(a)
Introduction:
Under vertical analysis, each item of financial statement is shown as a percent of the highest amount available on the same statement.
To prepare:
Common size financial statements for vertical analysis.
Answer to Problem 76E
COMMON SIZE INCOME STATEMENT
Particulars | 2019 | 2018 | 2017 |
Net Sales | 100% | 100% | 100% |
(-) Cost of Goods Sold | 72.96% | 71.33% | 70.83% |
Gross Margin | 27.04% | 28.67% | 29.17% |
(-) General & administrative expenses | 17.39% | 17.31% | 17.58% |
(+) Special & nonrecurring items | 0.04% | 0 | 0 |
Operating Income | 9.69% | 11.36% | 11.59% |
(-) Interest expense | 0.89% | 0.90% | 1.04% |
(+) Other Income | 0.10% | 0.15% | 0.19% |
(+) Gain on Sale of Investments | 0 | 0.13% | 0 |
Income for income taxes | 8.91% | 10.74% | 10.74% |
(-) Provision for income taxes | 3.51% | 4.18% | 4.18% |
Net Income | 5.40% | 6.56% | 6.56% |
COMMON SIZE BALANCE SHEET
ASSETS | Dec 31, 2019 | Dec 31, 2018 |
Current Assets: | ||
Cash and equivalents | 7.75% | 1.07% |
Accounts Receivable | 25.56% | 21.77% |
Inventories | 17.74% | 20.89% |
Other | 2.65% | 2.65% |
Total Current Assets | 53.70% | 46.38% |
Property and equipment, net | 40.30% | 47.16% |
Other assets | 6.00% | 6.46% |
Total Assets | 100% | 100% |
LIABILITIES | Dec 31, 2019 | Dec 31, 2018 |
Current Liabilities: | ||
Accounts Payable | 6.05% | 8.04% |
Accrued Expenses | 8.41% | 7.13% |
Other current liabilities | 0.38% | 0 |
Income taxes | 2.26% | 3.57% |
Total Current Liabilities | 17.12% | 18.74% |
Long term debt | 15.72% | 14.08% |
6.65% | 7.15% | |
Other long term liabilities | 1.48% | 1.08% |
Total Liabilities | 40.96% | 41.05% |
2.42% | 2.60% | |
Common Stock | 2.17% | 2.33% |
Additional Paid in capital-common stock | 3.12% | 3.32% |
57.97% | 55.55% | |
Less: |
6.64% | 4.85% |
Total Stockholders’ Equity | 59.04% | 58.95% |
Total Liabilities and Stockholders’ Equity | 100% | 100% |
Explanation of Solution
COMMON SIZE INCOME STATEMENT
Particulars | 2019 | 2018 | 2017 |
Net Sales | |||
Cost of Goods Sold | |||
Gross Margin | |||
General and administrative expenses | |||
Special and nonrecurring items | |||
Operating Income | |||
Interest expense | |||
Other Income | |||
Gain on Sale of Investments | |||
Income for income taxes | |||
Provision for income taxes | |||
Net Income |
COMMON SIZE BALANCE SHEET
ASSETS | Dec 31, 2019 | Dec 31, 2018 |
Current Assets: | ||
Cash and equivalents | ||
Accounts Receivable | ||
Inventories | ||
Other | ||
Total Current Assets | ||
Property and equipment, net | ||
Other assets | ||
Total Assets | ||
LIABILITIES | Dec 31, 2019 | Dec 31, 2018 |
Current Liabilities: | ||
Accounts Payable | ||
Accrued Expenses | ||
Other current liabilities | ||
Income taxes | ||
Total Current Liabilities | ||
Long term debt | ||
Deferred Income taxes | ||
Other long term liabilities | ||
Total Liabilities | ||
Stockholders’ Equity | ||
Preferred Stock | ||
Common Stock | ||
Additional Paid in capital-common stock | ||
Retained Earnings | ||
Less: Treasury Stock-at cost | ||
Total Stockholders’ Equity | ||
Total Liabilities and Stockholders’ Equity |
(b)
Introduction:
When a company holds 50% or more of the common stock of another company then both the companies are treated as a single entity. In such a case, consolidated statements are prepared.
To compare:
The growth in gross margin and sales between year 2017 and 2018, 2018 and 2019.
Answer to Problem 76E
No, gross margin did not grew as much as sales between 2018 and 2018, and 2018 and 2019.
Explanation of Solution
Gross Margin:
2019 = $1,958,835
2018 = $1,990,740
2017 = $1,793,543
Change in gross margin between 2018 and 2019 = $1,958,835 - $1,990,740
Change in gross margin between 2018 and 2019 = ($31,905)
Change in gross margin between 2018 and 2019 =
Change in gross margin between 2017 and 2018 = $1,990,740 - $1,793,543
Change in gross margin between 2017 and 2018 = $197,197
Change in gross margin between 2017 and 2018 =
Sales:
2019 = $7,245,088
2018 = $6,944,296
2017 = $6,149,218
Change in sales between 2018 and 2019 = $7,245,088 - $6,944,296
Change in sales between 2018 and 2019 = $300,792
Change in sales between 2018 and 2019 =
Change in sales between 2017 and 2018 = $6,944,296 - $6,149,218
Change in sales between 2017 and 2018 = $795,078
Change in sales between 2017 and 2018 =
(c)
Introduction:
When a company holds 50% or more of the common stock of another company then both the companies are treated as a single entity. In such a case, consolidated statements are prepared.
To compare:
Relative proportion of assets between 2018 and 2019.
Answer to Problem 76E
Yes, the relative proportion of current assets to total assets changed between 2018 and 2019 as the value of current assets increased in 2019 by more than the value of total assets.
Explanation of Solution
Total Current Assets:
2019 = $2,220,625
2018 = $1,784,130
Total Assets:
2019 = $4,135,105
2018 = $3,846,450
Relative proportion of assets:
2019 =
2018 =
(d)
Introduction:
When a company holds 50% or more of the common stock of another company then both the companies are treated as a single entity. In such a case, consolidated statements are prepared.
To compare:
Relative proportion of liabilities and equity between 2018 and 2019.
Answer to Problem 76E
Yes, the relative proportion of debt and equity changed between 2018 and 2019 as the value of debt increased in 2019 was less than the increase in value of equity.
Explanation of Solution
Total Liabilities:
2019 = $1,693,812
2018 = $1,578,833
Total Stockholders’ Equity:
2019 = $2,441,293
2018 = $2,267,617
Relative Proportion of Liabilities and Equity:
2019 =
2018 =
(d)
Introduction:
When a company holds 50% or more of the common stock of another company then both the companies are treated as a single entity. In such a case, consolidated statements are prepared.
The source of finance for the increased value of asset.
Answer to Problem 76E
The 60.17% of the increased value of asset was financed by Liabilities whereas remaining 39.83% were financed by equity.
Explanation of Solution
Total Assets:
2019 = $4,135,105
2018 = $3,846,450
Change in Total Assets = $4,135,105 - $3,846,450
Change in Total Assets = $288,655
Total Liabilities:
2019 = $1,693,812
2018 = $1,578,833
Change in Total Liabilities = $1,693,812 - $1,578,833
Change in Total Liabilities = $114,979
Total Stockholders’ Equity:
2019 = $2,441,293
2018 = $2,267,617
Change in Total Liabilities = $2,441,293 - $2,267,617
Change in Total Liabilities = $173,676
Part of assets financed by:
Liabilities =
Equity =
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Chapter 12 Solutions
Cornerstones of Financial Accounting
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