Question

Exercise 13-6 Common-size percents LO P2

Simon Company's year-end balance sheets follow.

At December 31	Current Yr				1 Yr Ago			2 Yrs Ago
Assets
Cash		$	29,670		$	34,681		$	37,989
Accounts receivable, net			86,861			60,079			50,155
Merchandise inventory			105,935			81,821			53,955
Prepaid expenses			9,748			9,472			4,262
Plant assets, net			275,747			251,844			229,839
Total assets		$	507,961		$	437,897		$	376,200
Liabilities and Equity
Accounts payable		$	130,277		$	72,525		$	48,169
Long-term notes payable secured by mortgages on plant assets			97,407			103,738			83,972
Common stock, $10 par value			163,500			163,500			163,500
Retained earnings			116,777			98,134			80,559
Total liabilities and equity		$	507,961		$	437,897		$	376,200

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?

Complete this question by entering your answers in the tabs below.

• Req 1
• Req 2 and 3

Express the balance sheets in common-size percents. (Do not round intermediate calculations and round your final percentage answers to 1 decimal place.)

SIMON COMPANY Common-Size Comparative Balance Sheets December 31 Current Year 1 Year Ago 2 Years Ago Assets Cash % % % Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets % % % Liabilities and Equity Accounts payable % % % Long-term notes payable secured by mortgages on plant assets Common stock, $10 par Retained earnings Total liabilities and equity % % %

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?
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?

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	2. Change in accounts receivable 3. Change in merchandise inventory

Answer 1

Answer:

1.

Simon Company Common-Size Comparative Balance Sheets
At December 31	Current Year	1 Year Ago*	2 Years Ago
Assets
Cash...............................................................	5.84%	7.92%	10.10%
Accounts receivable, net..................................	17.10	13.72	13.33
Merchandise inventory.....................................	20.85	18.68	14.34
Prepaid expenses............................................	1.92	2.16	1.13
Plant assets, net .............................................	54.29	57.52	61.10
Total assets ....................................................	100.0%	100.0%	100%
Liabilities and Equity
Accounts payable............................................	25.65%	16.56%	12.80%
Long-term notes payable secured by mortgages on plant assets ..........................	19.18	23.70	22.33
Common stock, $10 par value..........................	32.18	37.34	43.46
Retained earnings ..........................................	22.99	22.40	21.41
Total liabilities and equity................................	100.0%	100.0%	100.0%
* Column does not equal 100.0 due to rounding.

2. Unfavorable.

The increase in accounts receivable as a percentage of total assets is an unfavorable development. Assuming sales have not increased, a higher balance in accounts receivable simply means more assets are tied up in an unproductive manner. Further, there is additional risk that these receivables may not be collected

3. Unfavorable.

The increase in merchandise inventory as a percentage of total assets is an unfavorable development. More inventory means more assets are tied up in an unproductive manner.