Data for Outreach Enterprises follows:

$$\begin{array}{lrrr} \hline & \textbf{2 0 1 7} & \textbf{2 0 1 6} & \textbf{2 0 1 5} \\ \hline \text { Total Current Assets } & \$ 380,000 & \$ 330,000 & \$ 290,000 \\ \text { Total Current Liabilities } & 180,000 & 165,000 & 145,000 \\ \hline \end{array}$$

Compute the dollar amount of change and the percentage of change in Outreach Enterprises's working capital each year during 2017 and 2016. What do the calculated changes indicate?

Describe the types of items that would be reported in the extraordinary items section of the income statement.

Data for McCormick Designs, Inc. follow:

$$\begin{array}{c} \textbf{MCCORMICK DESIGNS, INC.}\\ \textbf{Comparative Income Statement}\\ \textbf{Years Ended December 31, 2016 and 2015}\\ \end{array}$$

$$\begin{array}{lrr} &\textbf{2016}&\textbf{2015}\\ \hline \text{Net Sales Revenue}&\$431,250&\$373,000\\ \text{Expenses:}&&\\ \hspace{5pt}\text{Cost of Goods Sold}&202,000&189,000\\ \hspace{5pt}\text{Selling and Administrative Expenses}&100,050&92,550\\ \hspace{5pt}\text{Other Expenses}&8,000&2,150\\ \hline \hspace{5pt}\text{Total Expenses}&310,050&283,700\\ \hline \text{Net Income}&\$121,200&\$89,300\\ \hline\hline \end{array}$$

Requirements

1. Prepare a horizontal analysis of the comparative income statement of McCormick Designs, Inc. Round percentage changes to one decimal place.
2. Why did 2016 net income increase by a higher percentage than net sales revenue?

What is reported in the discontinued operations section of the income statement?

TST Corporation's accounting records include the following items, listed in no particular order, at December 31, 2016:

$$\begin{array}{lrlr} \hline \text { Other Revenues and (Expenses) } & \$(10,000) & \text { Extraordinary Loss } & \$ 16,600 \\ \text { Net Sales } & 266,000 & \text { Cost of Goods Sold } & 79,000 \\ \text { Gain on Discontinued Operations } & 34,500 & \text { Operating Expenses } & 65,000 \\ \hline \end{array}$$

TST had 8,000 shares of common stock outstanding during 2016. TST declared and paid preferred dividends of $4,000 during 2016. Show how TST reports EPS data on its 2016 income statement.

What are some common red flags in financial statement analysis?

TST Corporation's accounting records include the following items, listed in no particular order, at December 31, 2016:

$$\begin{array}{lrlr} \hline \text { Other Revenues and (Expenses) } & \$(10,000) & \text { Extraordinary Loss } & \$ 16,600 \\ \text { Net Sales } & 266,000 & \text { Cost of Goods Sold } & 79,000 \\ \text { Gain on Discontinued Operations } & 34,500 & \text { Operating Expenses } & 65,000 \\ \hline \end{array}$$

The income tax rate for TST Corporation is 50%. Prepare TST's income statement for the year ended December 31, 2016. Omit earnings per share. Use the multi-step format.

$$\begin{array}{c} \textbf{SHINE'S COMPANIES}\\ \textbf{Balance Sheet}\\ \textbf{May 31, 2016 and 2015}\\ \end{array}$$

$$\begin{array}{lr|lr} \hline \textbf{Assets}&&\textbf{Liabilities}\\ \hline \text{Cash}&\$60&\text{Total Current Liabilities}&\$1,800\\ \text{Accounts Receivable}&(a)&\text{Long-term Note Payable}&(e)\\ \text{Merchandise Inventory}&725&\text{Other long-term Liabilities}&\underline{770}\\ \text{Prepaid Expenses}&\underline{(b)}&\text{Total Liabilities}&(f)\\ \hspace{5pt}\text{Total Current Assets}&(c)\\ \text{Plant Assets, Net}&(d)&\textbf{Stockholder's Equity}\\ \text{Other Assets}&2,000&\text{Stockholder's Equity}&2,675\\ \hline \text{Total Assets}&\$6,500&\text{Total Liabilities and Stockholder's Equity}&\$(g)\\ \end{array}$$

Use the following ratio data to complete Walsham Mills's balance sheet. a. Current ratio is 0.86. b. Acid-test ratio is 0.40.

Briefly describe the ratios that can be used to evaluate a company's stock as an investment.

Briefly describe the ratios that can be used to evaluate a company's profitability.

Shine's Companies, a home improvement store chain, reported the following summarized figures:

$$\begin{array}{c} \textbf{VINTAGE MILLS}\\ \textbf{Income Statement}\\ \textbf{Year Ended December 31, 2016}\\ \end{array}$$

$$\begin{array}{lr} \hline \text{Net sales}&\$7,300\\ \text{Cost of goods sold}&(a)\\ \text{Selling and Administrative Expenses}&1,700\\ \text{Interest expenses}&(b)\\ \text{Other expenses}&\underline{135}\\ \text{Income Before Income Taxes}&1,325\\ \text{Income Tax Expense}&\underline{(c)}\\ \text{Net income}&(d)\\ \hline\hline \end{array}\\$$

Use the following ratio data to complete Vintage Mills's income statement:

1. Inventory turnover is 4. 70 (beginning Merchandise Inventory was $750; ending Merchandise Inventory was$710).
2. Profit margin ratio is 0. 16.

Briefly describe the ratios that can be used to evaluate a company's ability to pay long-term debt.

Shine's Companies, a home improvement store chain, reported the following summarized figures:

$$\begin{array}{c} \textbf{SHINE'S COMPANIES}\\ \textbf{Income Statement}\\ \textbf{Years Ended May 31, 2016 and 2015}\\ \end{array}$$

$$\begin{array}{lrr} \hline & \textbf{2016} & \textbf{2015} \\ \hline \text{Net Sales} &\$57,200,000&\$41,100,000 \\ \text{Cost of Goods Sold} & \$20,600,000 & \$29,300,000 \\ \text{Interest Expense} & 700,000 & 630,000 \\ \text{All Other Expenses} & \$6,900,000 & \$8,400,000 \\ \hline \text{Net Income} &\$29,000,000 & \$2,770,000 \\ \hline \hline \end{array}$$

$$\begin{array}{c} \textbf{SHINE'S COMPANIES}\\ \textbf{Balance Sheet}\\ \textbf{May 31, 2016 and 2015}\\ \end{array}$$

$$\begin{array}{lrr|lrr} \hline \textbf{Assets}&&&\textbf{Liabilities}\\ \hline &\textbf{2016}&\textbf{2015}&&\textbf{2016}&\textbf{2015}&\\ \hline \text{Cash}&\$2,200,000&\$1,800,000&\text{Total Current Liabilities}&\$24,000,000&\$12,900,000\\ \text{Short-term Investments}&26,000,000&10,000,000&\text{Long-term Liabilities}&13,400&10,800,000\\ \text{Accounts Receivable}&7,200,000&5,400,000&\text{Total Liabilities}&37,400,000&23,700,000\\ \text{Merchandise Inventory}&7,100,000&8,200,000&&\textbf{Stockholder's Equity}\\ \text{Other Current Assets}&9,000,000&1,800,000&\text{Common Stock}&13,000,000&13,000,000\\ \text{Total Current Assets}&51,500,000&27,200,000&\text{Retained Earnings}&33,100,000&18,500,000\\ \text{All Other Assets}&32,000,000&28,000,000&\text{Total Equity}&46,100,000&31,500,000\\ \hline \text{Total Assets}&\$83,500,000&\$55,200,000&\text{Total Liabilities and Equity}&\$83,500,000&\$55,200,000\\ \end{array}$$

Shine's has 100,000 common shares outstanding during 2016.

Requirements

1. Compute earnings per share (EPS) for 2016 for Shine's. Round to the nearest cent.
2. Compute Shine's Companies' price/earnings ratio for 2016. The market price per share of Shine's stock is $65.50.
3. What do these results mean when evaluating Shine's Companies' profitability?

In order for an item to be reported in the extraordinary items section of the income statement, it must be a. unusual. c. unusual or infrequent. b. infrequent. d. unusual and infrequent.