Question

Problem 12-89A
Preparing Common Size Statements

The financial statements for Burch Industries follow:

Burch Industries Consolidated Income Statements (in thousands, except per share data)
	Year ended December 31,
	2019		2018		2017
Revenues	$3,930,984		$3,405,211		$3,003,610
Costs and expenses:
Cost of goods sold	$2,386,993		$2,089,089		$1,850,530
Selling and administrative	922,261		761,498		664,061
Interest	25,739		30,665		27,316
Other expenses (income)	1,475		2,141		(43)
Total costs and expenses	$3,336,468		$2,883,393		$2,541,864
Income before income taxes	$594,516		$521,818		$461,746
Income taxes	229,500		192,600		174,700
Net income	$365,016		$329,218		$287,046

Burch Industries Consolidated Balance Sheets (in thousands)
	December 31,
ASSETS	2019		2018
Current assets:
Cash and equivalents	$291,284		$260,050
Accounts receivable, less allowance for doubtful accounts of $19,447 and $20,046	667,547		596,018
Inventories	592,986		471,202
Deferred income taxes	26,378		27,511
Prepaid expenses	42,452		32,977
Total current assets	$1,620,647		$1,387,758
Property, plant, and equipment	$571,032		$497,795
Less accumulated depreciation	(193,037)		(151,758)
Net property, plant, and equipment	$377,995		$346,037
Goodwill	157,894		110,363
Other assets	30,927		28,703
Total assets	$2,187,463		$1,872,861
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$52,985		$3,652
Notes payable	108,165		105,696
Accounts payable	135,701		134,729
Accrued liabilities	138,563		134,089
Income taxes payable	17,150		42,422
Total current liabilities	$452,564		$420,588
Long-term debt	15,033		77,022
Noncurrent deferred income taxes	29,965		27,074
Other noncurrent liabilities	43,575		23,728
Commitments and contingencies	0		0
Redeemable preferred stock	300		300
Total liabilities	$541,437		$548,712
Stockholders’ equity:
Common stock at stated value:
Class A convertible—26,691 and 26,919 shares outstanding	$159		$161
Class B—49,161 and 48,591 shares outstanding	2,720		2,716
Capital in excess of stated value	108,451		93,799
Treasury stock (common at cost)	(7,790)		(6,860)
Retained earnings	1,542,486		1,234,333
Total stockholders’ equity	$1,646,026		$1,324,149
Total liabilities and stockholders’ equity	$2,187,463		$1,872,861

Required:

1. Prepare common size income statements to be used for horizontal analysis for Burch for 2017 to 2019. Enter your answers in percentage terms, rounded to two decimal places, and do not include the "%" sign with your answer. For example, "100.00" or "28.72". Utilize 2017 as the base year for both 2018 and 2019. You do not need to include the actual dollar amounts shown above.

Burch Industries
Consolidated Income Statements
For the Year ended:
	December 31, 2019	December 31, 2018	December 31, 2017
Revenues	%	%	%
Costs and expenses:
Cost of goods sold	%	%	%
Selling and administrative	%	%	%
Interest	%	%	%
Other expenses (income)	%	%	%
Total costs and expenses	%	%	%
Income before income taxes	%	%	%
Income taxes	%	%	%
Net income	%	%	%

Feedback

1. Horizontal Analysis expresses each financial statement line item as a percent of the "base year."

2. Prepare common size balance sheets to be used for vertical analysis for 2019 and 2018. Enter your answers in percentage terms, rounded to two decimal places, and do not include the "%" sign with your answer. For example, "100.00" or "28.72". Percentages may not calculate down because of rounding. You do not need to include the actual dollar amounts shown above. If an answer box does not require an entry enter "0".

