Question

Simon Company's year-end balance sheets follow.

At December 31	Current Yr				1 Yr Ago			2 Yrs Ago
Assets
Cash		$	35,149		$	41,501		$	43,226
Accounts receivable, net			102,901			72,626			57,634
Merchandise inventory			126,791			93,091			60,159
Prepaid expenses			11,548			10,894			4,755
Plant assets, net			325,373			300,648			266,526
Total assets		$	601,762		$	518,760		$	432,300
Liabilities and Equity
Accounts payable		$	148,340		$	86,794		$	55,922
Long-term notes payable secured by mortgages on plant assets			113,131			122,894			97,449
Common stock, $10 par value			163,500			163,500			163,500
Retained earnings			176,791			145,572			115,429
Total liabilities and equity		$	601,762		$	518,760		$	432,300

1. Express the balance sheets in common-size percents. (Do not round intermediate calculations and round your final percentage answers to 1 decimal place.)
2. Assuming annual sales have not changed in the last three years, is the change in accounts receivable as a percentage of total assets favorable or unfavorable?
3. Assuming annual sales have not changed in the last three years, is the change in merchandise inventory as a percentage of total assets favorable or unfavorable?

Answer 1

Ans. 1	SIMON   COMPANY
	Common Size Comparative Balance Sheets
	For three years
		Current Year	1 Year Ago	2 Years Ago
	Assets:	Amount	%	Amount	%	Amount	%
	Cash	$35,149	5.8%	$41,501	8.0%	$43,226	10.0%
	Accounts receivables	$102,901	17.1%	$72,626	14.0%	$57,634	13.3%
	Merchandise inventory	$126,791	21.1%	$93,091	17.9%	$60,159	13.9%
	Prepaid expenses	$11,548	1.9%	$10,894	2.1%	$4,755	1.1%
	Plant assets, net	$325,373	54.1%	$300,648	58.0%	$266,526	61.7%
	Total assets	$601,762	100.0%	$518,760	100.0%	$432,300	100.0%
	Liabilities and Equity:
	Accounts payable	$148,340	24.7%	$86,794	16.7%	$55,922	12.9%
	Long term notes payable secured	$113,131	18.8%	$122,894	23.7%	$97,449	22.5%
	by mortgage on plant assets
	Common stock	$163,500	27.2%	$163,500	31.5%	$163,500	37.8%
	Retained earnings	$176,791	29.4%	$145,572	28.1%	$115,429	26.7%
	Total Liabilities and Equity	$601,762	100.0%	$518,760	100.0%	$432,300	100.0%
	*Calculations for Common Size Balance Sheet:
	Amount is percentage from assets side =   Particular amount from assets side / Total assets * 100
	Amount is percentage from liabilities side =   Particular amount from liability side / Total liabilities and owner's equity * 100
Ans. 2	Unfavorable
	Increase in accounts receivable means business will get it's money in longer time.
	If the money will be back in longer time then it will adversely impact the cash flow of business.
Ans. 3	Favorable
	Increase in inventory is good for business.. If inventory increases then the gross profit & net profit also increases.