Prepare income statements for both Garcon Company and Pepper Company

Using the following data,

	Garcon Company					Pepper Company
Beginning finished goods inventory		$	12,800			$	17,950
Beginning work in process inventory			18,700				20,850
Beginning raw materials inventory			10,000				12,750
Rental cost on factory equipment			32,000				26,500
Direct labor			23,800				38,600
Ending finished goods inventory			19,700				13,200
Ending work in process inventory			26,800				16,000
Ending raw materials inventory			5,900				7,800
Factory utilities			14,250				12,500
Factory supplies used			8,800				5,400
General and administrative expenses			33,500				51,000
Indirect labor			1,250				9,520
Repairs—Factory equipment			5,540				3,450
Raw materials purchases			36,000				60,000
Selling expenses			58,800				48,700
Sales			225,030				292,510
Cash			33,000				21,700
Factory equipment, net			262,500				172,825
Accounts receivable, net			17,000				20,700

1-a.	Prepare income statements for both Garcon Company and Pepper Company.

Simon Company’s year-end balance sheets follow. The company’s income statements for the years ended December

Simon Company’s year-end balance sheets follow.

	At December 31			2015			2014			2013
	Assets
	Cash		$	30,879		$	36,094		$	36,138
	Accounts receivable, net			89,200			62,800			53,000
	Merchandise inventory			115,000			82,000			52,000
	Prepaid expenses			9,944			9,475			4,015
	Plant assets, net			263,101			247,669			209,247
	Total assets		$	508,124		$	438,038		$	354,400
	Liabilities and Equity
	Accounts payable		$	130,319		$	76,249		$	48,184
	Long-term notes payable secured by   mortgages on plant assets			98,393			103,771			80,672
	Common stock, $10 par value			162,500			162,500			162,500
	Retained earnings			116,912			95,518			63,044
	Total liabilities and equity		$	508,124		$	438,038		$	354,400

  

The company’s income statements for the years ended December 31, 2015 and 2014, follow. Assume that all sales are on credit:

For Year Ended December 31	2015						2014
Sales				$	660,561					$	521,265
Cost of goods sold	$	402,942					$	338,822
Other operating expenses		204,774						131,880
Interest expense		11,230						11,989
Income taxes		8,587						7,819
Total costs and expenses					627,533						490,510
Net income				$	33,028					$	30,755
Earnings per share				$	2.03					$	1.89

(1)	Compute days' sales uncollected.

Explanation:

Days' sales uncollected

	$89,200
2015:		× 365	=	49.3 days
	$660,561
	$62,800
2014:		× 365	=	44.0 days
	$521,265

(2)	Compute accounts receivable turnover.

Explanation:

Accounts receivable turnover

	$660,561
2015:		=	8.7 times
	($89,200 + $62,800)/2
	$521,265
2014:		=	9.0 times
	($62,800 + $53,000)/2

(3)	Compute inventory turnover.

Explanation:

Inventory turnover

	$402,942
2015:		=	4.1 times
	($115,000 + $82,000)/2
	$338,822
2014:		=	5.1 times
	($82,000 + $52,000)/2

(4)	Compute days' sales in inventory.

Explanation:

Days' sales in inventory

	$115,000
2015:		× 365	=	104.2 days
	$402,942
	$82,000
2014:		× 365	=	88.3 days
	$338,822