Question

The income statement and comparative balance sheets for Cruise Supply Store are attached. The

following additional information is available.

CRUISE SUPPLY STORE

ADDITIONAL INFORMATION FOR FINANCIAL STATEMENT ANALYSIS

(a) The market price of the company's common stock on December 31, 20X4 is $49.

(b) Weighted average common shares outstanding for 20X4 were 10,000.

(c) All sales were credit sales.

REQUIRED: (1) Prepare a vertical analysis on the income statement for the year ending

December 31, 20X4. Round all percentages to two decimal places (four

decimal places in all).

(2) Prepare a horizontal analysis on the balance sheet from year 20X3 to 20X4.

Round all percentages to two decimal places (four decimal places in all).

(3) Compute the following ratios for the company for 20X4. Round those ratios

that are percentages to two decimal places (four decimal places in all) and all

other amounts to two decimal places.

(a) Current Ratio.

(b) Inventory Turnover.

(c) Accounts Receivable Turnover.

(d) Times Interest Earned Ratio.

(e) Return on Average Total Assets.

(f) Return on Average Common Stockholders' Equity.

(g) Earnings Per Share of Common Stock.

(h) Price/Earnings Ratio.

CRUISE SUPPLY STORE

INCOME STATEMENT

FOR YEAR ENDING DECEMBER 31, 20X4

Net Sales $ 462,000

Cost of Goods Sold 229,000

Gross Profit 233,000

Operating Expenses 136,000

Income From Operations 97,000

Interest Expense 11,000

Income Before Income Taxes 86,000

Income Tax Expense 30,000

Net Income $ 56,000

CRUISE SUPPLY STORE

COMPARATIVE BALANCE SHEETS

AS OF DECEMBER 31, 20X3 AND 20X4

Dec. 31, 20X4 Dec. 31, 20X3

ASSETS

Cash $ 96,000 $ 97,000

Accounts Receivable (Net) 112,000 116,000

Inventories 172,000 162,000

Prepaid Expenses 16,000 7,000

Property,

Plant, and Equipment (Net) 189,000 178,000   

TOTAL ASSETS $ 585,000 $ 560,000

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts Payable $ 50,000 $ 60,000

Income Taxes Payable 36,000 25,000

Short Term Notes Payable 120,000 136,000

Bonds Payable 119,000 119,000

Common Stock 160,000 120,000

Additional Paid In Capital 50,000 30,000

Retained Earnings 50,000 70,000

TOTAL LIABILITIES

AND STOCKHOLDERS'

EQUITY $ 585,000 $ 560,000

Answer 1

1)Vertical analysis of income statement

Net Sales                         $ 462,000                                                 100%

Cost of Goods Sold         (229,000/462000)*100                            49.57%

Gross Profit                      (233,000/462000)*100                            50.43%

Operating Expenses         (136,000/462000)*100                           29.44%

Income From Operations   (97,000/462000)*100                             21%

Interest Expense               (11,000/462000)*100                             2.38%

Income Before Income Taxes (86,000/462000)*100                       18.61%

Income Tax Expense          (30,000/462000)*100                            6.49%

Net Income                      ( 56,000/462000)*100                              12.12%

Horizontal analysis of balance sheet

2)

particulars	20X3	20X4	Increase/decrease	%
Assets: Cash Accounts receivable Inventories Prepaid expenses Property, plant & equipment Total assets Liabilities and stockholder’s equity: Accounts payable Income tax payable Short-term notes payable Bond payable Common stock Additional paid in capital Retained earnings Total Liabilities and stockholder’s equity	96,000 112,000 172,000 16000 189,000	97,000 116,000 162,000 7000 178,000	1,000     4000    (10,000)    (9000)    (11000)	1.04% 3.57% (5.81%) (56.25%) (5.82%)
	585,000 50,000 36,000 120,000 119,000 160,000 50,000 50,000	560,000 60,000 25,000 136,000 119,000 120,000 30,000 70,000	(25000) 10,000 (11,000) 16,000    --- (40,000) (20,000) 20,000	(4.27%) 20% (30.55%) 13.33% ---- (25%) (40%) 40%
	585,000	560,000	(25000)	(4.27%)

#note: %change= (increase or decrease/amount in base year)*100

3) Ratios for 20X4

a) Current ratio= current asset/ current liabilities

                   =382,000/221,000 =1.72:1

Current asset= Cash + Accounts receivable + Inventories+ Prepaid expenses Current asset= 382,000

Current liabilities = Accounts payable+ Income tax payable + Short-term notes payable                             =221,000

b) Inventory turnover ratio

= Net Sales/ average Inventories

=462000/167000*   =2.76 times

*(162000+172000)/2

c) Accounts receivable turnover

= Net Sales/ average accounts receivable

= 462000/114000*=3.98

*(112000+116000)/2

(d) Times Interest Earned Ratio.

= Income before Income Taxes/ Interest Expense

=86,000/11000 =7.81

(e) Return on Average Total Assets

=net income/ average total asset*

= (56000/572500)*100 =9.78%

Average total asset*=total asset in 20X4+20X3 divided by 2

(f) Return on Average Common Stockholders' Equity

= net income/ average   common shareholders’ equity*

= 56,000/140000 =.40

Average common shareholders’ equity* =(16000+12000)/2

(g) Earnings Per Share of Common Stock.

=net income/ no of common stock =56000/10000* =56

h) Price/Earnings Ratio

=marketvaluepershare / eps =49/56 =.875