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The Following Summaries from the Income Statements and Balance Sheets

question 174

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?
Kouris Company Consolidated Balance Sheets(in millions)
$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? Kouris Company Consolidated Balance Sheets(in millions) Assets \begin{array}{|l|l|l|} \hline\text { Current assets: }\\ \hline \text { Cash and cash equivalents } & \$ 634.0 & \$ 575.5 \\ \hline \text { Accounts receivable, net of allowance } & 2,101.1 & 1,804.1 \\ \hline \text { Inventories } & 1,514.9 & 1,373.8 \\ \hline \text { Other current assets } & 429.9 & 401.3 \\ \hline \text { Total current assets } & 4,679.9 & 4,154.7 \\ \hline \text { Property, plant, and equipment, net } & 1,620.8 & 1,614.5 \\ \hline \text { Other long term assets } & 413.2 & 670.8 \\ \hline \text { Total assets } & \underline{\underline{ \$ 6,713.9 }}& \underline{\underline{\$ 6,440.0}} \\ \hline \end{array} Liabilities and Stockholders' Equity \begin{array}{|l|l|l|} \hline\text { Current liabilities: }\\ \hline \text { Current portion of long-term debt } & \$ 205.7 & \$ 55.3 \\ \hline \text { Notes payable } & 75.4 & 425.2 \\ \hline \text { Accounts payable } & 572.7 & 504.4 \\ \hline \text { Accrued liabilities } & 1,054.2 & 765.3 \\ \hline \text { Income taxes payable } & 107.2 & 83.0 \\ \hline \text { Total current liabilities } & 2,015.2 & 1,833.2 \\ \hline \text { Long term liabilities } & 708.0 & 767.8 \\ \hline \text { Total liabilities } & 2,723.2 & 2,601.0 \\ \hline\text { Stockholders' equity: }\\ \hline \text { Common stock } & 2.8 & 2.8 \\ \hline \text { Contributed capital in excess of par value } & 589.0 & 538.7 \\ \hline \text { Unearned stock compensation } & (0.6) & (5.1) \\ \hline \text { Accumulated other comprehensive loss } & (239.7) & (192.4) \\ \hline \text { Retained earnings } & \underline{3,639.2} & 3,495.0 \\ \hline \text { Total stockholders' equity } & \underline{3,990.7} & \underline{3,839.0} \\ \hline \text { Total liabilities and stockholders' equity } & \$ 6,713.9 & \$ 6,440.0 \\ \hline \end{array} Kouris Company Consolidated Statement of Income May 31, 2018 \begin{array}{l} \text { (in millions) }\\ \begin{array} { |l | c| } \hline \text { Revenues } & \$ 10,697.0 \\ \hline \text { Cost of sales } & 6,313.6 \\ \hline \text { Gross profit } & 4,383.4 \\ \hline \text { Operating expenses } & 3,137.6 \\ \hline \text { Operating income } & 1,245.8 \\ \hline \text { Interest expense } & 42.9 \\ \hline \text { Other revenues and expenses } & 79.9 \\ \hline \text { Income before tax } & 1,123.0 \\ \hline \text { Income taxes } & 382.9 \\ \hline \text { Income before effect of accounting change } & 740.1 \\ \hline \text { Cumulative effect of accounting change, net of tax } & 266.1 \\ \hline \text { Net income } & \$ 474.0\\ \hline \end{array} \end{array} Brittania, Inc. Consolidated Balance Sheets \begin{array} { | l | l | l | } \hline \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad& \text { Jan. 3, } & \text { Jan. 4. } \\ \hline & 2018 & 2017 \\ \hline \end{array} Assets Current assets: \begin{array} { | l | l | l |} \hline \text { Cash and cash equivalents } & \$ 34.5 & \$ 22.2 \\ \hline \text { Accounts receivable, net af allowanes } & 15.5 & 14.7 \\ \hline \text { Inventories } & 27.2 & 28.4 \\ \hline \text { Other current assets } & 3.5 & 4.2 \\ \hline \text { Total current assets } & 80.7 & 69.5 \\ \hline \text { Property. plant, and equipment, net } & 5.7 & 7.0 \\ \hline \text { Other long term assets } & 1.1 & 1.5 \\ \hline \text { Total assets } & \$ 87.5 & \$ 78.0 \\ \hline \end{array} \begin{array}{l} \text { Liabilities and Stockholders' Equity }\\ \begin{array} { |l | c | c| } \hline \text { Current liabilities: } & & \\ \hline \text { Accounts payable } & \$ 8.5 & \$ 6.6 \\ \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 \end{array} \end{array} \begin{array} { | l | l | l |} \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 comprehentive loss } & ( 0.9 ) & ( 1.3 ) \\ \hline \text { Treasury stock } & ( 6.3 ) & ( 5.4 ) \\ \hline \text { Retained earnings } & 55.9 & 50.7 \\ \hline \text { Total stockholders' equity } & 68.7 & 63.2 \\ \hline \text { Total liabilities and stockholders' equity } & \$ 87.5 &\$ 78 . 0 \end{array} \begin{array}{c} \text { Brittania, Inc.}\\ \text { Consolidated Statement of Income }\\ \text { January 3, 2018 (in millions)}\\ \begin{array}{lc} \text { Revenues } & \$ 133.5 \\ \text { Cost of sales } & \underline{87.3} \\ \text { Grosprofit } & 46.2 \\ \text { Operating expenses } & \underline{37.3} \\ \text { Opiatating income } & 8.9 \end{array}\end{array} \begin{array}{l|l} \text { Interest expense } & (0.1) \\ \hline \text { Other revenues and expenses } & 0.3 \\ \hline \text { Income before tax } & 9.1 \\ \hline \text { Income taxes } & 3.9 \\ \hline \text { Net income } & \$ \quad 5.2 \end{array}$ Assets
$\begin{array}{|l|l|l|}\hline\text { Current assets: }\\\hline \text { Cash and cash equivalents } & \$ 634.0 & \$ 575.5 \\\hline \text { Accounts receivable, net of allowance } & 2,101.1 & 1,804.1 \\\hline \text { Inventories } & 1,514.9 & 1,373.8 \\\hline \text { Other current assets } & 429.9 & 401.3 \\\hline \text { Total current assets } & 4,679.9 & 4,154.7 \\\hline \text { Property, plant, and equipment, net } & 1,620.8 & 1,614.5 \\\hline \text { Other long term assets } & 413.2 & 670.8 \\\hline \text { Total assets } & \underline{\underline{ \$ 6,713.9 }}& \underline{\underline{\$ 6,440.0}} \\\hline \end{array}$
Liabilities and Stockholders' Equity
$\begin{array}{|l|l|l|}\hline\text { Current liabilities: }\\\hline \text { Current portion of long-term debt } & \$ 205.7 & \$ 55.3 \\\hline \text { Notes payable } & 75.4 & 425.2 \\\hline \text { Accounts payable } & 572.7 & 504.4 \\\hline \text { Accrued liabilities } & 1,054.2 & 765.3 \\\hline \text { Income taxes payable } & 107.2 & 83.0 \\\hline \text { Total current liabilities } & 2,015.2 & 1,833.2 \\\hline \text { Long term liabilities } & 708.0 & 767.8 \\\hline \text { Total liabilities } & 2,723.2 & 2,601.0 \\\hline\text { Stockholders' equity: }\\\hline \text { Common stock } & 2.8 & 2.8 \\\hline \text { Contributed capital in excess of par value } & 589.0 & 538.7 \\\hline \text { Unearned stock compensation } & (0.6) & (5.1) \\\hline \text { Accumulated other comprehensive loss } & (239.7) & (192.4) \\\hline \text { Retained earnings } & \underline{3,639.2} & 3,495.0 \\\hline \text { Total stockholders' equity } & \underline{3,990.7} & \underline{3,839.0} \\\hline \text { Total liabilities and stockholders' equity } & \$ 6,713.9 & \$ 6,440.0 \\\hline\end{array}$ Kouris Company Consolidated Statement of Income
May 31, 2018

