Chapter 13Supplemental InstructionIowa State UniversityLeader: Chen GuoCourse: ACCT 284 ADInstructor: ClemDate: Nov 5, 20091. The average price of a gallon of gas in 2005 jumped $0.42 (22.34 percent) from $1.88 in 2004 (to $2.3 in 2005). Let's see whether these changes are reflected in the income statement of Chevron Corp. for the year ended December 31, 2005 (amounts in millions). 2005 2004Total revenues $ 198,500 $ 160,500Costs of crude oil and products 141,000 103,700Other operating costs 32,900 29,300Income before income tax expense 24,600 27,500Income tax expense 10,824 9,625Net income $ 13,776 $ 17,875a. Compute the gross profit percentage for each year.b. Compute the net profit margin for each year.c. Chevron reported average net fixed assets of $52,400 million in 2005 and $46,000 million in 2004. Compute the fixed asset turnover ratios for both years.d. Chevron reported average stockholders' equity of $53,800 million in 2005 and $39,600 million in 2004. Compute the return on equity ratios for both years. 6Supplemental Instruction1060 Hixson-Lied Student Success Center v 294-6624 v www.si.iastate.edu2. The average cost of low-end laptops fell about $200 (25 percent) from $800 in 2005 to $600 in 2006. Let's see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2006. 2005 2006Sales revenues $ 122,800 $ 101,509Cost of goods sold 70,650 59,160Operating expenses 36,885 36,894Interest expense 486 555Income before income tax expense 14,779 4,900Income tax expense 6,411 2,328Net income $ 8,368 $ 2,572a. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages.Computer Tycoon, Inc.Horizontal Analysis of Income StatementFor the Years Ended December 31 2006 2005Change inDollars PercentageNet Sales$101,509 $ 122,800 $ %Cost of goods sold 59,160 70,650 %Gross Profit 42,349 52,150 %Operating Expenses 36,894 36,885 %Income from operations 5,455 15,265 %Interest expense 555 486 %Income before incometaxes 4,900 14,779 %Income Tax Expense 2,328 6,411 %Net Income$2,572 $ 8,368 $ %b. Conduct a vertical analysis by expressing each line as a percentage of total revenues.8Computer Tycoon, Inc.Vertical Analysis of Income StatementFor the Years Ended December 31 2006 2005Net Sales $ 101,509 % $ 122,800 %Cost of goods sold 59,160 % 70,650 %Gross Profit 42,349 % 52,150 %Operating Expenses 36,894 % 36,885 %Income from operations 5,455 % 15,265 %Interest expense 555 % 486 %Income before income taxes 4,900 % 14,779 %Income Tax Expense 2,328 % 6,411 %Net Income $ 2,572 % $ 8,368 %3. Cintas Corporation is the largest uniform supplier in North America. More than five million people wear Cintas clothing each day. Selected information from a recent balancesheet follows. For Year 2, the company reported sales revenue of $2,662,013 and cost of goods sold of $1,563,166.Cintas Year 2 Year 1Balance Sheet (amounts in thousands) Cash $ 33,814 $ 48,649Accounts receivable, less allowance of $7,141 and $9,436 274,773 227,366Inventories 222,950 162,628Prepaid expenses 7,576 7,222Other current assets 25,978 54,050Accounts payable 53,693 60,612Wages payable 25,862 28,860Income taxes payable 69,067 73,586Accrued liabilities 128,887 130,166Long-term debt due within one year 27,935 17,577Assuming that 60 percent of sales are on credit.a. Compute the current ratio for Year 2.b. Compute the inventory turnover ratio and accounts receivable turnover ratio for Year 2.
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