Horizontal Analysis Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statements for the 2 most recent years. Kepler Company Comparative Balance Sheets This Year Last Year Assets Current assets: Cash $50,000.00 $100,000.00 Accounts receivable, net 300,000.00 150,000.00 Inventory 600,000.00 400,000.00 Prepaid expenses 25,000.00 30,000.00 Total current assets $975,000.00 $680,000.00 Property and equipment, net 125,000.00 150,000.00 Total assets $1,100,000.00 $830,000.00 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $400,000.00 $290,000.00 Short-term notes payable 200,000.00 60,000.00 Total current liabilities $600,000.00 $350,000.00 Long-term bonds payable, 12% 100,000.00 150,000.00 Total liabilities $700,000.00 $500,000.00 Stockholders’ equity: Common stock (100,000 shares) 200,000.00 200,000.00 Retained earnings 200,000.00 130,000.00 Total liabilities and stockholders’ equity $1,100,000.00 $830,000.00 Kepler Company Comparative Income Statements This Year Last Year Sales $950,000.00 $900,000.00 Less: Cost of goods sold (500,000.00) (490,000.00) Gross margin $450,000.00 $410,000.00 Less operating expenses: Selling and Administrative expenses (275,000.00) (260,000.00) Operating income $175,000.00 $150,000.00 Less: Interest expense (12,000.00) (18,000.00) Net income before taxes $163,000.00 $132,000.00 Less: Income taxes (65,200.00) (52,800.00) Net income after taxes $97,800.00 $79,200.00 Less: Dividends (27,800.00) (19,200.00) Net income, retained $70,000.00 $60,000.00 Required: Question Content Area 1(a). Compute the percentage change for the balance sheet. (Note: Enter a decrease as a negative number if applicable. Round all percentages to one decimal place.) Kepler CompanyComparative Balance Sheets This Year Last Year Percentage Change Assets Current assets: Cash $50,000.00 $100,000.00 fill in the blank 0d6059faafec067_1% Accounts receivable, net 300,000.00 150,000.00 fill in the blank 0d6059faafec067_2 Inventory 600,000.00 400,000.00 fill in the blank 0d6059faafec067_3 Prepaid expenses 25,000.00 30,000.00 fill in the blank 0d6059faafec067_4 Total current assets $975,000.00 $680,000.00 fill in the blank 0d6059faafec067_5 Property and equipment, net 125,000.00 150,000.00 fill in the blank 0d6059faafec067_6 Total assets $1,100,000.00 $830,000.00 fill in the blank 0d6059faafec067_7 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $400,000.00 $290,000.00 fill in the blank 0d6059faafec067_8 Short-term notes payable 200,000.00 60,000.00 fill in the blank 0d6059faafec067_9 Total current liabilities $600,000.00 $350,000.00 fill in the blank 0d6059faafec067_10 Long-term bonds payable, 12% 100,000.00 150,000.00 fill in the blank 0d6059faafec067_11 Total liabilities $700,000.00 $500,000.00 fill in the blank 0d6059faafec067_12 Stockholders' equity: Common stock (100,000 shares) 200,000.00 200,000.00 fill in the blank 0d6059faafec067_13 Retained earnings 200,000.00 130,000.00 fill in the blank 0d6059faafec067_14 Total liabilities and stockholders’ equity $1,100,000.00 $830,000.00 fill in the blank 0d6059faafec067_15 Question Content Area 1(b). Compute the percentage change for the income statement. (Note: Round all percentages to one decimal place.) Kepler CompanyComparative Income Statements This Year Last Year Percentage Change Sales $950,000.00 $900,000.00 fill in the blank 414365fa007301d_1% Less: Cost of goods sold (500,000.00) (490,000.00) fill in the blank 414365fa007301d_2 Gross margin $450,000.00 $410,000.00 fill in the blank 414365fa007301d_3 Less operating expenses: Selling and Administrative expenses (275,000.00) (260,000.00) fill in the blank 414365fa007301d_4 Operating income $175,000.00 $150,000.00 fill in the blank 414365fa007301d_5 Less: Interest expense (12,000.00) (18,000.00) fill in the blank 414365fa007301d_6 Net income before taxes $163,000.00 $132,000.00 fill in the blank 414365fa007301d_7 Less: Income taxes (65,200.00) (52,800.00) fill in the blank 414365fa007301d_8 Net income after taxes $97,800.00 $79,200.00 fill in the blank 414365fa007301d_9 Less: Dividends (27,800.00) (19,200.00) fill in the blank 414365fa007301d_10 Net income, retained $70,000.00 $60,000.00 fill in the blank 414365fa007301d_11 Question Content Area 2. Based on the analysis completed, select "Yes" or "No" on any significant trends identified for Kepler Company. Management should take a closer look at inventory and accounts receivable Liabilities have increased because of notes payable Accounts receivable has tripled Management should take a closer look at accounts receivable and prepaid expenses Management should take a closer look at cash, prepaid expenses and property and equipment Liabilities increased due to bonds payable Management should take a closer look at retained earnings Management should take a closer look bonds payable Cash has decreased Accounts receivable has doubled Inventory has increased

