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a. Compute the following ratios for Crazy Eddie during the period 1984-1987. See balance sheet and income statement. (Show working) Gross profit ratio  Inventory Turnover  Day’s sales in inventory  Accounts receivable turnover  Day’s sales in accounts receivable  Accounts Payable Turnover Ratio  Long-Term Debt to Assets Ratio

a. Compute the following ratios for Crazy Eddie during the period 1984-1987. See balance sheet and income statement. (Show working) Gross profit ratio  Inventory Turnover  Day’s sales in inventory  Accounts receivable turnover  Day’s sales in accounts receivable  Accounts Payable Turnover Ratio  Long-Term Debt to Assets Ratio

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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a. Compute the following ratios for Crazy Eddie during the period 1984-1987. See balance sheet and income statement. (Show working)

Gross profit ratio 
Inventory Turnover 
Day’s sales in inventory 
Accounts receivable turnover 
Day’s sales in accounts receivable 
Accounts Payable Turnover Ratio 
Long-Term Debt to Assets Ratio

b. Identify and briefly explain the red flags in Crazy Eddie's financial statements which suggested that the firm posed a higher-than-normal level of audit risk.

EXHIBIT 2 1984 -1987 Income Statements of Crazy Eddie Crazy Eddie, Inc. Income Statements (000's omitted) Year Ended March 2, 1986 Year Ended March 1, 1987 Nine Months Ended March 3, Year Ended May 31, 1984 1985 Net sales Cost of goods sold Gross profit $352,523 (272,255) $ 262,268 (194,371) $ 136,319 (103,421) 32,898 $ 137,285 (106,934) 30,351 $80,268 67,897 Selling, general and administrative expense Interest and other income Interest expense Income befare taxes Pension contribution Income taxes Net Income (61,341) (42,975) (20,508) (22,560) 7.403 3,210 1,211 (438) 13,163 706. (5,233) 21.097 (500) (10,001) $10,596 (522) 7,975 (820) 27,312 (800) (600) (6,734) (13,268) $13,244 (4,202) $3,773 $5,829 Net Income per share $.34 $.48 $.24 $.18
Transcribed Image Text:EXHIBIT 2 1984 -1987 Income Statements of Crazy Eddie Crazy Eddie, Inc. Income Statements (000's omitted) Year Ended March 2, 1986 Year Ended March 1, 1987 Nine Months Ended March 3, Year Ended May 31, 1984 1985 Net sales Cost of goods sold Gross profit $352,523 (272,255) $ 262,268 (194,371) $ 136,319 (103,421) 32,898 $ 137,285 (106,934) 30,351 $80,268 67,897 Selling, general and administrative expense Interest and other income Interest expense Income befare taxes Pension contribution Income taxes Net Income (61,341) (42,975) (20,508) (22,560) 7.403 3,210 1,211 (438) 13,163 706. (5,233) 21.097 (500) (10,001) $10,596 (522) 7,975 (820) 27,312 (800) (600) (6,734) (13,268) $13,244 (4,202) $3,773 $5,829 Net Income per share $.34 $.48 $.24 $.18
Crazy Eddie, Inc. Balance Sheets (000's omitted) March 1, 1987 March 2, 1986 March 3, 1985 May 31, 1984 Current assets $ 9,347 $ 13,296 $22,273 1,375 Cash Short-term investments 121,957 26,840 Receivables 10,846 2,246 2,740 2,604 26,543 23,343 109,072 10,639 Merchandise inventories 59,864 Prepaid expenses 2,363 645 514 $261,861 104,609 52,201 27,836 Total current assets 3,356 7,058 Restricted cash 5,739 Due from affiliates 7,172 3,696 1,845 Property, plant and equipment Construction in process 26,401 6,253 1,154 Other assets 6,596 5,560 1,419 1,149 Total assets $294,858 $126,950 $65,528 $36,569 Current llabilities $20,106 2,900 $ 50,022 $ 51,723 23,078 Accounts payable Notes payable Short-term debt 49,571 2,254 423 124 Unearned tevenue 3,641 3,696 1,173 764 Accrued expenses 5,593 17,126 8,733 6,078 33,407 7,625 Total current liabilitles $108,827 74,799 29,972 7,701 Long-term debt Convertible subordihated debentures Unearned revenue 8,459 80,975 3,337 1,829 635 327 Stockholders' equity Common stock 313 280 134 50 '574 12,298 11,429 17.668 Additional paid-in capital Retained earnings 57,678 35,269 24,673 5,600 Total stockholders' equity $ 93,260 42,621 23,861 6,224 Total llabilities and stockholders' equity $294,858 $126,950 $65,528 $36.569
Transcribed Image Text:Crazy Eddie, Inc. Balance Sheets (000's omitted) March 1, 1987 March 2, 1986 March 3, 1985 May 31, 1984 Current assets $ 9,347 $ 13,296 $22,273 1,375 Cash Short-term investments 121,957 26,840 Receivables 10,846 2,246 2,740 2,604 26,543 23,343 109,072 10,639 Merchandise inventories 59,864 Prepaid expenses 2,363 645 514 $261,861 104,609 52,201 27,836 Total current assets 3,356 7,058 Restricted cash 5,739 Due from affiliates 7,172 3,696 1,845 Property, plant and equipment Construction in process 26,401 6,253 1,154 Other assets 6,596 5,560 1,419 1,149 Total assets $294,858 $126,950 $65,528 $36,569 Current llabilities $20,106 2,900 $ 50,022 $ 51,723 23,078 Accounts payable Notes payable Short-term debt 49,571 2,254 423 124 Unearned tevenue 3,641 3,696 1,173 764 Accrued expenses 5,593 17,126 8,733 6,078 33,407 7,625 Total current liabilitles $108,827 74,799 29,972 7,701 Long-term debt Convertible subordihated debentures Unearned revenue 8,459 80,975 3,337 1,829 635 327 Stockholders' equity Common stock 313 280 134 50 '574 12,298 11,429 17.668 Additional paid-in capital Retained earnings 57,678 35,269 24,673 5,600 Total stockholders' equity $ 93,260 42,621 23,861 6,224 Total llabilities and stockholders' equity $294,858 $126,950 $65,528 $36.569
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