(a)
Common size analysis can be led in two different ways, i.e., vertical analysis and horizontal analysis. Vertical analysis alludes to the analysis of explicit details in connection to a base thing inside the equivalent money related period. For instance, in a critical position sheet, we can survey the extent of stock.
To discuss:
Prepare common size income statement to be used for horizontal analysis for Burch 2017 to 2019. Utilize 2017 as the base year for 2018 and 2019.
Answer to Problem 89PSA
Burch Industries
Common size for income statement ( horizontal)
Particular | 2019 | 2018 | 2017 |
Revenues | 130.88 | 113.37 | 100.00 |
Costs and expenses: | |||
Cost of goods sold | 128.99 | 112.89 | 100.00 |
Selling and administrative | 138.88 | 114.67 | 100.00 |
Interest | 94.23 | 112.26 | 100.00 |
Other expenses (income) | -3430.23 | -4979.07 | 100.00 |
Total costs and expenses | 131.26 | 113.44 | 100.00 |
Income before income taxes | 128.75 | 113.01 | 100.00 |
Income taxes | 131.37 | 110.25 | 100.00 |
Net income | 127.16 | 114.69 | 100.00 |
Explanation of Solution
In this calculation 1 formula is used
For 2019 year =
For 2018 year =
(b)
Net income increase shows that what types of effect in the income statement, so increase the net income.
To discuss:
Why net income percentage increase from 2017 to 2019.
Answer to Problem 89PSA
There are some reasons for increase net income
- Increase the sale from 2017 to 2019.
- Cost of goods increase but less increase in the comparison with sale amount.
- Decrease the interest cost from 2017 to 2019.
- Increase the selling expense that why increase the sale volume then increase the net income.
Explanation of Solution
- Other expense increase is very high amount.
- Increase the sale from 2017 to 2019.
- Cost of goods increase but less increase in the comparison with sale amount.
- Decrease the interest cost from 2017 to 2019.
- Increase the selling expense that why increase the sale volume then increase the net income.
(c)
To discuss:
Prepare common size statement of balance sheet to be used vertical analysis for 2018 and 2019.
Answer to Problem 89PSA
Common size statement (vertical)
Balance sheet
Particular | 2019 | 2018 | 2019 | 2018 |
ASSETS | ||||
Current assets | ||||
Cash and equivalents S | 291,284 | 260,050 | 13.32 | 13.89 |
Accounts receivable | 667,547 | 596,018 | 30.52 | 31.82 |
Inventories | 592,986 | 471,202 | 27.11 | 25.16 |
26,378 | 27,511 | 1.21 | 1.47 | |
Prepaid expenses | 42,452 | 32,977 | 1.94 | 1.76 |
Total current assets | 1,620,647 | $1,387,758 | 74.09 | 74.10 |
Net property, plant, and equipment | 377,995 | 346,037 | 17.28 | 18.48 |
157,894 | 110,363 | 7.22 | 5.89 | |
Other assets | 30,927 | 28,703 | 1.41 | 1.53 |
Total assets | $2,187,463 | 1,872,861 | 100.00 | 100.00 |
LIABILITIES AND |
||||
Current liabilities: | ||||
Current portion of long-term debt | $52,985 | $3,652 | 2.42 | 0.19 |
Notes payable | 108,165 | 105,696 | 4.94 | 5.64 |
Accounts payable | 135,701 | 134,729 | 6.20 | 7.19 |
Accrued liabilities | 138,563 | 134,089 | 6.33 | 7.16 |
Income taxes payable | 17,150 | 42,422 | 0.78 | 2.27 |
Total current liabilities | $452,564 | $420,588 | 20.69 | 22.46 |
Long-term debt | 15,033 | 77,022 | 0.69 | 4.11 |
Noncurrent deferred income taxes | 29,965 | 27,074 | 1.37 | 1.45 |
Other noncurrent liabilities | 43,575 | 23,728 | 1.99 | 1.27 |
Commitments and contingencies | 0 | 0 | 0.00 | 0.00 |
Redeemable |
300 | 300 | 0.01 | 0.02 |
Total liabilities | $541,437 | $548,712 | 24.75 | 29.30 |
Stockholders' equity: | ||||
Common stock at stated value: | ||||
Class A convertible-26,691 and 26,919 shares outstanding | $159 | $161 | 0.01 | 0.01 |
Class B-49,161 and 48,591 shares outstanding | 2,720 | 2,716 | 0.12 | 0.15 |
Capital in excess of stated value | 108,451 | 93,799 | 4.96 | 5.01 |
-7,790 | -6,860 | -0.36 | -0.37 | |
Retained earnings | 1,542,486 | 1,234,333 | 70.51 | 65.91 |
Total stockholders' equity | $1,646,026 | $1,324,149 | 75.25 | 70.70 |
Total liabilities and stockholders' equity | $2,187,463 | $1,872,861 | 100.00 | 100.00 |
Explanation of Solution
Formula used in the vertical common size balance sheet statement
For 2018 =
For 2019 =
(d)
Balance sheet is the main statement of any business which shows the real figure of particular company, and after the company balance sheet company can analysis of any types like debt to equity ratio any many more.
