Question

II.  The Balance Sheet and Income Statement for Wholesome, Inc are presented below.  

Wholesome Inc. Balance Sheet as of December 31, 2018

	Amount
Assets
Current Assets
Cash	14,500
Inventories	12,000
Prepaid Expenses	500
Accounts Receivable	18,000
Total Current Assets	45,000
Non Current Assets
Property, Pland & Equipment	52,000
Goodwill	3,000
Total Assets	100,000
Liabilities & Stockholders’ Equity
Current Liabilities
Accounts Payable	15,000
Salaries Payable	10,000
Accrued Expenses	5,000
Total Current Liabilities	30,000
Long-term Debt	30,000
Stockholders’ Equity	40,000
Total Liabilities & Stockholders’ Equity	100,000

Wholesome, Inc Income Statement for Year Ended 2018

	Amount
Net Sales	140,700
Cost of Goods Sold	81,606
Gross profit	59,094
Selling & Administrative Expenses	32,765
Advertising	9,541
Depreciation and Amortization	2,501
Impairment Charges	3,031
Operating Profit	11,256
Other Income (Expenses)
Interest Income	738
Interest Expense	(1,274)
Earnings Before Income Tax	10,720
Income Tax Expense	4,824
Net Income	5,896

1. Prepare in GOOD FORM a common-size Balance sheet and Income Statement for Wholesome, Inc.
2. Make an observation regarding the meaning or sigificance of one of the percentages presented in the common-size income statement and one of the percentages presented in the common-size balance sheet. (Don’t just restate the percentage).

Answer 1

Higher the debt higher is the financial leverage