CHAPTER 5 Revenue Recognition and Profitability Analysis 295 Cadux Candy Company’s income statement for the year ended December 31, 2016, reported interest expense of $2 million and income tax expense of $12 million. Current assets listed in its balance sheet include cash, accounts receivable, and inventories. Property, plant, and equipment is the company’s only noncurrent asset. Financial ratios for 2016 are listed below. Profitability and turnover ratios with balance sheet items in the denominator were calculated using year-end balances rather than averages. P 5–16 Creating a balance sheet from ratios; Chapters 3 and 5 ● LO5–10 ✮ Balance Sheets ($ in millions, except per share data) J&J Pfizer Assets: Cash $ 5,377 $ 1,520 Short-term investments 4,146 10,432 Accounts receivable (net) 6,574 8,775 Inventories 3,588 5,837 Other current assets 3,310 3,177 Current assets 22,995 29,741 Property, plant, and equipment (net) 9,846 18,287 Intangibles and other assets 15,422 68,747 Total assets $48,263 $116,775 Liabilities and Shareholders’ Equity: Accounts payable $ 4,966 $ 2,601 Short-term notes 1,139 8,818 Other current liabilities 7,343 12,238 Current liabilities 13,448 23,657 Long-term debt 2,955 5,755 Other long-term liabilities 4,991 21,986 Total liabilities 21,394 51,398 Capital stock (par and additional paid-in capital) 3,120 67,050 Retained earnings 30,503 29,382 Accumulated other comprehensive income (loss) (590) 195 Less: Treasury stock and other equity adjustments (6,164) (31,250) Total shareholders’ equity 26,869 65,377 Total liabilities and shareholders’ equity $48,263 $116,775 Income Statements Net sales $41,862 $ 45,188 Cost of goods sold 12,176 9,832 Gross profit 29,686 35,356 Operating expenses 19,763 28,486 Other (income) expense—net (385) 3,610 Income before taxes 10,308 3,260 Tax expense 3,111 1,621 Net income $ 7,197 $ 1,639* Basic net income per share $ 2.42 $ .22 * This is before income from discontinued operations. Debt to equity ratio 1.0 Current ratio 2.0 Acid-test ratio 1.0 Times interest earned ratio 17 times Return on assets 10% Return on shareholders’ equity 20% Profit margin on sales 5% Gross profit margin (gross profit divided by net sales) 40% Inventory turnover 8 times Receivables turnover 20 times
Spiceland_Inter_Accounting8e_Ch05
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