Subject 2 Part 1 Sanborn Corporation’s condensed comparative income statement and balance sheet for 20X8 and 20X7 appears below. Sanborn Corporation Comparative Income Statements in € For the Years Ended December 31, 20X8 and 20X7 20X8 20X7 Net Sales 3,276,800 3,146,400 Cost of goods (2,088,800) (2,008,400) Gross margin 1,188,000 1,138,000 Operating expenses Selling expenses (476,800) (518,000) General & administrative expenses (447,200) (423,200) Total operating expenses (924,000) (941,200) Income from operations 264,000 196,800 Interest expense (65,600) (39,200) Net income before taxes 198,400 157,600 Income taxes (62,400) (56,800) Net income after taxes 136,000 100,800 Earnings per share 3.40 2.52 Sanborn Corporation Comparative Balance Sheets in € December 31, 20X8 and 20X7 Assets 20X8 20X7 Liabilities & Stockholders' Equity 20X8 20X7 Fixed assets: Stockholders' equity: Property, plant and equipment (net) 750,000 720,000 Common stock 10 par value 400,000 400,000 Total fixed assets 750,000 720,000 Retained earnings 374,000 307,600 Total stockholders' equity 774,000 707,600 Current assets: Long - term liabilities: Inventory 574,800 594,800 Bonds payable 400,000 - Accounts Receivable (net) 235,600 229,200 Total long-term liabilities 400,000 - Cash and cash equivalents 81,200 40,800 Current liabilities: Total current assets 891,600 864,800 Notes payable 200,000 400,000 Accounts payable 267,600 477,200 Total current liabilities 467,600 877,200 Total liabilities 867,600 877,200 Total assets 1,641,600 1,584,800 Total liabilities & stockholders' equity 1,641,600 1,584,800 Required: Prepare schedules showing the amount and percentage changes from 20X7 to 20X8 for the comparative income statements and the balance sheets Prepare common-size income statements and balance sheets for 20X7 and 20X8 Comment on the results in requirements 1 and 2 by identifying favourable and unfavourable changes in the components and composition of the statements

Subject 2 Part 1 Sanborn Corporation’s condensed comparative income statement and balance sheet for 20X8 and 20X7 appears below. Sanborn Corporation Comparative Income Statements in € For the Years Ended December 31, 20X8 and 20X7 20X8 20X7 Net Sales 3,276,800 3,146,400 Cost of goods (2,088,800) (2,008,400) Gross margin 1,188,000 1,138,000 Operating expenses Selling expenses (476,800) (518,000) General & administrative expenses (447,200) (423,200) Total operating expenses (924,000) (941,200) Income from operations 264,000 196,800 Interest expense (65,600) (39,200) Net income before taxes 198,400 157,600 Income taxes (62,400) (56,800) Net income after taxes 136,000 100,800 Earnings per share 3.40 2.52 Sanborn Corporation Comparative Balance Sheets in € December 31, 20X8 and 20X7 Assets 20X8 20X7 Liabilities & Stockholders' Equity 20X8 20X7 Fixed assets: Stockholders' equity: Property, plant and equipment (net) 750,000 720,000 Common stock 10 par value 400,000 400,000 Total fixed assets 750,000 720,000 Retained earnings 374,000 307,600 Total stockholders' equity 774,000 707,600 Current assets: Long - term liabilities: Inventory 574,800 594,800 Bonds payable 400,000 - Accounts Receivable (net) 235,600 229,200 Total long-term liabilities 400,000 - Cash and cash equivalents 81,200 40,800 Current liabilities: Total current assets 891,600 864,800 Notes payable 200,000 400,000 Accounts payable 267,600 477,200 Total current liabilities 467,600 877,200 Total liabilities 867,600 877,200 Total assets 1,641,600 1,584,800 Total liabilities & stockholders' equity 1,641,600 1,584,800 Required: Prepare schedules showing the amount and percentage changes from 20X7 to 20X8 for the comparative income statements and the balance sheets Prepare common-size income statements and balance sheets for 20X7 and 20X8 Comment on the results in requirements 1 and 2 by identifying favourable and unfavourable changes in the components and composition of the statements

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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Subject 2

Part 1

Sanborn Corporation’s condensed comparative income statement and balance sheet for 20X8 and 20X7 appears below.

Sanborn Corporation Comparative Income Statements in € For the Years Ended December 31, 20X8 and 20X7
	20X8	20X7
Net Sales	3,276,800	3,146,400
Cost of goods	(2,088,800)	(2,008,400)
Gross margin	1,188,000	1,138,000
Operating expenses
Selling expenses	(476,800)	(518,000)
General & administrative expenses	(447,200)	(423,200)
Total operating expenses	(924,000)	(941,200)
Income from operations	264,000	196,800
Interest expense	(65,600)	(39,200)
Net income before taxes	198,400	157,600
Income taxes	(62,400)	(56,800)
Net income after taxes	136,000	100,800
Earnings per share	3.40	2.52

Sanborn Corporation Comparative Balance Sheets in € December 31, 20X8 and 20X7
Assets	20X8	20X7	Liabilities & Stockholders' Equity	20X8	20X7
Fixed assets:			Stockholders' equity:
Property, plant and equipment (net)	750,000	720,000	Common stock 10 par value	400,000	400,000
Total fixed assets	750,000	720,000	Retained earnings	374,000	307,600
			Total stockholders' equity	774,000	707,600
Current assets:			Long - term liabilities:
Inventory	574,800	594,800	Bonds payable	400,000	-
Accounts Receivable (net)	235,600	229,200	Total long-term liabilities	400,000	-
Cash and cash equivalents	81,200	40,800	Current liabilities:
Total current assets	891,600	864,800	Notes payable	200,000	400,000
			Accounts payable	267,600	477,200
			Total current liabilities	467,600	877,200

			Total liabilities	867,600	877,200

Total assets	1,641,600	1,584,800	Total liabilities & stockholders' equity	1,641,600	1,584,800

Required:

Prepare schedules showing the amount and percentage changes from 20X7 to 20X8 for the comparative income statements and the balance sheets
Prepare common-size income statements and balance sheets for 20X7 and 20X8
Comment on the results in requirements 1 and 2 by identifying favourable and unfavourable changes in the components and composition of the statements
Briefly answer to each of the following questions:
1. Why does a decrease in receivable turnover create the need for cash from operating activities?
2. Why would ratios that include one balance sheet account and one income statement account such as receivable turnover or return on assets, be questionable if they came from quarterly or other interim financial reports?

Part 2

Balances for selective accounts of Sanborn Corporation at the end of 20X6 were: accounts receivable (net) 206,800; inventory 547,200; total assets 1,465,600; accounts payable 386,600; and stockholders’ equity 641,200.

Required

Perform a comprehensive ratio analysis calculating the ratios mentioned below. Round all answers to one decimal place.

1. Prepare a liquidity analysis by calculating for each year the: current ratio; acid-test ratio; receivable turnover; average collection period; inventory turnover; average inventory on hand period; accounts payable turnover; average accounts payable outstanding period

2. Prepare a profitability analysis by calculating for each year the net profit margin; asset turnover; return on total assets (using net income after taxes and ignoring interest expenses) and return on equity

After making the calculations indicate whether each ratio improved or deteriorated from 20X7 to 20X8 (use F for favorable and U for unfavorable and consider a change of .1 or less to be neutral)

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