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Spiceland_Inter_Accounting8e_Ch05

296 SECTION 1 The Role of Accounting as an Information System Required: Prepare a December 31, 2016, balance sheet for the Cadux Candy Company. Presented below are condensed financial statements adapted from those of two actual companies competing as the primary players in a specialty area of the food manufacturing and distribution industry. ($ in millions, except per share amounts.) P 5–17 Compare two companies in the same industry; Chapters 3 and 5 ● LO5–10 Balance Sheets Metropolitan Republic Assets: Cash $ 179.3 $ 37.1 Accounts receivable (net) 422.7 325.0 Short-term investments — 4.7 Inventories 466.4 635.2 Prepaid expenses and other current assets 134.6 476.7 Current assets $1,203.0 $1,478.7 Property, plant, and equipment (net) 2,608.2 2,064.6 Intangibles and other assets 210.3 464.7 Total assets $4,021.5 $4,008.0 Liabilities and Shareholders’ Equity Accounts payable $ 467.9 $ 691.2 Short-term notes 227.1 557.4 Accruals and other current liabilities 585.2 538.5 Current liabilities $1,280.2 $1,787.1 Long-term debt 535.6 542.3 Deferred tax liability 384.6 610.7 Other long-term liabilities 104.0 95.1 Total liabilities $2,304.4 $3,035.2 Common stock (par and additional paid-in capital) 144.9 335.0 Retained earnings 2,476.9 1,601.9 Less: Treasury stock (904.7) (964.1) Total liabilities and shareholders’ equity $4,021.5 $4,008.0 Income Statements Net sales $5,698.0 $7,768.2 Cost of goods sold (2,909.0) (4,481.7) Gross profit $2,789.0 $3,286.5 Operating expenses (1,743.7) (2,539.2) Interest expense (56.8) (46.6) Income before taxes $ 988.5 $ 700.7 Tax expense (394.7) (276.1) Net income $ 593.8 $ 424.6 Net income per share $ 2.40 $ 6.50 Required: Evaluate and compare the two companies by responding to the following questions. Note: Because comparative statements are not provided you should use year-end balances in place of average balances as appropriate. 1. Which of the two firms had greater earnings relative to resources available? 2. Have the two companies achieved their respective rates of return on assets with similar combinations of profit margin and turnover? 3. From the perspective of a common shareholder, which of the two firms provided a greater rate of return? 4. Which company is most highly leveraged and which has made most effective use of financial leverage? 5. Of the two companies, which appears riskier in terms of its ability to pay short-term obligations? 6. How efficiently are current assets managed? 7. From the perspective of a creditor, which company offers the most comfortable margin of safety in terms of its ability to pay fixed interest charges?


Spiceland_Inter_Accounting8e_Ch05
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