The following data were taken from the financial statements of Orion Systems Inc. for the cur-
rent fiscal year:Property, plant, and equipment (net) $ 950,000
Liabilities:
Current liabilities $ 45,000
Mortgage note payable, 7.5%, issued 1996,
due 2011 680,000
Total liabilities $ 725,000
Stockholders’ equity:
Preferred $8 stock, $100 par, cumulative,
nonparticipating (no change during year) $ 200,000
Common stock, $10 par (no change during year) 650,000
Retained earnings:
Balance, beginning of year $500,000
Net income 180,000 $680,000
Preferred dividends $ 16,000
Common dividends 48,000 64,000
Balance, end of year 616,000
Total stockholders’ equity $1,466,000
Net sales $ 3,000,000
Interest expense $ 51,000Assuming that total assets were $2,009,000 at the beginning of the year, determine the fol-
lowing: (a) ratio of fixed assets to long-term liabilities, (b) ratio of liabilities to stockholders’
equity, (c) asset turnover, (d) rate earned on total assets, and (e) rate earned on stockholders’ eq-
uity. Round to two decimal places.670 Chapter 14 Financial Statement Analysis
Exercise 14-29
Profitability and leverage
ratios
Goals2, 4
c. Ratio of net sales to
assets, 1.43ACCOUNTING APPLICATION PROBLEMS
For 2008, Turnberry Company reported its most significant decline in net income in years. At
the end of the year, Hai Chow, the president, is presented with the following condensed com-
parative income statement:Problem 14-1A
Horizontal analysis for income
statement
Goal 1- Net sales, 12% increase
Turnberry Company
Comparative Income Statement
For the Years Ended December 31, 2008 and 20072008 2007
Sales $482,000 $429,000
Sales returns and allowances 6,000 4,000
Net sales $476,000 $425,000
Cost of goods sold 216,000 180,000
Gross profit $260,000 $245,000
Selling expenses $109,250 $ 95,000
Administrative expenses 52,500 30,000
Total operating expenses $161,750 $125,000
Income from operations $ 98,250 $120,000
Other income 2,000 2,000
Income before income tax $100,250 $122,000
Income tax expense 30,000 40,000
Net income $ 70,250 $ 82,000