Analysis Of The Balance Sheet Of Blugreens
BUSI 610 SUPPLEMENTAL EXERCISE 1: RATIO ANALYSIS
The balance sheet of Blugreens, a leading drugstore chain, as of August 31, 2009, appears as follows (dollars in millions):
ASSETS
LIABILITIES and STOCHOLDERS’ EQUITY Cash $
450
Accounts payable $ 1,836 Accounts Receivable
955
Other short-‐term payables
1,119 Inventory
3,645
Long-‐term payable
693
Other noncurrent assets
4,829
Contributed capital
829
Retained earnings
5,402
Total liabilities and
Total assets
$9,879
Stockholders’ equity
$9,879
Required: Assume the following eight transactions occurred during the next year (dollars in millions). Indicate the effect of each transaction on net income (revenues minus expenses); the current ratio (current assets divided by current liabilities); working capital (current assets minus current liabilities); and the debt to equity ratio (total liabilities divided by total stockholders’ equity) of Blugreens. Use the following notation: increase ( ↑ ), decrease ( ↓ ), or no effect ( ⎯ ). Treat each transaction independently.
Transaction
Current Ratio
Net Income
Working Capital
Debt/Equity Ratio
4. Sold inventory costing $500 for $685 cash.
5. Declared a $152 dividend but they have not paid it yet.
7. Received $75 from customers on account
8. Incurred and paid $30 in interest on short-‐term payables
1. Issued ownership shares for $100 cash 2. Purchased equipment costing $95 for cash 3. Paid off a $200 long-‐term liability
6. Paid $200 in wages payable
BUSI 610 SUPPLEMENTAL EXERCISE 2: RATIO ANALYSIS
The following balances were taken from the December 31, 20X3 balance sheet of PewlettHackard (dollars in millions).
Current assets
$40,996
Long-‐term assets
33,712
Current liabilities
26,630
Long-‐term liabilities
10,332
Stockholders’ equity
37,746
Early in 20X4, PewlettHackard considered the financial effects of several events.
Required: For each of the five events listed below, indicate how they would affect the financial ratios listed by completing the following chart. Assume that financial statements are prepared immediately after each event. Use the following notation: increase ( ↑ ), decrease ( ↓ ), or no effect ( ⎯ ). Treat each transaction independently.
Transaction
Return on Equity
Current Ratio
Debt to Equity
3. Provided services to customers, receiving cash in return
4. Made a principal payment on an outstanding long-‐term liability
1. Purchased inventory on account 2. Sold assets for cash at a gain
5. Issued common stock for cash
BUSI 610 SUPPLEMENTAL EXERCISE 3: RATIO ANALYSIS
The following balances were taken from the December 31, 20X6 balance sheet of PersonPower Inc. (dollars in millions).
Current assets
$3,237
Long-‐term assets
1,148
Current liabilities
1,878
Long-‐term liabilities
1,197
Stockholders’ equity
1,310
Net Income
216
Early in 20X7, PersonPower considered the financial effects of several events.
Required: For each of the five events listed below, indicate how they would affect the financial ratios listed by completing the following chart. Assume that financial statements are prepared immediately after each event . Use the following notation: increase ( ↑ ), decrease ( ↓ ), or no effect ( ⎯ ). Treat each transaction independently.
Transaction Return on Sales Current Ratio Debt to Equity
1. Purchased equipment for cash 2. Purchased machinery in exchange for a long-‐term note payable
3. Paid salaries (which have not been accrued) to employees
4. Declared a dividend 5. Issued common stock to satisfy a current obligation
BUSI 610 SUPPLEMENTAL EXERCISE 4: RATIO ANALYSIS
The following balances were taken from the December 31, 20X4 financial statements of Dime Earner Inc. (dollars in millions).
Current assets
$12,268
Long-‐term assets
1,148
Current liabilities
1,878
Long-‐term liabilities
1,197
Stockholders’ equity
1,310
Net Income
940
Early in 20X5, Dime Earner considered the financial effects of several events.
Required: For each of the five events listed below, indicate how they would affect the financial ratios listed by completing the following chart. Assume that financial statements are prepared immediately after each event . Use the following notation: increase ( ↑ ), decrease ( ↓ ), or no effect ( ⎯ ). Treat each transaction independently.