Horizontal Analysis Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statements for the 2 most recent years. Kepler Company Comparative Balance Sheets This Year Last Year Assets Current assets: Cash $50,000.00 $100,000.00 Accounts receivable, net 300,000.00 150,000.00 Inventory 600,000.00 400,000.00 Prepaid expenses 25,000.00 30,000.00 Total current assets $975,000.00 $680,000.00 Property and equipment, net 125,000.00 150,000.00 Total assets $1,100,000.00 $830,000.00 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $400,000.00 $290,000.00 Short-term notes payable 200,000.00 60,000.00 Total current liabilities $600,000.00 $350,000.00 Long-term bonds payable, 12% 100,000.00 150,000.00 Total liabilities $700,000.00 $500,000.00 Stockholders’ equity: Common stock (100,000 shares) 200,000.00 200,000.00 Retained earnings 200,000.00 130,000.00 Total liabilities and stockholders’ equity $1,100,000.00 $830,000.00 Kepler Company Comparative Income Statements This Year Last Year Sales $950,000.00 $900,000.00 Less: Cost of goods sold (500,000.00) (490,000.00) Gross margin $450,000.00 $410,000.00 Less operating expenses: Selling and Administrative expenses (275,000.00) (260,000.00) Operating income $175,000.00 $150,000.00 Less: Interest expense (12,000.00) (18,000.00) Net income before taxes $163,000.00 $132,000.00 Less: Income taxes (65,200.00) (52,800.00) Net income after taxes $97,800.00 $79,200.00 Less: Dividends (27,800.00) (19,200.00) Net income, retained $70,000.00 $60,000.00 Required: Question Content Area 1(a). Compute the percentage change for the balance sheet. (Note: Enter a decrease as a negative number if applicable. Round all percentages to one decimal place.) Kepler CompanyComparative Balance Sheets This Year Last Year Percentage Change Assets Current assets: Cash $50,000.00 $100,000.00 fill in the blank 0d6059faafec067_1% Accounts receivable, net 300,000.00 150,000.00 fill in the blank 0d6059faafec067_2 Inventory 600,000.00 400,000.00 fill in the blank 0d6059faafec067_3 Prepaid expenses 25,000.00 30,000.00 fill in the blank 0d6059faafec067_4 Total current assets $975,000.00 $680,000.00 fill in the blank 0d6059faafec067_5 Property and equipment, net 125,000.00 150,000.00 fill in the blank 0d6059faafec067_6 Total assets $1,100,000.00 $830,000.00 fill in the blank 0d6059faafec067_7 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $400,000.00 $290,000.00 fill in the blank 0d6059faafec067_8 Short-term notes payable 200,000.00 60,000.00 fill in the blank 0d6059faafec067_9 Total current liabilities $600,000.00 $350,000.00 fill in the blank 0d6059faafec067_10 Long-term bonds payable, 12% 100,000.00 150,000.00 fill in the blank 0d6059faafec067_11 Total liabilities $700,000.00 $500,000.00 fill in the blank 0d6059faafec067_12 Stockholders' equity: Common stock (100,000 shares) 200,000.00 200,000.00 fill in the blank 0d6059faafec067_13 Retained earnings 200,000.00 130,000.00 fill in the blank 0d6059faafec067_14 Total liabilities and stockholders’ equity $1,100,000.00 $830,000.00 fill in the blank 0d6059faafec067_15 Question Content Area 1(b). Compute the percentage change for the income statement. (Note: Round all percentages to one decimal place.) Kepler CompanyComparative Income Statements This Year Last Year Percentage Change Sales $950,000.00 $900,000.00 fill in the blank 414365fa007301d_1% Less: Cost of goods sold (500,000.00) (490,000.00) fill in the blank 414365fa007301d_2 Gross margin $450,000.00 $410,000.00 fill in the blank 414365fa007301d_3 Less operating expenses: Selling and Administrative expenses (275,000.00) (260,000.00) fill in the blank 414365fa007301d_4 Operating income $175,000.00 $150,000.00 fill in the blank 414365fa007301d_5 Less: Interest expense (12,000.00) (18,000.00) fill in the blank 414365fa007301d_6 Net income before taxes $163,000.00 $132,000.00 fill in the blank 414365fa007301d_7 Less: Income taxes (65,200.00) (52,800.00) fill in the blank 414365fa007301d_8 Net income after taxes $97,800.00 $79,200.00 fill in the blank 414365fa007301d_9 Less: Dividends (27,800.00) (19,200.00) fill in the blank 414365fa007301d_10 Net income, retained $70,000.00 $60,000.00 fill in the blank 414365fa007301d_11 Question Content Area 2. Based on the analysis completed, select "Yes" or "No" on any significant trends identified for Kepler Company. Management should take a closer look at inventory and accounts receivable Liabilities have increased because of notes payable Accounts receivable has tripled Management should take a closer look at accounts receivable and prepaid expenses Management should take a closer look at cash, prepaid expenses and property and equipment Liabilities increased due to bonds payable Management should take a closer look at retained earnings Management should take a closer look bonds payable Cash has decreased Accounts receivable has doubled Inventory has increased