Company also identity that how much company invest in the different types of assets.
To discuss:
Indicate whether the proportion of dollars invested in the various categories of assets has changed significantly between 2018 to 2019.
Answer to Problem 89PSA
Particular | 2019 ($) | 2018 ($) | Difference | Percentage |
ASSETS | 2019-2018 | |||
Current assets | ||||
Cash and equivalents | 291,284 | 260,050 | 31234 | 12.01 |
Accounts receivable | 667,547 | 596,018 | 71529 | 12.00 |
Inventories | 592,986 | 471,202 | 121784 | 25.85 |
Deferred income taxes | 26,378 | 27,511 | -1133 | -4.12 |
Prepaid expenses | 42,452 | 32,977 | 9475 | 28.73 |
Total current assets | 1,620,647 | $1,387,758 | 232889 | 16.78 |
Net property, plant, and equipment | 377,995 | 346,037 | 31958 | 9.24 |
Goodwill | 157,894 | 110,363 | 47531 | 43.07 |
Other assets | 30,927 | 28,703 | 2224 | 7.75 |
Total assets | $2,187,463 | 1,872,861 | 314602 | 16.80 |
Explanation of Solution
Particular | 2019 | 2018 | 2019 | 2018 |
ASSETS | ||||
Current assets | ||||
Cash and equivalents S | 291,284 | 260,050 | 13.32 | 13.89 |
Accounts receivable | 667,547 | 596,018 | 30.52 | 31.82 |
Inventories | 592,986 | 471,202 | 27.11 | 25.16 |
Deferred income taxes | 26,378 | 27,511 | 1.21 | 1.47 |
Prepaid expenses | 42,452 | 32,977 | 1.94 | 1.76 |
Total current assets | 1,620,647 | $1,387,758 | 74.09 | 74.10 |
Net property, plant, and equipment | 377,995 | 346,037 | 17.28 | 18.48 |
Goodwill | 157,894 | 110,363 | 7.22 | 5.89 |
Other assets | 30,927 | 28,703 | 1.41 | 1.53 |
Total assets | $2,187,463 | 1,872,861 | 100.00 | 100.00 |
Difference amount = amount of 2019 − Amount of 2018Percentage =
(e)
Capital raised means company taking some amount of borrowing for the purpose of increase the profit amount also increase the company manufacturing or production.
To discuss:
How much amount of capital raised from the various categories of assets has changed significantly between 2018 to 2019.
Answer to Problem 89PSA
Stockholders' equity: | 2019 | 2018 | Difference | Precentage |
Common stock at stated value: | ||||
Class A convertible-26,691 and 26,919 shares outstanding | $159 | $161 | -2 | -1.24 |
Class B-49,161 and 48,591 shares outstanding | 2,720 | 2,716 | 4 | 0.15 |
Capital in excess of stated value | 108,451 | 93,799 | 14652 | 15.62 |
Treasury stock (common at cost) | -7,790 | -6,860 | -930 | 13.56 |
Retained earnings | 1,542,486 | 1,234,333 | 308153 | 24.97 |
Total stockholders' equity | $1,646,026 | $1,324,149 | 321877 | 24.31 |
Explanation of Solution
Difference amount = amount of 2019 − Amount of 2018
Percentage =
(f)
An organization’s balance sheet, otherwise called an "announcement of financial position," uncovers the company’s assets, liabilities and owners' equity (total assets). The balance sheet, together with the salary proclamation and income explanation, make up the foundation of any organization’s financial.
To discuss:
Discuss the financial statement.
Answer to Problem 89PSA
The company is in very good position, there are some information about the income statement and from the balance sheet:
- Sale volume has increase
- Profit also increase
- Current assets increase from 2018 to 2019
- Fixed assets purchase by the company for the production.
- Total fixed assets increase.
- Goodwill purchase
- Company repayment the long-term debt
- Company purchase own share from the market
- Company increase the retained earning
- Reduce the income tax payable.
Explanation of Solution
The organization is in excellent position, there are some data about the pay explanation and from the balance sheet:
1.Sale volume has increment
2.Profit additionally increment
3.Current assets increment from 2018 to 2019
4.Fixed assets buy by the organization for the generation.
5.Total fixed assets increment.
6.Goodwill buy
7.Company reimbursement the long haul obligation
8.Company buy possess share from the market
9.Company increment the held procuring
10.Reduce the pay charge payable.
