32 FINANCIAL AcCOUNTING REVIEW PROBLEM: INTRODUCTION CHAPTER Mem is to proeide a
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32 FINANCIAL AcCOUNTING REVIEW PROBLEM: INTRODUCTION CHAPTER Mem is to proeide an opportunity to reciere both nexe concepts in the cru pujone of this rrts in prekous chapters. This cumulative reciere should assistene chapter and magjor conog integrating The purpose of this accounting comcepts and preparing for exams May, Inc. Listed below are compurative balance sheets and in for the 2011 and 2010 fiscal years (in millions) for two com ncome companies USE FOLLOWING INFORMATION FOR THE SEVEN QUESTIONS THAT E tatements with and Fer The Years Ended December 31, 2011 And 2010 fin millions COMPARATIVE COMMON-SIZE BALANCE SHEETS Dee. 3 Dec.31 Dee. 31 Dec. 31 Der. 31 Dee. 31 Dee.31 2011 20112012011 Dec. 3 2010 2011 2010 Toral assets % S 3.588 $ 3.952 $5,576 $5,110 Total labilites Tetal ownen equity Total ia And ewser's equity 5 8200 COMPARATIVE COMMON-SIZE INCOME STATEMENTS For The Years Ended December 31, 2011 And 2010 fin milions Inc May, Inc. Ended Dec31 Dec 31 Dec.31 Dec.31 Dec. 31 Dec. 31 Dee. 31 Dec. 31 2011 2010 2011 2010 2011 2010 2011 2010 $11,000 s9200 1000% 1000%|$10,600 s9300 100.0% 1000% Total evnues Total expesss I. The percent change in total revenues for Song, Ine. from 2010 to 2011 is approximately (round to the nearest whole percent): is approsimately (round to the nearest whole percent): (round to the nearest whole percent): 2. The peroent of liabilities to total liabilities and ouners' equity at the end of 2011 for Song, Inc. 3 The perrent of net income to total recenues for the year 92011 for Song Ine,is apromae 4. Total asset turnocer, based on aterage total assets, for 2011 for Song, Ine. Hs (round to one decimal place): approxdimately (round to one decimal place): in terms of controlling expenues from 2010 to 2011, which company had better 5. Return on total assets (ROA), based on 6. In terms of contr 7. aterage total assets for 20l1 for May, Ine which company had the least risk at December 31. 1 er 31, 2011?Explanation / Answer
Q1
Year
2011
2010
Change (+/-)
Total revenues
11000
9200
1800
Percentage change in total revenue (1800 x 100/9200)
19.57%
Q2
Particulars
Amount ($)
Total liabilities as on December 31, 2011
5,576.00
Total liabilities and owners' equity as on December 31, 2011
8,200.00
Percentage of total liabilities to total liabilities and owners' equity (5576 x 100/8200)
68%
Q3
Particulars
Amount ($)
Net income in 2011
1,650.00
Total revenue for 2011
11,000.00
Percentage of net income to total revenue for 2011 (1650 x 100/11000)
15%
Q4
Particulars
Amount ($)
Total turnover of 2011
11,000.00
Average total assets of 2011 (8200+7300)/2
7,750.00
Total assets turnover or 2011 (11000/7750)
1.42 times
Q5
Particulars
Amount ($)
Net income of 2011
636.00
Average total assets of 2011 (7800+7600)/2
7,700.00
Return on total assets (1650 x 100/7750)
8.26%
Q6
In 2011
Particulars
Song Inc. ($)
May Inc. ($)
Total liabilities and equity
8,200.00
7,800.00
Total liabilities
5,576.00
3,588.00
Percentage of total liabilities to total liabilities and owners' equity
(5576 x 100/8200)
68%
(3588 x 100/7800)
46%
Thus, May Inc. has managed risk better in terms of total liabilities thus, has lower risk as the total liabilities to total liabilities and owners’ equity of the company is much lower at 46% than that of Song Inc. with 68%
Q7
Particulars
Song Inc. ($)
May Inc. ($)
Total revenue in 2011
11,000.00
10,600.00
Total expenses in 2011
9,350.00
9,964.00
Percentage of total expenses to revenue
(9350 x 100/11000)
85%
(9964 x 100/10600)
94%
Thus, Song Inc. as the total expense to revenue is much lower than that of May Inc.
Q1
Year
2011
2010
Change (+/-)
Total revenues
11000
9200
1800
Percentage change in total revenue (1800 x 100/9200)
19.57%
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