$\begin{array}{l}\text { (in millions) }\\\begin{array} { |l | c| } \hline \text { Revenues } & \$ 10,697.0 \\\hline \text { Cost of sales } & 6,313.6 \\\hline \text { Gross profit } & 4,383.4 \\\hline \text { Operating expenses } & 3,137.6 \\\hline \text { Operating income } & 1,245.8 \\\hline \text { Interest expense } & 42.9 \\\hline \text { Other revenues and expenses } & 79.9 \\\hline \text { Income before tax } & 1,123.0 \\\hline \text { Income taxes } & 382.9 \\\hline \text { Income before effect of accounting change } & 740.1 \\\hline \text { Cumulative effect of accounting change, net of tax } & 266.1 \\\hline \text { Net income } & \$ 474.0\\\hline\end{array}\end{array}$ Brittania, Inc.
Consolidated Balance Sheets
$\begin{array} { | l | l | l | } \hline \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad& \text { Jan. 3, } & \text { Jan. 4. } \\\hline & 2018 & 2017 \\\hline\end{array}$ Assets
Current assets:
$\begin{array} { | l | l | l |} \hline \text { Cash and cash equivalents } & \$ 34.5 & \$ 22.2 \\\hline \text { Accounts receivable, net af allowanes } & 15.5 & 14.7 \\\hline \text { Inventories } & 27.2 & 28.4 \\\hline \text { Other current assets } & 3.5 & 4.2 \\\hline \text { Total current assets } & 80.7 & 69.5 \\\hline \text { Property. plant, and equipment, net } & 5.7 & 7.0 \\\hline \text { Other long term assets } & 1.1 & 1.5 \\\hline \text { Total assets } & \$ 87.5 & \$ 78.0 \\\hline\end{array}$

$\begin{array}{l}\text { Liabilities and Stockholders' Equity }\\\begin{array} { |l | c | c| } \hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 8.5 & \$ 6.6 \\\hline \text { Accrued liabilities } & 7.8 & 5.6 \\\hline \text { Total current liabilities } & 16.3 & 12.2 \\\hline \text { Long term liabilities } & 2.5 & 2.6 \\\hline \text { Total liabilities } & 18.8 & 14.8 \\\hline \text { Stockholders' equity: } & & \\\hline\end{array}\end{array}$

$\begin{array} { | l | l | l |} \hline \text { Common stock } & 2.3 & 2.3 \\\hline \text { Contributed capital in excess of par value } & 17.8 & 17.4 \\\hline \text { Unearned stock compensation } & ( 0.1 ) & ( 0.5 ) \\\hline \text { Accumulated other comprehentive loss } & ( 0.9 ) & ( 1.3 ) \\\hline \text { Treasury stock } & ( 6.3 ) & ( 5.4 ) \\\hline \text { Retained earnings } & 55.9 & 50.7 \\\hline \text { Total stockholders' equity } & 68.7 & 63.2 \\\hline \text { Total liabilities and stockholders' equity } & \$ 87.5 &\$ 78 . 0\end{array}$

$\begin{array}{c}\text { Brittania, Inc.}\\\text { Consolidated Statement of Income }\\\text { January 3, 2018 (in millions)}\\ \begin{array}{lc}\text { Revenues } & \$ 133.5 \\\text { Cost of sales } & \underline{87.3} \\\text { Grosprofit } & 46.2 \\\text { Operating expenses } & \underline{37.3} \\\text { Opiatating income } & 8.9\end{array}\end{array}$

$\begin{array}{l|l}\text { Interest expense } & (0.1) \\\hline \text { Other revenues and expenses } & 0.3 \\\hline \text { Income before tax } & 9.1 \\\hline \text { Income taxes } & 3.9 \\\hline \text { Net income } & \$ \quad 5.2\end{array}$

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