rigsby would recognize realized gross profit of: entry at December 31, 2013? Gross profit % = ($4,500,000-3,600,000)/$4,500,000=20% 2013:20%x$500,000=$100,000

At December 31, 2014, Rigsby would report in its balance sheet: Balance sheet:Deferred gross profit: $800,000 – 400,000 = $400,000Realized gross profit of $400,000 would be reported in the income statement. Arizona Desert Homes (ADH) constructed a new subdivision during 2012 and 2013 under contract with Cactus Development Co. Relevant data are summarized below:

ADH uses the percentage-of-completion method to recognize revenue. What would be the journal entry made in 2012 to record revenue? Percentage complete = $1,200,000/($1,200,000 + $600,000)=2/3Revenuerecognized=2/3*$3,000,000=$2,000,000Costrecognized=$1,200,000Gross profit recognized=$2,000,000-$1,200,000= $800,000 In its December 31, 2012, balance sheet, ADH would report: For 2013, what is the journal entry to record revenue? Total revenue $3,000,000 – Revenue previously recognized $2,000,000 = Revenue to recognize this year $1,000,000.Cost recognized = $600,000Gross profit recognized = $1,000,000 – $600,000 = $400,000 Quiz 2 The investment category for which the investor’s “positive intent and ability to hold” is important is: Securities classified as held to maturity Which category completely excludes equity securities? Held-to-maturity securities Beresford Inc. purchased several investment securities during 2012, its first year of operations.

The following information pertains to these securities. The fluctuations in their fair values are not considered permanent.What balance sheet amount would Beresford report for its total investment securities atThe held-to-maturity securities are reported at amortized cost, and the others are reported at fair value. 367,500 + 48,000 + 47, 000 + 44,000 + 130,500 What would be the balance in Beresford’s accumulated other comprehensive income with respect to these investments in its 12/31/2013 balance sheet (ignore taxes)? This is the cumulative increase in fair value above cost for its available-for-sale securities. OCI is only adjusted for Available for Sale Securities. 150,400 – 140,000. Changes in fair value for Trading Securities are run through the income statement. What total unrealized holding gain would Beresford report in its 2013 income statement relative to its investment securities? This is the difference between the fair value of trading securities at 12/31/2013 and at 12/31/2012.(59,500 – 48,000) + (77,000 – 47,000) + (38,500 – 44,000)

Accumulated Other Comprehensive Income in the shareholders’ equity section of the balance sheet reflects changes in the fair value of securities for which type of securities Securities available for sale When an equity security is appropriately carried and reported as securities available for sale, a gain should be reported in the income statement: Only when the security is sold Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2013. In December, Handy announced $200,000 net income for 2013 and declared and paid a cash dividend of $2 per share on the 200,000 shares of outstanding common stock. Zwick Company’s dividend revenue from Handy Corporation in December 2013 would be Ownership share = 28,000/200,000 = 14%, so neither the equity method nor consolidation is appropriate.28,000 shares x $2.00 per share = $56,000 When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded: As a reduction in the investment account When the investor’s level of influence changes, it may be necessary to change from the equity method to another method.

When the level of ownership falls from a range of 20% to 50% to less than 20%, the equity method typically would be discontinued and the investment account balance would be carried over at: The current balance, and this balance would serve as the new “cost.” Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31, 2012 and 2013, respectively. During 2013 Clor recognized $80,000 of net income and paid dividends of $30,000. Assuming that Bloomfield owned the same percentage of Clor throughout 2013, their percentage ownership must have been: $150,000 + X%($80,000 – $30,000) = $165,000, X = 30%

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