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The Following Summaries from the Income Statements and Balance Sheets

question 109

Essay

The following summaries from the income statements and balance sheets of Kouris Company and Brittania, Inc. are presented below.
(1) For both companies for 2018, compute the:
(a) Current ratio
(b) Acid-test ratio
(c) Accounts receivable turnover
(d) Inventory turnover
(e) Days' sales in inventory
(f) Days' sales uncollected
Which company do you consider to be the better short-term credit risk? Explain.
(2) For both companies for 2018, compute the:
(a) Profit margin ratio
(b) Return on total assets
(c) Return on common stockholders' equity
Which company do you consider to have better profitability ratios?
$The following summaries from the income statements and balance sheets of Kouris Company and Brittania, Inc. are presented below. (1) For both companies for 2018, compute the: (a) Current ratio (b) Acid-test ratio (c) Accounts receivable turnover (d) Inventory turnover (e) Days' sales in inventory (f) Days' sales uncollected Which company do you consider to be the better short-term credit risk? Explain. (2) For both companies for 2018, compute the: (a) Profit margin ratio (b) Return on total assets (c) Return on common stockholders' equity Which company do you consider to have better profitability ratios? \begin{array}{c} \begin{array}{|l|} \hline \text {Current assets:}\\ \hline \text {Cash and cash equivalents}\\ \hline \text {Accounts receivable, net of allowance}\\ \hline \text {Inventories}\\ \hline \text {Other current assets}\\ \hline \text {Total current assets}\\ \hline \text {Property, plant, and equipment, net}\\ \hline \text {Other long term assets}\\ \hline \text {Total assets}\\ \hline\\ \hline \text {Liabilities and Stockholders' Equity}\\ \hline \end{array} \begin{array}{c|} \hline \\ \hline \$ \quad 634.0 \\ \hline 2,101.1 \\ \hline 1,514.9 \\ \hline 429.9 \\ \hline4,679.9\\ \hline 1,620.8 \\ \hline 413.9 \\ \hline \$ 6,713.9 \\ \hline\\ \hline\\ \hline \end{array} \begin{array}{c|} \hline \\ \hline \$ 575.5 \\ \hline1,804.1 \\ \hline 1,373.8 \\ \hline 401.3 \\ \hline4,154.7\\ \hline 1,614.5 \\ \hline 670.8 \\ \hline \$ 6,440.0 \\ \hline\\ \hline\\ \hline \end{array} \end{array} \begin{array}{c} \begin{array}{|l|} \hline \text {Current liabilities:}\\ \hline \text {Current portion of long-term debt}\\ \hline \text {Notes payable}\\ \hline \text {Accounts payable}\\ \hline \text {Accrued liabilities}\\ \hline \\ \text {Income taxes payable}\\ \hline \text {Total current liabilities}\\ \hline \text {Long term liabilities}\\ \hline \text {Total liabilities}\\ \hline \text {Stockholders' equity:}\\ \hline \text {Common stock}\\ \hline \text {Contributed capital in excess of par value}\\ \hline \text {Unearned stock compensation}\\ \hline \text {Accumulated other comprehensive loss}\\ \hline \text {Retained earnings}\\ \hline \text {Total stockholders' equity}\\ \hline \text {Total liabilities and stockholders' equity}\\ \hline \end{array} \begin{array}{l|} \hline\\ \hline\$ \quad 205.7 \\ \hline 75.4 \\ \hline 572.7 \\ \hline 1,054.2 \\ \hline\\ 107.2\\ \hline 2,015.2 \\ \hline708.0\\ \hline 2,723.2 \\ \hline\\ \hline 2.8 \\ \hline 589.0 \\ \hline (0.6) \\ \hline (239.7) \\ \hline 3,639.2 \\ \hline 3,990.7 \\ \hline \$ 6,713.9\\ \hline \end{array} \begin{array}{l|} \hline\\ \hline \$ \quad 55.3 \\ \hline 425.2 \\ \hline 504.4 \\ \hline 765.3 \\ \hline \\ \hline 83.0\\ \hline1,833.2 \\ \hline767.8 \\ \hline 2,601.0 \\ \hline\\ \hline 2.8\\ \hline538.7\\ \hline (5.1)\\ \hline(192.4) \\ \hline 3,495.0\\ \hline3,839.0 \\ \hline \$ 6,440.0\\ \hline \end{array} \end{array} \begin{array}{|c|} \hline \text {Kouris Company}\\ \text {Consolidated Statement of Income}\\ \text {May 31,2018}\\ \text {(in millions)}\\ \hline\\ \begin{array}{l|} \hline \text {Revenues}\\ \hline \text {Cost of sales}\\ \hline \text {Grossprofit}\\ \hline \text {Operating expenses}\\ \hline \text {Operating income}\\ \hline \text {Interest expense}\\ \hline \\ \text {Other revenues and expenses}\\ \hline \text {Income before tax}\\ \hline \\ \text {Income taxes}\\ \hline \text {Income before effect of accounting change}\\ \hline \\ \text {Cumulative effect of accounting change, net of tax}\\ \hline \text {Net income}\\ \hline \end{array} \begin{array}{l} \hline\$ 10,697.0\\ \hline 6,313.6 \\ \hline 4,383.4 \\ \hline 3,137.6 \\ \hline 1,245.8\\ \hline 42.9 \\ \hline\\ 79.9\\ 1,123.0\\ \hline\\ 382.9 \\ \hline 740.1 \\ \hline \\ \$ 266.1 \\ \hline \$ \quad 474.0 \\ \hline \end{array} \end{array} \quad \quad \quad \quad \quad \quad \quad \quad \quad \text {Brittania, Inc.} \quad \quad \quad \quad \quad \quad \quad \text {Consolidated Balance Sheets} \begin{array}{|l|l|l|} \hline\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad& \text { Jan. 3, } & \text { Jan. 4, } \\ \hline &2018 & 2017\\ \hline \end{array} \begin{array}{c} \begin{array}{|l|} \hline\text {Assets}\\ \hline \text {Current assets:}\\ \hline \text {Cash and cash equivalents}\\ \hline \text {Accounts receivable, net of allowance}\\ \hline \text {Inventories}\\ \hline \text {Other current assets}\\ \hline \text {Total current assets}\\ \hline \text {Property, plant, and equipment, net}\\ \hline \text {Other long term assets}\\ \hline \text {Total assets}\\ \hline \end{array} \begin{array}{l|} \hline \\ \hline \\ \hline \quad\quad\$34.5\\ \hline \quad\quad15.5\\ \hline\quad\quad 27.2\\ \hline\quad\quad 3.5\\ \hline\quad\quad 80.7\\ \hline \quad\quad5.7\\ \hline \quad\quad1.1\\ \hline\quad\quad \$87.5\\ \hline \end{array} \begin{array}{l|} \hline \\ \hline \\ \hline \$22.2\\ \hline 14.7\\ \hline 28.4\\ \hline 4.2\\ \hline 69.5\\ \hline 7.0\\ \hline 1.5\\ \hline \$78.0\\ \hline \end{array} \end{array} \begin{array} { | c | c | c | } \hline { \text { Liabilities and Stockholders' Equity } } \\ \hline \text { Current liabilities: } & & \\ \hline \text { Accounts payable } & \$ 8.5 & \$ 16.6 \\ \hline \text { Accrued liabilities } & 7.8 & 5.6 \\ \hline \text { Total current liabilities } & 16.3 & 12.2 \\ \hline \text { Long term liabilities } & 2.5 & 2.6 \\ \hline \text { Total liabilities } & 18.8 & 14.8 \\ \hline \text { Stockholders' equity: } & & \\ \hline \text { Common stock } & 2.3 & 2.3 \\ \hline \text { Contributed capital in excess of par value } & 17.8 & 17.4 \\ \hline \text { Unearned stock compensation } & ( 0.1 ) & ( 0.5 ) \\ \hline \text { Accumulated other comprehensive loss } & ( 6.9 ) & ( 1.3 ) \\ \hline \text { Treasury stock } & 55.9 & 5.50 .7 \\ \hline \text { Retained earnings } & 68.7 & 63.2 \\ \hline \text { Total stockholders' equity } & \$ 87.5 & \$ 78.0 \\ \hline \end{array} \begin{array}{|c|} \hline \text {Brittania, Inc.