CHAPTER 5 Revenue Recognition and Profitability Analysis 287 Some industry averages for Anderson’s line of business are E 5–25 Profitability ratios ● LO5–10 Inventory turnover 5 times Average collection period 25 days Asset turnover 1.8 times Required: Assess Anderson’s asset management relative to its industry. The following condensed information was reported by Peabody Toys, Inc., for 2016 and 2015: E 5–26 DuPont analysis ● LO5–10 ($ in 000s) 2016 2015 Income statement information Net sales $5,200 $4,200 Net income 180 124 Balance sheet information Current assets $ 800 $ 750 Property, plant, and equipment (net) 1,100 950 Total assets $1,900 $1,700 Current liabilities $ 600 $ 450 Long-term liabilities 750 750 Paid-in capital 400 400 Retained earnings 150 100 Liabilities and shareholders’ equity $1,900 $1,700 Required: 1. Determine the following ratios for 2016: a. Profit margin on sales. b. Return on assets. c. Return on shareholders’ equity. 2. Determine the amount of dividends paid to shareholders during 2016. This exercise is based on the Peabody Toys, Inc., data from Exercise 5–25. Required: 1. Determine the following components of the DuPont framework for 2016: a. Profit margin on sales. b. Asset turnover. c. Equity multiplier. d. Return on shareholders’ equity. 2. Write an equation that relates these components in calculating ROE. Use the Peabody Toys data to show that the equation is correct. CPA and CMA Review Questions CPA Exam Questions The following questions are adapted from a variety of sources including questions developed by the AICPA Board of Examiners and those used in the Kaplan CPA Review Course to study revenue recognition while preparing for the CPA examination. Determine the response that best completes the statements or questions. 1. On October 1, 2016, Acme Fuel Co. sold 100,000 gallons of heating oil to Karn Co. at $3 per gallon. Fifty thousand gallons were delivered on December 15, 2016, and the remaining 50,000 gallons were delivered on January 15, 2017. Payment terms were 50% due on October 1, 2016, 25% due on first delivery, and the remaining 25% due on second delivery. What amount of revenue should Acme recognize from this sale during 2017? a. $ 75,000 b. $150,000 c. $225,000 d. $300,000 ● LO5–2
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