Chapter 24 Full Disclosure in Financial Reporting

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Chapter 24 Full Disclosure in Financial Reporting

QUESTIONS
1. What are the major advantages of notes to the financial statements? What types of items are usually reported in notes?
2. What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years?
3. The FASB requires a reconciliation between the effective tax rate and the federal government’s statutory rate. Of what benefit is such a disclosure requirement?
4. What type of disclosure or accounting do you believe is necessary for the following items?
(a) Because of a general increase in the number of labor disputes and strikes, both within and outside the industry, there is an increased likelihood that a company will suffer a costly strike in the near future.
(b) A company reports an extraordinary item (net of tax) correctly on the income statement. No other mention is made of this item in the annual report.
(c) A company expects to recover a substantial amount in connection with a pending refund claim for a prior year’s taxes. Although the claim is being contested, counsel for the company has confirmed the client’s expectation of recovery.
5. The following information was described in a note of
Canon Packing Co. “During August, Holland Products Corporation purchased 311,003 shares of the Company’s common stock which constitutes approximately 35% of the stock outstanding. Holland has since obtained representation on the Board of Directors.” “An affiliate of Holland Products Corporation acts as a food broker for Canon Packing in the greater New York
City marketing area. The commissions for such services after August amounted to approximately $20,000.”
Why is this information disclosed?
6. What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported.
(a) Collection of a note written off in a prior period.
(b) Issuance of a large preferred stock offering.
(c) Acquisition of a company in a different industry.
(d) Destruction of a major plant in a flood.
(e) Death of the company’s chief executive officer (CEO).
(f) Additional wage costs associated with settlement of a four-week strike.
(g) Settlement of a federal income tax case at considerably more tax than anticipated at year-end.
(h) Change in the product mix from consumer goods to industrial goods.
7. What are diversified companies? What accounting problems are related to diversified companies?
8. What quantitative materiality test is applied to determine whether a segment is significant enough to warrant separate disclosure?
Be sure to check the book’s companion website for a Review and Analysis Exercise, with solution.
Brief Exercises, Exercises, Problems, and many more learning and assessment tools and resources are available for practice in WileyPLUS.
9. Identify the segment information that is required to be disclosed by GAAP.
10. What is an operating segment, and when can information about two operating segments be aggregated?
11. The controller for Lafayette Inc. recently commented, “If
I have to disclose our segments individually, the only people who will gain are our competitors and the only people that will lose are our present stockholders.” Evaluate this comment.
12. An article in the financial press entitled “Important Information in Annual Reports This Year” noted that annual reports include a management’s discussion and analysis section. What would this section contain?
13. “The financial statements of a company are management’s, not the accountant’s.” Discuss the implications of this statement.
14. Olga Conrad, a financial writer, noted recently, “There are substantial arguments for including earnings projections in annual reports and the like. The most compelling is that it would give anyone interested something now available to only a relatively select few—like large stockholders, creditors, and attentive bartenders.” Identify some arguments against providing earnings projections.
15. The following comment appeared in the financial press: “Inadequate financial disclosure, particularly with respect to how management views the future and its role in the marketplace, has always been a stone in the shoe.
After all, if you don’t know how a company views the future, how can you judge the worth of its corporate strategy?”
What are some arguments for reporting earnings forecasts?
16. What are interim reports? Why are balance sheets often not provided with interim data?
17. What are the accounting problems related to the presentation of interim data?
18. Dierdorf Inc., a closely held corporation, has decided to go public. The controller, Ed Floyd, is concerned with presenting interim data when a LIFO inventory valuation is used. What problems are encountered with LIFO inventories when quarterly data are presented?
19. What approaches have been suggested to overcome the seasonality problem related to interim reporting?
20. What is the difference between a CPA’s unqualified opinion or “clean” opinion and a qualified one?
21. Jane Ellerby and Sam Callison are discussing the recent fraud that occurred at LowRental Leasing, Inc. The fraud involved the improper reporting of revenue to ensure that the company would have income in excess of $1 million.
What is fraudulent financial reporting, and how does it differ from an embezzlement of company funds?
*2 2. “The significance of financial statement data is not in the amount alone.” Discuss the meaning of this statement.
*2 3. A close friend of yours, who is a history major and who has not had any college courses or any experience in business, is receiving the financial statements from companies in which he has minor investments (acquired for him by his now-deceased father). He asks you what he needs to know to interpret and to evaluate the financial statement data that he is receiving. What would you tell him?
*2 4. Distinguish between ratio analysis and percentage analysis relative to the interpretation of financial statements.
What is the value of these two types of analyses?
*2 5. In calculating inventory turnover, why is cost of goods sold used as the numerator? As the inventory turnover increases, what increasing risk does the business assume?
*2 6. What is the relationship of the asset turnover to the return on assets?
*2 7. Explain the meaning of the following terms: (a) commonsize analysis, (b) vertical analysis, (c) horizontal analysis, and (d) percentage analysis.
*2 8. Presently, the profession requires that earnings per share be disclosed on the face of the income statement. What are some disadvantages of reporting ratios on the financial statements?


BRIEF EXERCISES

BE24-1 An annual report of Crestwood Industries states, “The company and its subsidiaries have longterm leases expiring on various dates after December 31, 2014. Amounts payable under such commitments, without reduction for related rental income, are expected to average approximately $5,711,000 annually for the next 3 years. Related rental income from certain subleases to others is estimated to average $3,094,000 annually for the next 3 years.” What information is provided by this note?

BE24-2 An annual report of Ford Motor Corporation states, “Net income a share is computed based upon the average number of shares of capital stock of all classes outstanding. Additional shares of common stock may be issued or delivered in the future on conversion of outstanding convertible debentures, exercise of outstanding employee stock options, and for payment of defined supplemental compensation. Had such additional shares been outstanding, net income a share would have been reduced by 10¢ in the current year and 3¢ in the previous year. . . . As a result of capital stock transactions by the company during the current year (primarily the purchase of Class A Stock from Ford Foundation), net income a share was increased by
6¢.” What information is provided by this note?

BE24-3 Morlan Corporation is preparing its December 31, 2014, financial statements. Two events that occurred between December 31, 2014, and March 10, 2015, when the statements were issued, are described below.
1. A liability, estimated at $160,000 at December 31, 2014, was settled on February 26, 2015, at $170,000.
2. A flood loss of $80,000 occurred on March 1, 2015.
What effect do these subsequent events have on 2014 net income?

BE24-4 Tina Bailey, a student of intermediate accounting, was heard to remark after a class discussion on segment reporting, “All this is very confusing to me. First we are told that there is merit in presenting the consolidated results, and now we are told that it is better to show segmental results. I wish they would make up their minds.” Evaluate this comment.

BE24-5 Foley Corporation has seven industry segments with total revenues as follows.
Penley $600 Cheng $225
Konami 650 Takuhi 200
KSC 250 Molina 700
Red Moon 275
Based only on the revenues test, which industry segments are reportable?

BE24-6 Operating profits and losses for the seven industry segments of Foley Corporation are:
Penley $ 90 Cheng $ (20)
Konami (40) Takuhi 34
KSC 25 Molina 150
Red Moon 50
Based only on the operating profit (loss) test, which industry segments are reportable?

BE24-7 Identifiable assets for the seven industry segments of Foley Corporation are:
Penley $500 Cheng $200
Konami 550 Takuhi 150
KSC 250 Molina 475
Red Moon 400
Based only on the identifiable assets test, which industry segments are reportable?

*BE24-8 Answer each of the questions in the following unrelated situations.
(a) The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $500,000, what is the amount of current liabilities?
(b) A company had an average inventory last year of $200,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year?
(c) A company has current assets of $90,000 (of which $40,000 is inventory and prepaid items) and current liabilities of $40,000. What is the current ratio? What is the acid-test ratio? If the company borrows $15,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be?
(d) A company has current assets of $600,000 and current liabilities of $240,000. The board of directors declares a cash dividend of $180,000. What is the current ratio after the declaration but before payment?
What is the current ratio after the payment of the dividend?

*BE24-9 Heartland Company’s budgeted sales and budgeted cost of goods sold for the coming year are $144,000,000 and $99,000,000, respectively. Short-term interest rates are expected to average 10%. If Heartland can increase inventory turnover from its present level of 9 times a year to a level of 12 times per year, compute its expected cost savings for the coming year.


EXERCISES

E24-1 (Post-Balance-Sheet Events) Madrasah Corporation issued its financial statements for the year ended December 31, 2014, on March 10, 2015. The following events took place early in 2015.
(a) On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share.
(b) On March 1, Madrasah determined after negotiations with the Internal Revenue Service that income taxes payable for 2014 should be $1,270,000. At December 31, 2014, income taxes payable were recorded at $1,100,000.
Instructions
Discuss how the preceding post-balance-sheet events should be reflected in the 2014 financial statements.

E24-2 (Post-Balance-Sheet Events) For each of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose. ______ 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end. ______ 2. Introduction of a new product line. ______ 3. Loss of assembly plant due to fire. ______ 4. Sale of a significant portion of the company’s assets. ______ 5. Retirement of the company president. ______ 6. Prolonged employee strike. ______ 7. Loss of a significant customer. ______ 8. Issuance of a significant number of shares of common stock. ______ 9. Material loss on a year-end receivable because of a customer’s bankruptcy. ______ 10. Hiring of a new president. ______ 11. Settlement of prior year’s litigation against the company (no loss was accrued). ______ 12. Merger with another company of comparable size.

E24-3 (Segmented Reporting) Carlton Company is involved in four separate industries. The following information is available for each of the four industries.
Operating Segment Total Revenue Operating Profit (Loss) Identifi able Assets
W $ 60,000 $15,000 $167,000
X 10,000 3,000 83,000
Y 23,000 (2,000) 21,000
Z 9,000 1,000 19,000 $102,000 $17,000 $290,000
Instructions

Determine which of the operating segments are reportable based on the:
(a) Revenue test.
(b) Operating profit (loss) test.
(c) Identifiable assets test.

*E 24-4 (Ratio Computation and Analysis; Liquidity) As loan analyst for Utrillo Bank, you have been presented the following information.
Toulouse Co. Lautrec Co.
Assets
Cash $ 120,000 $ 320,000
Receivables 220,000 302,000
Inventories 570,000 518,000
Total current assets 910,000 1,140,000
Other assets 500,000 612,000
Total assets $1,410,000 $1,752,000
Liabilities and Stockholders’ Equity
Current liabilities $ 305,000 $ 350,000
Long-term liabilities 400,000 500,000
Capital stock and retained earnings 705,000 902,000
Total liabilities and stockholders’ equity $1,410,000 $1,752,000
Annual sales $ 930,000 $1,500,000
Rate of gross profit on sales 30% 40%
Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered.
Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.
Instructions

Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.

*E 24-5 (Analysis of Given Ratios) Picasso Company is a wholesale distributor of professional equipment and supplies. The company’s sales have averaged about $900,000 annually for the 3-year period 2012–2014.
The firm’s total assets at the end of 2014 amounted to $850,000.
The president of Picasso Company has asked the controller to prepare a report that summarizes the financial aspects of the company’s operations for the past 3 years. This report will be presented to the board of directors at their next meeting.
In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the 3-year period 2012–2014.
2012 2013 2014
Current ratio 1.80 1.89 1.96
Acid-test (quick) ratio 1.04 0.99 0.87
Accounts receivable turnover 8.75 7.71 6.42
Inventory turnover 4.91 4.32 3.42
Debt to assets 51.0% 46.0% 41.0%
Long-term debt to assets 31.0% 27.0% 24.0%
Sales to fi xed assets (fi xed asset turnover) 1.58 1.69 1.79
Sales as a percent of 2012 sales 1.00 1.03 1.07
Gross margin percentage 36.0% 35.1% 34.6%
Net income to sales 6.9% 7.0% 7.2%
Return on assets 7.7% 7.7% 7.8%
Return on common stock equity 13.6% 13.1% 12.7%
In preparation of the report, the controller has decided first to examine the financial ratios independent of any other data to determine if the ratios themselves reveal any significant trends over the 3-year period.
Instructions

(a) The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend.
(b) In terms of the ratios provided, what conclusion(s) can be drawn regarding the company’s use of financial leverage during the 2012–2014 period?
(c) Using the ratios provided, what conclusion(s) can be drawn regarding the company’s net investment in plant and equipment?

*E 24-6 (Ratio Analysis) Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below.
2014
Edna Millay Industry
2012 2013 2014 Average
Current ratio 2.09 2.27 2.51 2.24
Quick ratio 1.15 1.12 1.19 1.22
Inventory turnover 2.40 2.18 2.02 3.50
Net sales to stockholders’ equity 2.71 2.80 2.99 2.85
Return on common stock equity 0.14 0.15 0.17 0.11
Total liabilities to stockholders’ equity 1.41 1.37 1.44 0.95
Millay is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay’s financial position.
Archibald MacLeish Bank. The bank is processing Millay’s application for a new 5-year term note.
Archibald MacLeish has been Millay’s banker for several years but must reevaluate the company’s financial position for each major transaction.
Robert Lowell Company. Lowell is a new supplier to Millay and must decide on the appropriate credit terms to extend to the company.
Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold overthe- counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren’s clients.
Working Capital Management Committee. This is a committee of Millay’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.
Instructions
(a) Describe the analytical use of each of the six ratios presented on page 1535.
(b) For each of the four entities described above, identify two financial ratios, from the ratios presented on page 1535, that would be most valuable as a basis for its decision regarding Millay.
(c) Discuss what the financial ratios presented in the question reveal about Millay. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios. (CMA adapted)


PROBLEMS
P24-1 (Subsequent Events) Your firm has been engaged to examine the financial statements of Almaden
Corporation for the year 2014. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2009. The client provides you with the following information.
ALMADEN CORPORATION
BALANCE SHEET
DECEMBER 31, 2014
Assets Liabilities
Current assets $1,881,100 Current liabilities $ 962,400
Other assets 5,171,400 Long-term liabilities 1,439,500
Capital 4,650,600 $7,052,500 $7,052,500
An analysis of current assets discloses the following.
Cash (restricted in the amount of $300,000 for plant expansion) $ 571,000
Investments in land 185,000
Accounts receivable less allowance of $30,000 480,000
Inventories (LIFO fl ow assumption) 645,100 $1,881,100
Other assets include:
Prepaid expenses $ 62,400
Plant and equipment less accumulated depreciation of $1,430,000 4,130,000
Cash surrender value of life insurance policy 84,000
Unamortized bond discount 34,500
Notes receivable (short-term) 162,300
Goodwill 252,000
Land 446,200 $5,171,400
Current liabilities include:
Accounts payable $ 510,000
Notes payable (due 2017) 157,400
Estimated income taxes payable 145,000
Premium on common stock 150,000 $ 962,400
Long-term liabilities include:
Unearned revenue $ 489,500
Dividends payable (cash) 200,000
8% bonds payable (due May 1, 2019) 750,000 $1,439,500
Capital includes:
Retained earnings $2,810,600
Common stock, par value $10; authorized 200,000 shares, 184,000 shares issued 1,840,000 $4,650,600
The supplementary information below is also provided.
1. On May 1, 2014, the corporation issued at 95.4, $750,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization.
2. The bookkeeper made the following mistakes.
(a) In 2012, the ending inventory was overstated by $183,000. The ending inventories for 2013 and 2014 were correctly computed.
(b) In 2014, accrued wages in the amount of $225,000 were omitted from the balance sheet, and these expenses were not charged on the income statement.
(c) In 2014, a gain of $175,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings.
3. A major competitor has introduced a line of products that will compete directly with Almaden’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor’s line will be of comparable quality but priced 50% below Almaden’s line.
The competitor announced its new line on January 14, 2015. Almaden indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs.
4. You learned on January 28, 2015, prior to completion of the audit, of heavy damage because of a recent fire to one of Almaden’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail.
Instructions

Analyze the above information to prepare a corrected balance sheet for Almaden in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared.
The books are closed and adjustments to income are to be made through retained earnings.

P24-2 (Segmented Reporting) Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2015.
Sales revenue $40,000 $ 75,000 $580,000 $35,000 $55,000
Cost of goods sold 19,000 50,000 270,000 19,000 30,000
Operating expenses 10,000 40,000 235,000 12,000 18,000
Total expenses 29,000 90,000 505,000 31,000 48,000
Operating profit (loss) $11,000 $ (15,000) $ 75,000 $ 4,000 $ 7,000
Identifi able assets $35,000 $ 80,000 $500,000 $65,000 $50,000
Sales of segments B and C included intersegment sales of $20,000 and $100,000, respectively.
Instructions

(a) Determine which of the segments are reportable based on the:
(1) Revenue test.
(2) Operating profit (loss) test.
(3) Identifiable assets test.
(b) Prepare the necessary disclosures required by GAAP.

*P24-3 (Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2014, Daniel Brown approached the Topeka National
Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2015, and September 30,
2015. Another note of $6,000 is due on March 31, 2016, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds.
The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.
BRADBURN CORPORATION
BALANCE SHEET
MARCH 31
Assets 2015 2014
Cash $ 18,200 $ 12,500
Notes receivable 148,000 132,000
Accounts receivable (net) 131,800 125,500
Inventories (at cost) 105,000 50,000
Plant & equipment (net of depreciation) 1,449,000 1,420,500
Total assets $1,852,000 $1,740,500
Liabilities and Stockholders’ Equity
Accounts payable $ 79,000 $ 91,000
Notes payable 76,000 61,500
Accrued liabilities 9,000 6,000
Common stock (130,000 shares, $10 par) 1,300,000 1,300,000
Retained earningsa 388,000 282,000
Total liabilities and stockholders’ equity $1,852,000 $1,740,500 aCash dividends were paid at the rate of $1 per share in fi scal year 2014 and $2 per share in fi scal year 2015.
Instructions

(a) Compute the following items for Bradburn Corporation.
(1) Current ratio for fiscal years 2014 and 2015.
(2) Acid-test (quick) ratio for fiscal years 2014 and 2015.
(3) Inventory turnover for fiscal year 2015.
(4) Return on assets for fiscal years 2014 and 2015. (Assume total assets were $1,688,500 at 3/31/13.)
(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2014 to 2015.
(b) Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown’s request for a time extension on Bradburn’s notes.
(c) Assume that the percentage changes experienced in fiscal year 2015 as compared with fiscal year
2014 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn’s desire to finance the plant expansion from internally generated funds realistic? Discuss.
(d) Should Topeka National Bank grant the extension on Bradburn’s notes considering Daniel Brown’s statement about financing the plant expansion through internally generated funds? Discuss.

BRADBURN CORPORATION
INCOME STATEMENT
FOR THE FISCAL YEARS ENDED MARCH 31
2015 2014
Sales revenue $3,000,000 $2,700,000
Cost of goods solda 1,530,000 1,425,000
Gross margin 1,470,000 1,275,000
Operating expenses 860,000 780,000
Income before income taxes 610,000 495,000
Income taxes (40%) 244,000 198,000
Net income $ 366,000 $ 297,000 aDepreciation charges on the plant and equipment of $100,000 and $102,500 for fi scal years ended March 31, 2014 and 2015, respectively, are included in cost of goods sold.

*P 24-4 (Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.
GILMOUR COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2015 AND 2014
December 31
2015 2014
Assets
Cash $ 180,000 $ 275,000
Accounts receivable (net) 220,000 155,000
Short-term investments 270,000 150,000
Inventories 1,060,000 980,000
Prepaid expenses 25,000 25,000
Plant & equipment 2,585,000 1,950,000
Accumulated depreciation (1,000,000) (750,000) $3,340,000 $2,785,000
Liabilities and Stockholders’ Equity
Accounts payable $ 50,000 $ 75,000
Accrued expenses 170,000 200,000
Bonds payable 450,000 190,000
Capital stock 2,100,000 1,770,000
Retained earnings 570,000 550,000 $3,340,000 $2,785,000
Instructions

(Round to two decimal places.)
(a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity.
(b) Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.
(c) Of what value is the additional information provided in part (a)?
(d) Of what value is the additional information provided in part (b)?

*P24-5 (Dividend Policy Analysis) Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared.
Presented below is a brief financial summary of Matheny Inc. operations.
($000 omitted)
2015 2014 2013 2012 2011
Sales revenue $20,000 $16,000 $14,000 $6,000 $4,000
Net income 2,400 1,400 800 700 250
Average total assets 22,000 19,000 11,500 4,200 3,000
Current assets 8,000 6,000 3,000 1,200 1,000
Working capital 3,600 3,200 1,200 500 400
Common shares:
Number of shares outstanding (000) 2,000 2,000 2,000 20 20
Average market price $9 $6 $4 — —
Instructions

(a) Suggest factors to be considered by the board of directors in establishing a dividend policy.
(b) Compute the return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc.
(c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis.






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