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question Content Area

1(a). Compute the percentage change for the balance sheet. (Note: Enter a decrease as a negative number if applicable. Round all percentages to one decimal place.)

Kepler CompanyComparative Balance Sheets

	This Year	Last Year	Percentage Change
Assets
Current assets:
Cash	$50,000.00	$100,000.00	fill in the blank 0d6059faafec067_1%
Accounts receivable, net	300,000.00	150,000.00	fill in the blank 0d6059faafec067_2
Inventory	600,000.00	400,000.00	fill in the blank 0d6059faafec067_3
Prepaid expenses	25,000.00	30,000.00	fill in the blank 0d6059faafec067_4
Total current assets	$975,000.00	$680,000.00	fill in the blank 0d6059faafec067_5
Property and equipment, net	125,000.00	150,000.00	fill in the blank 0d6059faafec067_6
Total assets	$1,100,000.00	$830,000.00	fill in the blank 0d6059faafec067_7
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$400,000.00	$290,000.00	fill in the blank 0d6059faafec067_8
Short-term notes payable	200,000.00	60,000.00	fill in the blank 0d6059faafec067_9
Total current liabilities	$600,000.00	$350,000.00	fill in the blank 0d6059faafec067_10
Long-term bonds payable, 12%	100,000.00	150,000.00	fill in the blank 0d6059faafec067_11
Total liabilities	$700,000.00	$500,000.00	fill in the blank 0d6059faafec067_12
Stockholders' equity:
Common stock (100,000 shares)	200,000.00	200,000.00	fill in the blank 0d6059faafec067_13
Retained earnings	200,000.00	130,000.00	fill in the blank 0d6059faafec067_14
Total liabilities and stockholders’ equity	$1,100,000.00	$830,000.00	fill in the blank 0d6059faafec067_15

Question Content Area

1(b). Compute the percentage change for the income statement. (Note: Round all percentages to one decimal place.)