Want to see more full solutions like this?
Chapter 12 Solutions
Cornerstones of Financial Accounting
- The following select account data is taken from the records of Reese Industries for 2019. A. Use the data provided to compute net sales for 2019. B. Prepare a simple income statement for the year ended December 31, 2019. C. Compute the gross margin for 2019. D. Prepare a multi-step income statement for the year ended December 31, 2019.arrow_forwardA Preparation of Ratios Refer to the financial statements for Burch Industries in Problem 12-89A and the following data. Required: 1. Prepare all the financial ratios for Burch for 2019 and 2018 (using percentage terms where appropriate and rounding all answers to two decimal places). 2. CONCEPTUAL CONNECTION Explain whether Burchs short-term liquidity is adequate. 3. CONCEPTUAL CONNECTION Discuss whether Burch uses its assets efficiently. 4. CONCEPTUAL CONNECTION Determine whether Burch is profitable. 5. CONCEPTUAL CONNECTION Discuss whether long-term creditors should regard Burch as a high-risk or a low-risk firm. 6. Perform a Dupont analysis (rounding to two decimal places) for 2018 and 2019.arrow_forwardUsing the following select financial statement information from Black Water Industries, compute the accounts receivable turnover ratios for 2018 and 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Black Water Industries?arrow_forward
- Prepare an income statement using the following information for CK Company for the month of February 2019.arrow_forwardThe comparative financial statements of Global Technology are as follows: Review the worksheet RATIOA that follows these requirements. You have been asked to perform a ratio analysis of this company for 2012.arrow_forwardLiverton Co.’s income statement for the year ended 31 March 2019 and statements of financial position at 31 March 2019 and 2018 were as follows in the images. Calculate for the financial year ended 31 March 2019 and, where possible, for 31 March 2018, the following ratios: i) Gross profit marginii) Assets usageiii) Current ratioiv) Acid testv) Inventories holding periodvi) Debt to Equity ratioarrow_forward
- Using the fiscal year end 2020 annual report for General Mills, Inc. and the figures from the 2020 annual report as noted below, calculate the financial ratios for 2020 and 2019 indicated using the EXCEL template provided:1. Gross profit percentage2. Return on sales3. Asset turnover 4. Return on assets5. Return on common stockholders’ equity6. Current ratio7. Quick ratio8. Operating-cash-flow-to-current-liabilities ratio9. Accounts receivable turnoverTotal assets 2020 = $30,806.7Total stockholders’ equity 2020 = $8,349.5Total current liabilities 2020 = $7,491.5Accounts receivable 2020 = $1,615.1Inventory 2020 = $1,426.3Year-end closing stock price May 2020 = $58.80Year-end closing stock price May 2019 = $53.56 To calculate averages use (current year balance + poor year balance) / 2) Round percentages to 1 decimal place; round other answers to 2 decimal places.arrow_forwardInstructions Using the financial statements and additional information, compute the following ratios for the El Camino Company for 2021. Show all computations. Computations 1. Current ratio 2. Return on common stockholders' equity 3. Price-earnings ratio 4. Inventory turnover 5. Accounts receivable turnover 6. Times interest earned 7. Profit margin 8. Days in inventory 9. Payout ratio 10. Return on assetsarrow_forwardHello! look at the attached images and answee the following points: (a) Calculate ratios for the year ended 31 December 2021 (showing your workings) for Primrose Plc, equivalent to those provided above. Return on year-end capital employed Net asset turnover Gross profit margin Net profit margin Current ratio Closing inventory holding period Trade receivables’ collection period viii. Trade payables’ payment period Dividend yield Dividend cover (b) Analyse the financial performance and position of Primrose Plc for the year ended 31 December 2021 compared to 31 December 2020. (c) Explain the uses and the general limitations of ratio analysis. Thank you a lot!arrow_forward
- Answer probably please .... Calculate the following ratios for Avartar Sdn. Bhd. for years ended 31 March 2019 and 31 March 2018: 1) Gross profit percentage; 2) Net profit percentage (using profit before tax); 3) Return on capital employed; 4) Return on owners' equity; 5) Assets turnover;arrow_forwardAnalyze the financial statements of the company to you in terms of: 1. Debt Management Ratio * TIE Ratio or Time Interest Earned Ratio 2. Asset Management Ratio *Inventory Turnover Ratio *Fixed Asset Turnover Ratio *Total Asset Turnover Ratio 2020 Analysis BUT also compare with 2018 - 2019. Show solution on computaion.arrow_forwardCompare the following for the year 2019, 2020 and 2021 for the Acer Company: analysis in words incl. total assets, short term assets, long-term assets, non-current assets, return on assets, equity, equity growth or decrease over the years, Price-Earning ratio, liabilities.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning