Unit 4 [AC499: Bachelor’s Capstone in Accounting] Unit 4 Practice Activity: Financial Report Analysis – Rainbow Paint Co. Note: This is a practice activity to be performed before completing the Assignment for this unit. Also, this is the data to be used as the basis for your Unit 9 Final Project. The solutions for the Unit 4 Practice activity are located here. Rainbow Paint Co.'s comparative financial statements for the years ending December 31, 2013 and 2012 are as follows. The market price of Rainbow Paint Co.'s common stock was $30 on December 31, 1999 and $25 on December 31, 2013. Rainbow Paint Co. Comparative Income Statement For the Years Ended December 31, 2013 and 2012 2013 2012 Sales $ 5,125,000 $ 3,257,600 Sales returns and allowances 125,000 57,600 Net sales $ 5,000,000 $ 3,200,000 Cost of goods sold 3,400,000 2,080,000 Gross profit $ 1,600,000 $ 1,120,000 Selling expenses 650,000 464,000 Administrative expenses 325,000 224,000 Total operating expenses $ 975,000 $ 688,000 Income from operations $ 625,000 $ 432,000 Other income 25,000 19,200 Income before Interest & Taxes $ 650,000 $ 451,200 Other expense (interest) 105,000 64,000 Income before income tax $ 545,000 $ 387,200 Income tax expense 300,000 176,000 Net income $ 245,000 ======== $ 211,200 ======== Rainbow Paint Co. Comparative Retained Earnings Statement For the Years Ended December 31, 2013 and 2012 2013 2012 Retained earnings, January 1 $ 723,000 $ 581,800 Add net income for year 245,000 211,200 Total $ 968,000 $ 793,000 Deduct dividends: On preferred stock $ 40,000 $ 40,000 On common stock 45,000 30,000 Total $ 85,000 $ 70,000 Retained earnings, December 31 $ 883,000 ======== $ 723,000 ======== http://extmedia.kaplan.edu/business/AC499/AC499_1401C/AC499_Unit4_Practice_ Solution s.xlsx Unit 4 [AC499: Bachelor’s ...

1. Unit 4 [AC499: Bachelor’s Capstone in Accounting]
Unit 4 Practice Activity: Financial Report
Analysis – Rainbow Paint Co.
Note: This is a practice activity to be performed before
completing the Assignment for this unit. Also,
this is the data to be used as the basis for your Unit 9 Final
Project. The solutions for the Unit 4
Practice activity are located here.
Rainbow Paint Co.'s comparative financial statements for the
years ending December 31,
2013 and 2012 are as follows. The market price of Rainbow
Paint Co.'s common stock was
$30 on December 31, 1999 and $25 on December 31, 2013.
Rainbow Paint Co.
Comparative Income Statement
For the Years Ended December 31, 2013 and 2012
2013
2012
Sales $ 5,125,000 $ 3,257,600

2. Sales returns and allowances 125,000
57,600
Net sales $ 5,000,000 $ 3,200,000
Cost of goods sold 3,400,000 2,080,000
Gross profit $ 1,600,000 $ 1,120,000
Selling expenses 650,000 464,000
Administrative expenses 325,000
224,000
Total operating expenses $ 975,000 $
688,000
Income from operations $ 625,000 $
432,000
Other income 25,000 19,200
Income before Interest & Taxes $
650,000
$ 451,200
Other expense (interest) 105,000
64,000
Income before income tax $ 545,000 $
387,200
Income tax expense 300,000 176,000
Net income $ 245,000
========
$ 211,200
========

3. Rainbow Paint Co.
Comparative Retained Earnings Statement
For the Years Ended December 31, 2013 and 2012
2013
2012
Retained earnings, January 1 $ 723,000 $
581,800
Add net income for year 245,000
211,200
Total $ 968,000 $ 793,000
Deduct dividends:
On preferred stock $ 40,000 $ 40,000
On common stock 45,000 30,000
Total $ 85,000 $ 70,000
Retained earnings, December 31 $ 883,000
========
$ 723,000
========
http://extmedia.kaplan.edu/business/AC499/AC499_1401C/AC4
99_Unit4_Practice_

4. Solution
s.xlsx
Unit 4 [AC499: Bachelor’s Capstone in Accounting]
Rainbow Paint C0,
Comparative Balance Sheet
December 31, 2013 and 2012
Assets 2013 2012
Current assets:
Cash $ 175,000 $ 125,000
Marketable securities 150,000 50,000
Accounts receivable (net) 425,000 325,000
Inventories 720,000 480,000

5. Prepaid expenses 30,000 20,000
Total current assets $ 1,500,000 $ 1,000,000
Long-term investments 250,000 225,000
Property, plant, and equipment (net) 2,093,000
1,948,000
Total assets $ 3,843,000
========
$ 3,173,000
========
Liabilities
Current liabilities $ 750,000 $ 650,000
Long-term liabilities:
Mortgage note payable, 10%, due 2016 $ 410,000
-
Bonds payable, 8%, due 2017 800,000 $
800,000
Total long-term liabilities $ 1,210,000 $ 800,000
Total liabilities $ 1,960,000 $ 1,450,000
Stockholders' Equity
Preferred 8% stock, $100 par $ 500,000 $ 500,000
Common stock, $10 par 500,000 500,000
Retained earnings 883,000 723,000