}\\ \text {Consolidated Statement of Income}\\ \text {January 3, 2018}\\ \text {(in millions)}\\ \begin{array}{l|l} \hline\text { Revenues } & \$ 133.5 \\ \hline \text { Cost of sales } & 87.3 \\ \hline \text { Gross profit } & 46.2 \\ \hline \text { Operating expenses } & 37.3 \\ \hline \text { Operating income } & 8.9 \\ \hline \text { Interest expense } & (0.1) \\ \hline \text { Other revenues and expenses } & 0.3 \\ \hline \text { Income before tax } & 9.1 \\ \hline \text { Income taxes } & \$ .9 .2 \\ \hline \text { Net income } & \$ .2 .12 \\ \hline \end{array} \end{array}$ $\begin{array}{c}\begin{array}{|l|}\hline \text {Current assets:}\\\hline \text {Cash and cash equivalents}\\\hline \text {Accounts receivable, net of allowance}\\\hline \text {Inventories}\\\hline \text {Other current assets}\\\hline \text {Total current assets}\\\hline \text {Property, plant, and equipment, net}\\\hline \text {Other long term assets}\\\hline \text {Total assets}\\\hline\\\hline \text {Liabilities and Stockholders' Equity}\\\hline\end{array}\begin{array}{c|}\hline \\\hline \$ \quad 634.0 \\\hline 2,101.1 \\\hline 1,514.9 \\\hline 429.9 \\\hline4,679.9\\\hline 1,620.8 \\\hline 413.9 \\\hline \$ 6,713.9 \\\hline\\\hline\\\hline \end{array}\begin{array}{c|}\hline \\\hline \$ 575.5 \\\hline1,804.1 \\\hline 1,373.8 \\\hline 401.3 \\\hline4,154.7\\\hline 1,614.5 \\\hline 670.8 \\\hline \$ 6,440.0 \\\hline\\\hline\\\hline \end{array}\end{array}$
$\begin{array}{c}\begin{array}{|l|}\hline \text {Current liabilities:}\\\hline \text {Current portion of long-term debt}\\\hline \text {Notes payable}\\\hline \text {Accounts payable}\\\hline \text {Accrued liabilities}\\\hline \\\text {Income taxes payable}\\\hline \text {Total current liabilities}\\\hline \text {Long term liabilities}\\\hline \text {Total liabilities}\\\hline \text {Stockholders' equity:}\\\hline \text {Common stock}\\\hline \text {Contributed capital in excess of par value}\\\hline \text {Unearned stock compensation}\\\hline \text {Accumulated other comprehensive loss}\\\hline \text {Retained earnings}\\\hline \text {Total stockholders' equity}\\\hline \text {Total liabilities and stockholders' equity}\\\hline \end{array}\begin{array}{l|}\hline\\\hline\$ \quad 205.7 \\\hline 75.4 \\\hline 572.7 \\\hline 1,054.2 \\\hline\\107.2\\\hline 2,015.2 \\\hline708.0\\\hline 2,723.2 \\\hline\\\hline 2.8 \\\hline 589.0 \\\hline (0.6) \\\hline (239.7) \\\hline 3,639.2 \\\hline 3,990.7 \\\hline \$ 6,713.9\\\hline \end{array}\begin{array}{l|}\hline\\\hline \$ \quad 55.3 \\\hline 425.2 \\\hline 504.4 \\\hline 765.3 \\\hline \\\hline 83.0\\\hline1,833.2 \\\hline767.8 \\\hline 2,601.0 \\\hline\\\hline 2.8\\\hline538.7\\\hline (5.1)\\\hline(192.4) \\\hline 3,495.0\\\hline3,839.0 \\\hline \$ 6,440.0\\\hline\end{array}\end{array}$