Transaction Return on Assets Current Ratio Debt to Equity
1. Purchased equipment in exchange for
a long-‐term note payable
3. Sold equipment for an amount less than its book value
4. Paid wages that were accrued in a prior period
5. Provided a service for which cash had been collected in a previous period
2. Paid cash for marketing its services
The balance sheet of Blugreens, a leading drugstore chain, as of August 31, 2009, appears as follows (dollars in millions):
ASSETS
LIABILITIES and STOCHOLDERS’ EQUITY Cash $
450
Accounts payable $ 1,836 Accounts Receivable
955
Other short-‐term payables
1,119 Inventory
3,645
Long-‐term payable
693
Other noncurrent assets
4,829
Contributed capital
829
Retained earnings
5,402
Total liabilities and
Total assets
$9,879
Stockholders’ equity
$9,879
Required: Assume the following eight transactions occurred during the next year (dollars in millions). Indicate the effect of each transaction on net income (revenues minus expenses); the current ratio (current assets divided by current liabilities); working capital (current assets minus current liabilities); and the debt to equity ratio (total liabilities divided by total stockholders’ equity) of Blugreens. Use the following notation: increase ( ↑ ), decrease ( ↓ ), or no effect ( ⎯ ). Treat each transaction independently.
Transaction
Current Ratio
Net Income
Working Capital
Debt/Equity Ratio
4. Sold inventory costing $500 for $685 cash.
5. Declared a $152 dividend but they have not paid it yet.
7. Received $75 from customers on account
8. Incurred and paid $30 in interest on short-‐term payables
1. Issued ownership shares for $100 cash 2. Purchased equipment costing $95 for cash 3. Paid off a $200 long-‐term liability
6. Paid $200 in wages payable
BUSI 610 SUPPLEMENTAL EXERCISE 2: RATIO ANALYSIS
The following balances were taken from the December 31, 20X3 balance sheet of PewlettHackard (dollars in millions).
Current assets
$40,996
Long-‐term assets
33,712
Current liabilities
26,630
Long-‐term liabilities
10,332
Stockholders’ equity
37,746
Early in 20X4, PewlettHackard considered the financial effects of several events.
Required: For each of the five events listed below, indicate how they would affect the financial ratios listed by completing the following chart. Assume that financial statements are prepared immediately after each event. Use the following notation: increase ( ↑ ), decrease ( ↓ ), or no effect ( ⎯ ). Treat each transaction independently.
Transaction
Return on Equity
Current Ratio
Debt to Equity
3. Provided services to customers, receiving cash in return
4. Made a principal payment on an outstanding long-‐term liability
1. Purchased inventory on account 2. Sold assets for cash at a gain
5. Issued common stock for cash
BUSI 610 SUPPLEMENTAL EXERCISE 3: RATIO ANALYSIS
The following balances were taken from the December 31, 20X6 balance sheet of PersonPower Inc. (dollars in millions).
Current assets
$3,237
Long-‐term assets
1,148
Current liabilities
1,878
Long-‐term liabilities
1,197
Stockholders’ equity
1,310
Net Income
216
Early in 20X7, PersonPower considered the financial effects of several events.
Required: For each of the five events listed below, indicate how they would affect the financial ratios listed by completing the following chart. Assume that financial statements are prepared immediately after each event . Use the following notation: increase ( ↑ ), decrease ( ↓ ), or no effect ( ⎯ ). Treat each transaction independently.
Transaction Return on Sales Current Ratio Debt to Equity
1. Purchased equipment for cash 2. Purchased machinery in exchange for a long-‐term note payable
3. Paid salaries (which have not been accrued) to employees
4. Declared a dividend 5. Issued common stock to satisfy a current obligation
BUSI 610 SUPPLEMENTAL EXERCISE 4: RATIO ANALYSIS
The following balances were taken from the December 31, 20X4 financial statements of Dime Earner Inc. (dollars in millions).
Current assets
$12,268
Long-‐term assets
1,148
Current liabilities
1,878
Long-‐term liabilities
1,197
Stockholders’ equity
1,310
Net Income
940
Early in 20X5, Dime Earner considered the financial effects of several events.
Required: For each of the five events listed below, indicate how they would affect the financial ratios listed by completing the following chart. Assume that financial statements are prepared immediately after each event . Use the following notation: increase ( ↑ ), decrease ( ↓ ), or no effect ( ⎯ ). Treat each transaction independently.
Transaction Return on Assets Current Ratio Debt to Equity
1. Purchased equipment in exchange for
a long-‐term note payable
3. Sold equipment for an amount less than its book value
4. Paid wages that were accrued in a prior period
5. Provided a service for which cash had been collected in a previous period
2. Paid cash for marketing its services