Financial Accounting: An Integrated Statements Approach, 2nd Edition

a. Determine for each business segment the fixed asset turnover for the year. Round to two

decimal places.

b. Analyze your results.

International Paper Companyis one of the world’s largest manufacturers of paper and wood

products. The following information (in millions) was disclosed on recent two-year comparative

income statements:

a. Determine the rate earned on total assets for 2003 and 2004. Round to two decimal places.

b. Determine the rate earned on stockholders’ equity, using the leverage formula, for 2003

and 2004. Round to two decimal places.

c. Analyze comparative ratios in (a) and (b) for the two years.

Celtic Arts, Inc., earned $50,000 in 2007 and $80,000 in 2008. The company began operations on

January 1, 2007, with a $600,000 investment by stockholders and no debt. On June 30, 2008, the

company borrowed $1,000,000 from a bank, payable in 10 years.

a. Determine the rate earned on total assets and the rate earned on total stockholders’ equity

for 2007. Round to two decimal places.

b. Determine the rate earned on total assets for 2008. Round to two decimal places.

c. Use the leverage formula to determine the rate earned on stockholders’ equity for 2008.

The following data were taken from the balance sheet of Marine Equipment Company:

Dec. 31, 2007 Dec. 31, 2006

Cash $118,000 $ 95,000

Marketable securities 152,000 131,000

Accounts and notes receivable (net) 210,000 198,000

Inventories 345,000 326,000

Prepaid expenses 50,000 45,000

Accounts and notes payable (short-term) 190,000 208,000

Accrued liabilities 60,000 57,000

a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio.

Round to one decimal place.

b. What conclusions can be drawn from these data as to the company’s ability to meet its

currently maturing debts?

Information (in millions) from three-year comparative balance sheets is as follows:

666 Chapter 14 Financial Statement Analysis

Exercise 14-17

Leverage formula

Goal 4

Exercise 14-18

Leverage formula

Goal 4

a. 8%

Exercise 14-19

Current position analysis

Goal 4

2007 working capital,

$625,000

2004 2003

Net income (loss)* $(35) $302

*Before discontinued operations, extraordinary items, and cumulative effect from change in accounting

principle.

Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2002

Total assets $34,217 $35,525 $33,792

Total stockholders’ equity 8,254 8,237 7,374