$\begin{array}{|c|}\hline \text {Kouris Company}\\\text {Consolidated Statement of Income}\\\text {May 31,2018}\\\text {(in millions)}\\\hline\\ \begin{array}{l|}\hline \text {Revenues}\\\hline \text {Cost of sales}\\\hline \text {Grossprofit}\\\hline \text {Operating expenses}\\\hline \text {Operating income}\\\hline \text {Interest expense}\\\hline \\ \text {Other revenues and expenses}\\\hline \text {Income before tax}\\\hline \\ \text {Income taxes}\\\hline \text {Income before effect of accounting change}\\\hline \\ \text {Cumulative effect of accounting change, net of tax}\\\hline \text {Net income}\\\hline\end{array}\begin{array}{l}\hline\$ 10,697.0\\\hline 6,313.6 \\\hline 4,383.4 \\\hline 3,137.6 \\\hline 1,245.8\\\hline 42.9 \\\hline\\ 79.9\\1,123.0\\\hline\\ 382.9 \\\hline 740.1 \\\hline \\ \$ 266.1 \\\hline \$ \quad 474.0 \\\hline\end{array}\end{array}$
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text {Brittania, Inc.}$
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\text {Consolidated Balance Sheets}$
$\begin{array}{|l|l|l|}\hline\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad& \text { Jan. 3, } & \text { Jan. 4, } \\\hline &2018 & 2017\\\hline \end{array}$
$\begin{array}{c}\begin{array}{|l|}\hline\text {Assets}\\\hline \text {Current assets:}\\\hline \text {Cash and cash equivalents}\\\hline \text {Accounts receivable, net of allowance}\\\hline \text {Inventories}\\\hline \text {Other current assets}\\\hline \text {Total current assets}\\\hline \text {Property, plant, and equipment, net}\\\hline \text {Other long term assets}\\\hline \text {Total assets}\\\hline \end{array}\begin{array}{l|}\hline \\\hline \\\hline \quad\quad\$34.5\\\hline \quad\quad15.5\\\hline\quad\quad 27.2\\\hline\quad\quad 3.5\\\hline\quad\quad 80.7\\\hline \quad\quad5.7\\\hline \quad\quad1.1\\\hline\quad\quad \$87.5\\\hline \end{array}\begin{array}{l|}\hline \\\hline \\\hline \$22.2\\\hline 14.7\\\hline 28.4\\\hline 4.2\\\hline 69.5\\\hline 7.0\\\hline 1.5\\\hline \$78.0\\\hline \end{array}\end{array}$
$\begin{array} { | c | c | c | } \hline { \text { Liabilities and Stockholders' Equity } } \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 8.5 & \$ 16.6 \\\hline \text { Accrued liabilities } & 7.8 & 5.6 \\\hline \text { Total current liabilities } & 16.3 & 12.2 \\\hline \text { Long term liabilities } & 2.5 & 2.6 \\\hline \text { Total liabilities } & 18.8 & 14.8 \\\hline \text { Stockholders' equity: } & & \\\hline \text { Common stock } & 2.3 & 2.3 \\\hline \text { Contributed capital in excess of par value } & 17.8 & 17.4 \\\hline \text { Unearned stock compensation } & ( 0.1 ) & ( 0.5 ) \\\hline \text { Accumulated other comprehensive loss } & ( 6.9 ) & ( 1.3 ) \\\hline \text { Treasury stock } & 55.9 & 5.50 .7 \\\hline \text { Retained earnings } & 68.7 & 63.2 \\\hline \text { Total stockholders' equity } & \$ 87.5 & \$ 78.0 \\\hline\end{array}$ $\begin{array}{|c|}\hline \text {Brittania, Inc.}\\\text {Consolidated Statement of Income}\\\text {January 3, 2018}\\\text {(in millions)}\\\begin{array}{l|l}\hline\text { Revenues } & \$ 133.5 \\\hline \text { Cost of sales } & 87.3 \\\hline \text { Gross profit } & 46.2 \\\hline \text { Operating expenses } & 37.3 \\\hline \text { Operating income } & 8.9 \\\hline \text { Interest expense } & (0.1) \\\hline \text { Other revenues and expenses } & 0.3 \\\hline \text { Income before tax } & 9.1 \\\hline \text { Income taxes } & \$ .9 .2 \\\hline \text { Net income } & \$ .2 .12 \\\hline\end{array}\end{array}$

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