Question

In: Accounting

Problem 4: a) The comparative balance sheet of X Company appears below: X Company Comparative Balance...

Problem 4:

a) The comparative balance sheet of X Company appears below:

X Company

Comparative Balance Sheet

December 31,

————————————————————————————————

Assets                                                                                      2018        2017

Current assets.................................................................... $   360,000 $300,000

Plant assets .......................................................................      640,000   500,000

Total assets ...................................................................... $1,000,000   $800,000

Liabilities and stockholders' equity

Current liabilities .............................................................. $   150,000 $120,000

Long-term debt ................................................................. 240,000    160,000

Common stock ................................................................. 350.000    280,000

Retained earnings .............................................................      260,000   240,000

     Total liabilities and stockholders' equity ..................... $1,000,000    $800,000

Instructions

(a)   Using horizontal analysis, show the percentage change for each balance sheet item using 2017 as a base year.

(b)   Using vertical analysis, prepare a common size comparative balance sheet.

  1. The financial statements of Ahmed Manufacturing Company appear below:

ABC Manufacturing Company

Comparative Balance Sheet

December 31,

————————————————————————————————

Assets                                                                                                         2019                   2018  

Cash................................................................................................... $ 250,000           $ 400,000

Short-term investments......................................................................      150,000              600,000

Accounts receivable (net)..................................................................      500,000              300,000

Inventory...........................................................................................      500,000              700,000

Property, plant and equipment (net).................................................. 2,600,000         3,000,000

      Total assets ................................................................................. $4,000,000         $5,000,000

Liabilities and stockholders' equity

Accounts payable............................................................................... $ 200,000           $ 300,000

Short-term notes payable...................................................................      300,000              900,000

Bonds payable...................................................................................      900,000           1,600,000

Common stock................................................................................... 1,500,000           1,500,000

Retained earnings.............................................................................. 1,100,000              700,000

Total liabilities and stockholders' equity                                         $4,000,000         $5,000,000

ABC Manufacturing Company

Income Statement

For the Year Ended December 31, 2013

Net sales.......................................................................                   $4,000,000

Cost of goods sold........................................................                   2,400,000

Gross profit..................................................................                     1,600,000

Expenses

     Operating expenses.................................................. $420,000

     Interest expense....................................................... 180,000

          Total expenses....................................................                      600,000

Income before income taxes..........................................                     1,000,000

Income tax expense......................................................                        300,000

Net income...................................................................                    $ 700,000

Additional information:

a.   Cash dividends of $230,000 were declared and paid in 2019.

b.   Weighted-average number of shares of common stock outstanding during 2019 was 300,000 shares.

c.   Market value of common stock on December 31, 2019, was $210 per share.

Instructions

Using the financial statements and additional information, compute the following ratios for Ahmed Manufacturing Company for 2013.

Show all computations.         

1. Current ratio;

2. Return on common stockholders' equity;

3. Price-earnings ratio;

4. Acid-test ratio;

5. Receivables turnover;

6. Times interest earned;

7. Profit margin;

8. Days in inventory

9. Payout ratio;

10. Return on assets.

Solutions

Expert Solution

Problem 4

Solution

a

Horizontal Analysis
2018 2017
(Base Year)		 Increase/
(Decrease)
(2018 - 2017)
(a)		 Analysis
Precentage
Change
(a) / 2017 * 100
Assets
Current Assets $360,000 $300,000 $60,000 20.00%
Plant Assets $640,000 $500,000 $140,000 28.00%
Total Assets $1,000,000 $800,000 $200,000 25.00%
Liabilities and Stockholder's Equity
Current Liability $150,000 $120,000 $30,000 25.00%
Long term debt $240,000 $160,000 $80,000 50.00%
Common Stock $350,000 $280,000 $70,000 25.00%
Retained Earnings $260,000 $240,000 $20,000 8.33%
Total Liabilities and Stockholder's Equity $1,000,000 $800,000 $200,000 25.00%

b

Vertical Analysis
2018 Analysis
(Percentage change)		 2017 Analysis
(Percentage change)
Assets
Current Assets $360,000 36.00% $360000/$1000000 *100 $300,000 37.50% $300000/$800000 * 100
Plant Assets $640,000 64.00% $640000/$1000000 *100 $500,000 62.50% $500000/$800000 * 100
Total Assets $1,000,000 100.00% $1000000/$1000000 *100 $800,000 100.00% $800000/$800000 * 100
Liabilities and Stockholder's Equity
Current Liability $150,000 15.00% $150000/$$1000000 * 100 $120,000 15.00% $120000/$800000 * 100
Long term debt $240,000 24.00% $240000/$$1000000 * 100 $160,000 20.00% $160000/$800000 * 100
Common Stock $350,000 35.00% $350000/$$1000000 * 100 $280,000 35.00% $280000/$800000 * 100
Retained Earnings $260,000 26.00% $260000/$$1000000 * 100 $240,000 30.00% $240000/$800000 * 100
Total Liabilities and Stockholder's Equity $1,000,000 100.00% $1000000/$$1000000 * 100 $800,000 100.00% $800000/$800000 * 100
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