Burch Industries
Consolidated Balance Sheet
ASSETS	December 31, 2019	December 31, 2018
Current assets:
Cash and equivalents	%	%
Accounts receivable, less allowance for doubtful accounts of $19,447 and $20,046	%	%
Inventories	%	%
Deferred income taxes	%	%
Prepaid expenses	%	%
Total current assets	%	%
Property, plant, and equipment	%	%
Less accumulated depreciation	%	%
Net property, plant, and equipment	%	%
Goodwill	%	%
Other assets	%	%
Total assets	%	%
LIABILITIES AND STOCKHOLDERS' EQUITY	December 31, 2019	December 31, 2018
Current liabilities:
Current portion of long-term debt	%	%
Notes payable	%	%
Accounts payable	%	%
Accrued liabilities	%	%
Income taxes payable	%	%
Total current liabilities	%	%
Long-term debt	%	%
Noncurrent deferred income taxes	%	%
Other noncurrent liabilities	%	%
Commitments and contingencies	%	%
Redeemable preferred stock	%	%
Total liabilities	%	%
Stockholders' equity:
Common stock at stated value:
Class A convertible-26,691 and 26,919 shares outstanding	%	%
Class B-49,161 and 48,591 shares outstanding	%	%
Capital in excess of stated value	%	%
Treasury stock (common at cost)	%	%
Retained earnings	%	%
Total stockholders' equity	%	%
Total liabilities and stockholders' equity	%	%

Answer 1

1

Horizontal analysis of income statement

Burch Industries
Consolidated Income Statements
Horizontal analysis of income statement
	2019	2018	2017
Revenues	130.88%	113.37%	100.00%
Costs and expenses:
Cost of goods sold	128.99%	112.89%	100.00%
Selling and administrative	138.88%	114.67%	100.00%
Interest	94.23%	112.26%	100.00%
Other expenses (income)	-3430.23%	-4979.07%	100.00%
Total costs and expenses	131.26%	113.44%	100.00%
Income before income taxes	128.75%	113.01%	100.00%
Income taxes	131.37%	110.25%	100.00%
Net income	127.16%	114.69%	100.00%

________________________________________

2

vertical analysis for 2019 and 2018

Burch Industries
Consolidated Balance Sheets (in thousands)
	December 31,
ASSETS	2019	2018
Current assets:
Cash and equivalents	13.32%	13.89%
Accounts receivable, less allowance for doubtful accounts of $19,447 and $20,046	30.52%	31.82%
Inventories	27.11%	25.16%
Deferred income taxes	1.21%	1.47%
Prepaid expenses	1.94%	1.76%
Total current assets	74.09%	74.10%
Property, plant, and equipment	26.10%	26.58%
Less accumulated depreciation	-8.82%	-8.10%
Net property, plant, and equipment	17.28%	18.48%
Goodwill	7.22%	5.89%
Other assets	1.41%	1.53%
Total assets	100.00%	100.00%
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	2.42%	0.19%
Notes payable	4.94%	5.64%
Accounts payable	6.20%	7.19%
Accrued liabilities	6.33%	7.16%
Income taxes payable	0.78%	2.27%
Total current liabilities	20.69%	22.46%
Long-term debt	0.69%	4.11%
Noncurrent deferred income taxes	1.37%	1.45%
Other noncurrent liabilities	1.99%	1.27%
Commitments and contingencies	0.00%	0.00%
Redeemable preferred stock	0.01%	0.02%
Total liabilities	24.75%	29.30%
Stockholders’ equity:	0.00%	0.00%
Common stock at stated value:	0.00%	0.00%
Class A convertible—26,691 and 26,919 shares outstanding	0.01%	0.01%
Class B—49,161 and 48,591 shares outstanding	0.12%	0.15%
Capital in excess of stated value	4.96%	5.01%
Treasury stock (common at cost)	-0.36%	-0.37%
Retained earnings	70.51%	65.91%
Total stockholders’ equity	75.25%	70.70%
Total liabilities and stockholders’ equity	100.00%	100.00%

Working notes for the above answer is as under