Kepler CompanyComparative Income Statements

	This Year	Last Year	Percentage Change
Sales	$950,000.00	$900,000.00	fill in the blank 414365fa007301d_1%
Less: Cost of goods sold	(500,000.00)	(490,000.00)	fill in the blank 414365fa007301d_2
Gross margin	$450,000.00	$410,000.00	fill in the blank 414365fa007301d_3
Less operating expenses:
Selling and Administrative expenses	(275,000.00)	(260,000.00)	fill in the blank 414365fa007301d_4
Operating income	$175,000.00	$150,000.00	fill in the blank 414365fa007301d_5
Less:
Interest expense	(12,000.00)	(18,000.00)	fill in the blank 414365fa007301d_6
Net income before taxes	$163,000.00	$132,000.00	fill in the blank 414365fa007301d_7
Less:
Income taxes	(65,200.00)	(52,800.00)	fill in the blank 414365fa007301d_8
Net income after taxes	$97,800.00	$79,200.00	fill in the blank 414365fa007301d_9
Less:
Dividends	(27,800.00)	(19,200.00)	fill in the blank 414365fa007301d_10
Net income, retained	$70,000.00	$60,000.00	fill in the blank 414365fa007301d_11

Question Content Area

2. Based on the analysis completed, select "Yes" or "No" on any significant trends identified for Kepler Company.

Management should take a closer look at inventory and accounts receivable
Liabilities have increased because of notes payable
Accounts receivable has tripled
Management should take a closer look at accounts receivable and prepaid expenses
Management should take a closer look at cash, prepaid expenses and property and equipment
Liabilities increased due to bonds payable
Management should take a closer look at retained earnings
Management should take a closer look bonds payable
Cash has decreased
Accounts receivable has doubled
Inventory has increased

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Kepler Company Comparative Balance Sheets
	This Year	Last Year
Assets
Current assets:
Cash	$50,000.00	$100,000.00
Accounts receivable, net	300,000.00	150,000.00
Inventory	600,000.00	400,000.00
Prepaid expenses	25,000.00	30,000.00
Total current assets	$975,000.00	$680,000.00
Property and equipment, net	125,000.00	150,000.00
Total assets	$1,100,000.00	$830,000.00
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$400,000.00	$290,000.00
Short-term notes payable	200,000.00	60,000.00
Total current liabilities	$600,000.00	$350,000.00
Long-term bonds payable, 12%	100,000.00	150,000.00
Total liabilities	$700,000.00	$500,000.00
Stockholders’ equity:
Common stock (100,000 shares)	200,000.00	200,000.00
Retained earnings	200,000.00	130,000.00
Total liabilities and stockholders’ equity	$1,100,000.00	$830,000.00

Kepler Company Comparative Income Statements
	This Year	Last Year
Sales	$950,000.00	$900,000.00
Less: Cost of goods sold	(500,000.00)	(490,000.00)
Gross margin	$450,000.00	$410,000.00
Less operating expenses:
Selling and Administrative expenses	(275,000.00)	(260,000.00)
Operating income	$175,000.00	$150,000.00
Less:
Interest expense	(12,000.00)	(18,000.00)
Net income before taxes	$163,000.00	$132,000.00
Less:
Income taxes	(65,200.00)	(52,800.00)
Net income after taxes	$97,800.00	$79,200.00
Less:
Dividends	(27,800.00)	(19,200.00)
Net income, retained	$70,000.00	$60,000.00