Perform ratio and financial statement analysis in the four areas of analysis

ACCT 1020 – Principles of Accounting II

Project Chapter 17




  • Perform ratio and financial statement analysis in the four areas of analysis
  • Apply critical thinking skills (analysis, evaluation, inference)


Due Date and Submission

Projects must be emailed no later than:  11:59 PM (CST) on 8/5/2016


This project will be submitted by scanning in the hard copies of your project and emailing them to me in D2L.


Problem Instructions

Follow the problem instructions below assigned by your instructor and based on Chapter 17 problems from the Fundamental Accounting Principles text attached to the Project page.



Resources include Chapter 17 of your accounting text and the Financial Ratios handout available through Lesson 5.  You may also find resources on the Internet.  Your instructor is also available to assist you as well.



The work for this project should be neatly prepared and presented. Computer-generated work (charts, graphs) can be used to strengthen your presentation.  Presentation is assessed and will be graded subjectively and competitively.



A percentage of the project score is also based on your analysis and comments of the findings.  You will be asked to select a path of action.  Your analysis score will not be based on the options you choose, but on the data and reasoning you use to back up your decision.



See the attached grade sheet for additional information on the distribution of points for this project.


Academic Integrity

Each project should be your original work.  Violations of the Academic Integrity policy as outlined on the course syllabus will result in a grade of -0- on this project.



The score earned on this project is worth 5% of your final course grade.


Project 17


Problem Data

  1. Summary information from the financial statements of two companies competing in the same industry follows:


Data from the 2014 year-end balance sheets


                                                            Micron Co.                Baylee Co.


Cash                                                       $ 19,500                     $ 34,000

Accounts receivable, net                        37,400                        57,400

Notes receivable, current portion            9,100                          7,200

Merchandise inventory                           84,440                      132,500

Prepaid Expenses                                     5,000                          6,950

Plant assets, net                                    290,000                      304,400

Total assets                                          $445,440                   $542,450


Liabilities and Equity

Current liabilities                                  $ 61,340                     $ 93,300

Long-term notes payable                       80,800                      101,000

Common stock, $5 par value               180,000                      206,000

Retained earnings                                123,300                      142,150

Total liabilities and equity                  $445,440                   $542,450



Beginning-of-year balance sheet data:

                                                            Micron Co.                Baylee Co.

Accounts receivable, net                    $ 29,800                      $54,200

Notes receivable, current portion                    0                                  0

Merchandise inventory                           55,600                      107,400

Total assets                                            398,000                      382,500

Common stock, $5 par value               180,000                      206,000

Retained earnings                                  98,300                        93,600



Data from the 2014 income statement:

                                                            Micron Co.                Baylee Co.

Sales                                                     $770,000                   $880,200

Cost of goods sold                                585,100                      632,500

Interest expense                                        7,900                        13,000

Income tax expense                                14,800                        24,300

Net income                                             162,200                      210,400

Basic earnings per share                           4.51                            5.11







  1. Prepare common-size 2014 balance sheets (in good form) for each company. Round all percents to tenths (0.0%).
  2. Prepare common-size 2014 income statements (in good form) for each company. Round all percents to tenths (0.0%).
  3. For both companies 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. (g) profit margin, (h) return on total assets, and (i) return on common stockholders’ equity.
  4. Assuming that each company paid cash dividends of $.75 per share and each company’s stock can be purchased at $32 per share, compute their (a) price-earnings ratios and (b) dividend yields.

For 3 & 4, state your answers in correct format with proper labels and rounding as shown in the textbook, i.e., turnover-3.4 times, Days’ sales-42 days, profit margin-8.3%, etc.


  1. Prepare a statement containing the following items:
    1. Identify the company your group considers to have the better short-term financial position. Back up your decision with appropriate analysis and numbers.
    2. Assuming that you had funds to invest in only one of these companies, identify the company your group would invest in. Back up your decision with appropriate analysis and numbers.

Your analysis statement should be prepared on a word processor.  The document should contain precise, clear statements indicating your group’s viewpoints and supporting computations.  Complete sentences composed of correct grammar and spelling should be applied in your document.  The length of the statement should be adequate to cover your decisions and provide supporting data.



  1. Comparative statements for Manuel Corporation are shown below:


Manuel Corporation

                                                     Comparative Income Statements

                                                    For the years ended December 31,

2014                       2013                       2012

Sales…………………………………………………. $14,800                 $13,229                 $13,994

Cost of Goods Sold……………………………….. 8,225                      8,661                      8,375

Gross profit…………………………………………….. 6,575                      4,568                      5,619

Operatintg Expenses…………………………….. 3,664                      3,576                      3,487

Operating income……………………………….. $ 2,911                       $992                  $ 2,132






Calculate trend percentages for all income statement amounts shown AND comment on the results.  Use 2012 as the base year.  Round all percents to tenths (0.0%).


Project Chapter 17 Grade Sheet





A. Data Complete & Accurate (C-1, A-2) Score Micron Baylee
C           A C           A
Common-size Comparative Balance Sheets /6 x 10 Y / N Y / N Y / N Y / N
Common-size Income Statements /6 x 10 Y / N Y / N Y / N Y / N
Ratio Computations (In-Total) /66 x 20        
Acid-test Ratio   Y / N Y / N Y / N Y / N
Current Ratio   Y / N Y / N Y / N Y / N
Accounts Receivable Turnover   Y / N Y / N Y / N Y / N
Inventory Turnover   Y / N Y / N Y / N Y / N
Days Sales in Inventory   Y / N Y / N Y / N Y / N
Days Sales Uncollected   Y / N Y / N Y / N Y / N
Profit Margin Ratio   Y / N Y / N Y / N Y / N
Return on Total Assets   Y / N Y / N Y / N Y / N
Return on Common Stockholders Equity   Y / N Y / N Y / N Y / N
Price-Earnings Ratio   Y / N Y / N Y / N Y / N
Dividend Yield   Y / N Y / N Y / N Y / N
Analysis Statement x 20  
A. Total Score        /60  


B. Data Complete & Accurate (C-1, A-2)   Manuel Corp.  
C           A
Manuel Corp. Trend % Income Statements /3 x 10 Y / N Y / N  
Comments x 10  
B. Total Score        /20
Overall Presentation (Layout, Neatness, Visuals) x 10  
Presentation Score        /10


Total Score (Out of 90 Points)          %


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