Question

Category	Prior year	Current year
Accounts payable	41,400	45,000
Accounts receivable	115,200	122,400
Accruals	16,200	13,500
Additional paid in capital	200,000	216,660
Cash	???	???
Common Stock @ par value	37,600	42,000
COGS	131,400	172,470.00
Depreciation expense	21,600	23,655.00
Interest expense	16,200	16,316.00
Inventories	111,600	115,200
Long-term debt	135,000	138,084.00
Net fixed assets	377,704.00	399,600
Notes payable	59,400	64,800
Operating expenses (excl. depr.)	50,400	65,945.00
Retained earnings	122,400	136,800
Sales	255,600	335,333.00
Taxes	9,900	19,395.00

1. What is the entry for the current year's operating expense on a common-sized income statement?

2. What is the current year's cash balance?

3. What is the current year's return on assets (ROA)?

4. What is the current year's return on equity (ROE)?

5. What is the current year's entry for long-term debt on a common-sized balance sheet?

Answer 1

Let us calculate the Common Size Income Statement and Common size Balance sheet first,\

1) Common size Income Statement,

From given particulars, lets separate income statemet particulars and are mentioned as below,

Sales, COGS, Operating Expenses, Depreciation Expenses, Interest Expenses and Taxes

Coomon Size statement as follows,

	Prior Year	Currnet Year	Prior Year	Current Year
Sales	255600	335333	100%	100%
COGS	131400	172470	51%	51%
Operating expenses (excl. depr.)	50400	65945	20%	20%
EBITDA	73800	96918	29%	29%
Depreciation expense	21600	23655	8%	7%
EBIT	52200	73263	20%	22%
Interest expense	16200	16316	6%	5%
PBT	36000	56947	14%	17%
Taxes	9900	19395	4%	6%
Net Income	26100	37552	10%	11%

Hence from above coomon size income statement, one can conclude that Current Year Operating Expense are $65,945

2) Common size Balance Sheet,

From given particulars, lets separate Balance Sheet particulars and they are mentioned as below,

Accounts payable, Notes payable, Accruals(Assumption- current liability particular), Additional paid in capital, Common Stock @ par value, Retained earnings. Long-term debt, Accounts receivable, Inventories, Cash & Net fixed assets

Coomon Size Balance Sheet as follows,

Category	Prior year	Current year	Prior Year	Current Year
Accounts payable	41,400	45,000	7%	7%
Notes payable	59,400	64,800	10%	10%
Accruals	16,200	13,500	3%	2%
Current Liability	117,000	123,300	19%	19%
Additional paid in capital	200,000	216,660	33%	33%
Common Stock @ par value	37,600	42,000	6%	6%
Retained earnings	122,400	136,800	20%	21%
Long-term debt	135,000	138,084.00	22%	21%
Non Current Laibilities	495,000	533,544	81%	81%
Total Equity and Liability	612,000	656,844	100%	100%
Accounts receivable	115,200	122,400	19%	19%
Inventories	111,600	115,200	18%	18%
Cash	7496	19644	1%	3%
Current Asset	234,296	257,244	38%	39%
Net fixed assets	377,704.00	399,600	62%	61%
Total Asset	612,000.00	656,844.00	100%	100%

From above common size balance sheet one can conclude that,

Cash for current year is $19,644

3) Formula to caculate Return on Asset is,

ROA= Net Income/ Total Asset

We have Net Income = $37,552 and Total Asset = $656,844

Therefore, ROA = 37,552/656,844

ROA = 5.72%

4) Formula to caculate Return on Equity(ROE) is,

ROE= Net Income/ Shareholder's Fund

We have Net Income = $37,552 and Shareholder's Fund = $395,460

Therefore, ROE = 37,552/395,460

ROE = 9.50 %

5) From the Common Size balance sheet one can observe that, current year's entry for long-term debt is $138,084