Question

14-16 5

Lydex Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	1,020,000	$	1,320,000
Marketable securities		0		300,000
Accounts receivable, net		2,940,000		2,040,000
Inventory		3,660,000		2,100,000
Prepaid expenses		270,000		210,000
Total current assets		7,890,000		5,970,000
Plant and equipment, net		9,640,000		9,110,000
Total assets	$	17,530,000	$	15,080,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	4,070,000	$	2,450,000
Note payable, 10%		3,700,000		3,100,000
Total liabilities		7,770,000		5,550,000
Stockholders' equity:
Common stock, $75 par value		7,500,000		7,500,000
Retained earnings		2,260,000		2,030,000
Total stockholders' equity		9,760,000		9,530,000
Total liabilities and stockholders' equity	$	17,530,000	$	15,080,000

Lydex Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	15,920,000	$	14,180,000
Cost of goods sold		12,736,000		10,635,000
Gross margin		3,184,000		3,545,000
Selling and administrative expenses		2,028,286		1,628,000
Net operating income		1,155,714		1,917,000
Interest expense		370,000		310,000
Net income before taxes		785,714		1,607,000
Income taxes (30%)		235,714		482,100
Net income		550,000		1,124,900
Common dividends		320,000		562,450
Net income retained		230,000		562,450
Beginning retained earnings		2,030,000		1,467,550
Ending retained earnings	$	2,260,000	$	2,030,000

Current ratio	2.3
Acid-test ratio	1.2
Average collection period	32	days
Average sale period	60	days
Return on assets	9.9	%
Debt-to-equity ratio	0.67
Times interest earned ratio	5.9
Price-earnings ratio	10

Required:

1. Present the balance sheet in common-size format.

2. Present the income statement in common-size format down through net income.

Answer 1

Solution

	Lydex Company
	Common size Balance Sheet
		This Year		Last Year
	Assets
	Current assets:
	Cash		5.8%		8.8%
	Marketable securities		0.0%		2.0%
	Accounts receivable, net		16.8%		13.5%
	Inventory		20.9%		13.9%
	Prepaid expenses		1.5%		1.4%
	Total current assets		45.0%		39.6%
	Plant and equipment, net		55.0%		60.4%
	Total assets		100.0%		100.0%
	Liabilities and Stockholders' Equity
	Liabilities:
	Current liabilities		23.2%		16.2%
	Bonds payable, 12%		21.1%		20.6%
	Total liabilities		44.3%		36.8%
	Stockholders' equity:
	Common stock, $15 par value		42.8%		49.7%
	Retained earnings		12.9%		13.5%
	Total stockholders' equity		55.7%		63.2%
	Total liabilities and stockholders' equity		100.0%		100.0%

.

Lydex Company
Common size income statement
	This Year		Last Year
Sales (all on account)		100.0%		100.0%
Cost of goods sold		80.0%		75.0%
Gross margin		20.0%		25.0%
Selling and administrative expenses		12.7%		11.5%
Net operating income		7.3%		13.5%
Interest expense		2.3%		2.2%
Net income before taxes		4.9%		11.3%
Income taxes (30%)		1.5%		3.4%
Net income		3.5%		7.9%