6. Total stockholders' equity $ 1,883,000 $ 1,723,000
Total liabilities and stockholders' equity $ 3,843,000
========
$ 3,173,000
=========
Instructions: Determine the following measures for 2013:
1. Working capital
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables
6. Inventory turnover
7. Number of days' sales in inventory
8. Ratio of fixed assets to long-term liabilities

7. Unit 4 [AC499: Bachelor’s Capstone in Accounting]
9. Ratio of liabilities to stockholders' equity
10. Number of times interest charges earned
11. Number of times preferred dividends earned
12. Ratio of net sales to assets
13. Rate earned on total assets
14. Rate earned on stockholders' equity
15. Rate earned on common stockholders' equity
16. Earnings per share on common stock
17. Price-earnings ratio
18. Dividends per share of common stock

8. 19. Dividend yield
[AC499: Bachelor’s Capstone in Accounting]
Unit 9 Final Project: Preparing Annual Report
Documents
For this 6–8 page Final Project (Not including the title page,
abstract if included or reference page),
you will create 1) the Financial Highlights, 2) the Presidents
Letter to the Stockholders, and 3) the
Management Discussion and Analysis reports that would be
contained in a company’s annual

9. report to the shareholders.
Note: During Units 2, 3, and 4 you developed data for “Quixote
Company.” But in Unit 4, you also
had a Practice Assignment based on the “Rainbow Paint
Company.” The Final Project will be based
on the Rainbow Paint Company Financial Statements and the
ratios that you compute as practice.
The Quixote Company has a limited amount of data; therefore,
the Rainbow Paint Company data
will offer an opportunity to create a more robust Annual Report
to the Shareholders.
Companies normally issue these reports to the stockholders and
other interested parties. These
reports summarize the company’s operating activities for the
past year and plans for the future.

10. There are many variations in the order and form for presenting
the major sections of the annual
report. You should conduct independent research to find a
variety of corporate annual reports to use
as guides in the preparation of your Unit 9 Project.
Each week you will be addressing a different aspect of
accounting and the business planning
process. In the Final Project, you will use information gained
from the weekly Assignments, the
“Rainbow Paint Company” Review/Practice data, along with
information obtained through research.
These reports will be completed in Microsoft W ord; a title page
is required, but a running head is not
necessary. An abstract is also not required. However, references
will be required — therefore, it is

11. important that you use a proper title page and correct reference
list
formatting. See the APA Template uploaded in Doc Sharing for
examples of a properly
formatted title page and reference list. The KU W riting Center
is also a great resource for help with
all writing issues. In addition, the KU Business Center offers
live tutoring and specific assignment
guidance.
W hen you review the examples of corporate annual reports that
you select during your independent
research, you will see that they can be very long and very
complex. However, your Assignment is
limited to only 6–8 pages (not including the title page and
reference list). Therefore, you should
focus on the three aspects required for the Final Project. You

12. are expected to use creativity and
ingenuity in developing your Final Project. As you will see in
the example annual reports you find in
your independent research efforts, there is no one perfect way to
prepare corporate annual reports.
However, the following information may help you as you
complete your Unit 9 Project.
[AC499: Bachelor’s Capstone in Accounting]
Assignment checklist
• Financial Highlights
• Presidents Letter to the Stockholders

13. • Management Discussion and Analysis
Here are some of the basic criteria that will be used to assess
your Final Project:
- Project successfully presents every item in the Assignment
checklist in every aspect.
- The Project correctly uses the Rainbow Company Data.
- The Project exhibits strong higher-order critical thinking and
analysis.
- Sentences are clear, concise, and direct; tone is appropriate.
- Grammatical skills are strong with almost no errors.
- Correct use of APA format where appropriate.
Unit 9 Final Project Assignment Grading Rubric:

14. Project Grading Criteria
Grade Excellent Effort Acceptable Effort Unacceptable Effort
Content, Focus,
Use of
Text/Research
29 - 33 Points
Possible
23 - 28 Points Possible 0 -22 Points Possible
Your Content
Score =___
Response successfully
answers the
assignment

15. question(s) in every
aspect.
Used Correct Rainbow
Data.
Response answers the
assignment question(s)
with only minor
digressions.
Uses Correct Rainbow
Data
Response insufficiently
answers the assignment
question(s); insufficiently

16. uses the text and other
literature.
Used wrong data.
Analysis &
Critical Thinking
18 - 20 Points
Possible
14 - 17 Points Possible 0 - 13 Points Possible
Your Analysis
Score =___
Response exhibits
strong higher-order

17. critical thinking and
analysis (e.g.,
evaluation).
Response generally
exhibits higher-order
critical thinking and
analysis (e.g. true
analysis).
Response exhibits
simplistic or reductive
thinking and analysis and
demonstrates limited
knowledge on the subject

18. matter.
Writing Style,
Grammar,
Spelling &
11 - 12 Points
Possible
8 - 10 Points Possible 0 - 7 Points Possible
[AC499: Bachelor’s Capstone in Accounting]
Format
Your Writing
Score =___

19. Sentences are clear,
concise, and direct;
tone is appropriate.
Grammatical skills are
strong with almost no
errors. Correct use of
APA format where
appropriate.
Sentences are
occasionally wordy or
ambiguous; tone is too
informal. Grammatical

20. skills are adequate with
few errors. Adequate
use of APA format
where appropriate.
Sentences unclear,
meaning impaired; tone
inappropriate and/or
inconsistent. Grammatical
skills are inadequate for
college level.
Unacceptable use of
APA format

21. Additional
Comments as
Less____
Late
penalty, other.
Total Project
Score =___/65_