In: Accounting
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.
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.
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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