BF140 Business Financial Concepts: Capstone Project Part 2
Accounting for Merchandizing Businesses – Accounting for Inventories
Description:
Congratulations! You have been hired as an accountant by the company HappyDay, which produces dairy products. Your new boss believes that your knowledge will help improve the company’s performance and increase its profitability.
Read the following articles and reply to the questions on the next page:
• “How to Improve Your Return on Sales“ https://bizfluent.com/how-10038373-calculate-overall-contribution-margin-ratio.html
• “5 Tips to Increase Inventory Turnover” https://www.floship.com/increase-inventory-turnover/
The financial statements of HappyDay in Years 1 and 2 are as follows:
HAPPYDAY Company
Income Statement, thousand $
Year 2 Year 1
Revenues:
Net Sales 350,000 420,000
Other Revenues 10,000 16,000
Total Revenues 360,000 436,000
Expenses:
Cost of Goods Sold 206,000 252,000
Selling Expenses 38,000 42,000
General and Administrative Expenses 20,000 22,000
Interest Expense 6,000 6,000
Income Tax Expense 36,000 42,000
Total Expenses 306,000 364,000
Net Income 54,000 72,000
HAPPYDAY Company
Balance Sheet, thousand $
Year 2 Year 1
Assets
Current Assets:
Cash 8,000 4,000
Marketable Securities 1,000 1,000
Accounts Receivable 32,000 35,000
Inventories 96,000 100,000
Prepaid Expenses 2,000 3,000
Total Current Assets 139,000 143,000
Plant and Equipment (net) 105,000 105,000
Intangibles – 20,000
Total Assets 244,000 268,000
Liabilities and Stockholders’ Equity
Liabilities:
Current Liabilities:
Accounts Payable 54,000 40,000
Other 15,000 17,000
Total Current Liabilities 69,000 57,000
Bonds Payable 67,000 66,000
Total Liabilities 136,000 123,000
Stockholder’s Equity:
Common Stock (100,000 shares) 115,000 115,000
Retained Earnings (7,000) 30,000
Total Stockholders’ Equity 108,000 145,000
Total Liabilities and Stockholders’ equity 244,000 268,000
Year 2 market price 9.54
Year 1 market price 11.88
A. 1) Explain what Gross Margin Percentage and Net Income Percentage are and how they are computed.
2) Calculate Gross Margin Percentage and Net Income Percentage for Year 1 and Year 2. When data limitations prohibit computing averages, use year-end balances in your calculations. Round computations to two decimal points.
3) How did the measures change in Year 1 in comparison to Year 2? Briefly explain the reasons for the changes.
B. 1) Explain what Inventory Turnover and Average Number of Days to Sell Inventory are and how they are computed.
2) Calculate Inventory Turnover and Average Number of Days to Sell Inventory for Year 1 and Year 2. When data limitations prohibit computing averages, use year-end balances in your calculations. Round computations to two decimal points.
3) How did the measures change in Year 1 in comparison to Year 2? Briefly explain the reasons for the changes.
C. Give at least 2 examples of what HappyDay can do in order to improve the values of the indicators in the future accounting periods.
Submit your responses to Capstone Project Part 2 in Moodle.
FOR INSTRUCTOR USE ONLY
Grading Rubric
Grading accepts a start value of 100. Points will be deducted for failure to fully complete or meet the stated requirements. 90-100 = Represents work of superior quality (A); 80-89 = Represents work of good to very good quality (B); 70-79 = Represents adequate command of class content (C); 69 and below = Represents work that shows a need for development or improvement (F); 0 = Represents plagiarized work (F).
BF140: Business Financial Concepts (BCF)
Student:
Instructor:
Date:
Capstone Project Part 2
Description of requirements Possible Points Your Points
A. 1) Explain what Gross Margin Percentage and Net Income Percentage are and how they are computed.
10
2) Calculate Gross Margin Percentage and Net Income Percentage for Year 1 and Year 2. When data limitations prohibit computing averages, use year-end balances in your calculations. Round computations to two decimal points. 20
3) How did the measures change in Year 1 in comparison to Year 2? Briefly explain the reasons for the changes. 10
B. 1) Explain what Inventory Turnover and Average Number of Days to Sell Inventory are and how they are computed. 10
2) Calculate Inventory Turnover and Average Number of Days to Sell Inventory for Year 1 and Year 2. When data limitations prohibit computing averages, use year-end balances in your calculations. Round computations to two decimal points. 20
3) How did the measures change in Year 1 in comparison to Year 2? Briefly explain the reasons for the changes. 10
C. Give at least 2 examples of what HappyDay can do in order to improve the values of the indicators in the future accounting periods. 10
Assignment was submitted by due date 10
TOTAL 100
YOUR SCORE: ________
Instructor Comments:
