Question

​(Preparing common-size financial​ statements) As the newest hire to the financial analysis group at Patterson Printing​ Company, you have been asked to perform a basis financial analysis of the​ company's most recent financial statements. The 2016 balance sheet and income statement for the Patterson are shown​ here:

Patterson Printing Company
Balance​ Sheet, December​ 31, 2016
Cash and marketable securities	$500
Accounts receivable	6,000
Inventory	9,500
Total current assets	$16,000
Net​ property, plant, and equipment	17,000
Total assets	$33,000
Accounts payable	$7,200
​Short-term debt	6,800
Total current liabilities	$14,000
​Long-term liabilities	7,000
Total liabilities	$21,000
Total common​ stockholders' equity	12,000
Total liabilities and​ stockholders' equity	$33,000

		Patterson Printing Company
		Income Statement for the Year Ended December​ 31, 2016
		Revenues	$30,000
		Cost of goods sold	(20,000)
		Gross profit	$10,000
		Operating expenses	(8,000)
		Net operating income	$2,000
		Interest expense	(900)
		Earnings before taxes	$1,100
		Income taxes	(400)
		Net income

a. After discussing your training asignment with a fellow analyst who was hired last​ year, you learn that the first step in your completing the assignment is to prepare a​ common-size balance sheet for Patterson.

b. The second step is to prepare a​ common-size income statement for the firm.

a. After discussing your training asignment with a fellow analyst who was hired last​ year, you learn that the first step in your completing the assignment is to prepare a​ common-size balance sheet for Patterson. Complete the​ common-size balance sheet​ below:  ​(Round to one decimal​ place.)

Common-Size Balance Sheet		2016
Cash and marketable securities	$	500		%
Accounts receivable		6,000
Inventory		9,500
Total current assets	$	16,000		%
Net property, plant, and equipment		17,000
Total assets	$	33,000		%
Accounts payable	$	7,200		%
Short-term debt		6,800
Total current liabilities	$	14,000		%
Long-term liabilities		7,000
Total liabilities	$	21,000		%
Total common stockholders’ equity		12,000
Total liabilities and shareholders’ equity	$	33,000		%

Answer 1

a. Common-size balance sheet mainly uses value of total assets as the base value. Each item of assets is represented as a percentage of total assets while each item of liabilities and shareholders’ equity is represented as a percentage of total liabilities and shareholders’ equity as follows:

Patterson Printing Company
Common-Size Balance Sheet
	Amount	Percent
Cash and marketable securities	$500	1.5%
Accounts receivable	$6,000	18.2%
Inventory	$9,500	28.8%
Total current assets	$16,000	48.5%
Net property, plant, and equipment	$17,000	51.5%
Total assets	$33,000	100.0%
Accounts payable	$7,200	21.8%
Short-term debt	$6,800	20.6%
Total current liabilities	$14,000	42.4%
Long-term liabilities	$7,000	21.2%
Total liabilities	$21,000	63.6%
Total common stockholders' equity	$12,000	36.4%
Total liabilities and shareholders' equity	$33,000	100.0%

b. The base item in common-size income statement is usually total revenues or total sales. It represents each income statement line item as a percent of sales as follows:

Patterson Printing Company
Common-Size Income Statement
	Amount	Percent
Revenues	$30,000	100.0%
Cost of goods sold	$20,000	66.7%
Gross profit	$10,000	33.3%
Operating expenses	$8,000	26.7%
Net operating income	$2,000	6.7%
Interest expense	$900	3.0%
Earnings before taxes	$1,100	3.7%
Income taxes	$400	1.3%
Net Income	$700	2.3%