Chapter 12, Problem 89PSA

To determine

(a)

Common size analysis can be led in two different ways, i.e., vertical analysis and horizontal analysis. Vertical analysis alludes to the analysis of explicit details in connection to a base thing inside the equivalent money related period. For instance, in a critical position sheet, we can survey the extent of stock.

To discuss:

Prepare common size income statement to be used for horizontal analysis for Burch 2017 to 2019. Utilize 2017 as the base year for 2018 and 2019.

Answer to Problem 89PSA

Burch Industries

Common size for income statement ( horizontal)

Particular	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

Explanation of Solution

In this calculation 1 formula is used

For 2019 year = $\frac{2019\text{ amount}}{2017\text{ amount}}\times 100$

For 2018 year = $\frac{2018\text{ amount}}{2017\text{ amount}}\times 100$.

To determine

(b)

Net income increase shows that what types of effect in the income statement, so increase the net income.

To discuss:

Why net income percentage increase from 2017 to 2019.

Answer to Problem 89PSA

There are some reasons for increase net income

1. Increase the sale from 2017 to 2019.
2. Cost of goods increase but less increase in the comparison with sale amount.
3. Decrease the interest cost from 2017 to 2019.
4. Increase the selling expense that why increase the sale volume then increase the net income.

Explanation of Solution

1. Other expense increase is very high amount.
2. Increase the sale from 2017 to 2019.
3. Cost of goods increase but less increase in the comparison with sale amount.
4. Decrease the interest cost from 2017 to 2019.
5. Increase the selling expense that why increase the sale volume then increase the net income.

To determine

(c)

Balance sheet is the main statement of any business which shows the real figure of particular company, and after the company balance sheet company can analysis of any types like debt to equity ratio any many more.

To discuss:

Prepare common size statement of balance sheet to be used vertical analysis for 2018 and 2019.

Answer to Problem 89PSA

Common size statement (vertical)

Balance sheet

Particular	2019	2018	2019	2018
ASSETS
Current assets
Cash and equivalents S	291,284	260,050	13.32	13.89
Accounts receivable	667,547	596,018	30.52	31.82
Inventories	592,986	471,202	27.11	25.16
Deferred income taxes	26,378	27,511	1.21	1.47
Prepaid expenses	42,452	32,977	1.94	1.76
Total current assets	1,620,647	$1,387,758	74.09	74.10
Net property, plant, and equipment	377,995	346,037	17.28	18.48
Goodwill	157,894	110,363	7.22	5.89
Other assets	30,927	28,703	1.41	1.53
Total assets	$2,187,463	1,872,861	100.00	100.00
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$52,985	$3,652	2.42	0.19
Notes payable	108,165	105,696	4.94	5.64
Accounts payable	135,701	134,729	6.20	7.19
Accrued liabilities	138,563	134,089	6.33	7.16
Income taxes payable	17,150	42,422	0.78	2.27
Total current liabilities	$452,564	$420,588	20.69	22.46
Long-term debt	15,033	77,022	0.69	4.11
Noncurrent deferred income taxes	29,965	27,074	1.37	1.45
Other noncurrent liabilities	43,575	23,728	1.99	1.27
Commitments and contingencies	0	0	0.00	0.00
Redeemable preferred stock	300	300	0.01	0.02
Total liabilities	$541,437	$548,712	24.75	29.30
Stockholders' equity:
Common stock at stated value:
Class A convertible-26,691 and 26,919 shares outstanding	$159	$161	0.01	0.01
Class B-49,161 and 48,591 shares outstanding	2,720	2,716	0.12	0.15
Capital in excess of stated value	108,451	93,799	4.96	5.01
Treasury stock (common at cost)	-7,790	-6,860	-0.36	-0.37
Retained earnings	1,542,486	1,234,333	70.51	65.91
Total stockholders' equity	$1,646,026	$1,324,149	75.25	70.70
Total liabilities and stockholders' equity	$2,187,463	$1,872,861	100.00	100.00

Explanation of Solution

Formula used in the vertical common size balance sheet statement

For 2018 = $\frac{\text{amount for 2018}}{\text{balance sheet total of 2018 }}\times 100$

For 2019 = $\frac{\text{amount for 2019}}{\text{balance sheet total of 2019 }}\times 100$.

To determine

(d)

Balance sheet is the main statement of any business which shows the real figure of particular company, and after the company balance sheet company can analysis of any types like debt to equity ratio any many more.

Company also identity that how much company invest in the different types of assets.

To discuss:

Indicate whether the proportion of dollars invested in the various categories of assets has changed significantly between 2018 to 2019.

Answer to Problem 89PSA

Particular	2019 ($)	2018 ($)	Difference	Percentage
ASSETS			2019-2018
Current assets
Cash and equivalents	291,284	260,050	31234	12.01
Accounts receivable	667,547	596,018	71529	12.00
Inventories	592,986	471,202	121784	25.85
Deferred income taxes	26,378	27,511	-1133	-4.12
Prepaid expenses	42,452	32,977	9475	28.73
Total current assets	1,620,647	$1,387,758	232889	16.78
Net property, plant, and equipment	377,995	346,037	31958	9.24
Goodwill	157,894	110,363	47531	43.07
Other assets	30,927	28,703	2224	7.75
Total assets	$2,187,463	1,872,861	314602	16.80

Explanation of Solution

Particular	2019	2018	2019	2018
ASSETS
Current assets
Cash and equivalents S	291,284	260,050	13.32	13.89
Accounts receivable	667,547	596,018	30.52	31.82
Inventories	592,986	471,202	27.11	25.16
Deferred income taxes	26,378	27,511	1.21	1.47
Prepaid expenses	42,452	32,977	1.94	1.76
Total current assets	1,620,647	$1,387,758	74.09	74.10
Net property, plant, and equipment	377,995	346,037	17.28	18.48
Goodwill	157,894	110,363	7.22	5.89
Other assets	30,927	28,703	1.41	1.53
Total assets	$2,187,463	1,872,861	100.00	100.00

Difference amount = amount of 2019 − Amount of 2018Percentage = $\frac{\text{difference amount}}{\text{base year amount of 2018}}\times 100$.

To determine

(e)

Capital raised means company taking some amount of borrowing for the purpose of increase the profit amount also increase the company manufacturing or production.

To discuss:

How much amount of capital raised from the various categories of assets has changed significantly between 2018 to 2019.

Answer to Problem 89PSA

Stockholders' equity:	2019	2018	Difference	Precentage
Common stock at stated value:
Class A convertible-26,691 and 26,919 shares outstanding	$159	$161	-2	-1.24
Class B-49,161 and 48,591 shares outstanding	2,720	2,716	4	0.15
Capital in excess of stated value	108,451	93,799	14652	15.62
Treasury stock (common at cost)	-7,790	-6,860	-930	13.56
Retained earnings	1,542,486	1,234,333	308153	24.97
Total stockholders' equity	$1,646,026	$1,324,149	321877	24.31

Explanation of Solution

Difference amount = amount of 2019 − Amount of 2018

Percentage = $\frac{\text{difference amount}}{\text{base year amount of 2018}}\times 100$.

To determine

(f)

An organization’s balance sheet, otherwise called an "announcement of financial position," uncovers the company’s assets, liabilities and owners' equity (total assets). The balance sheet, together with the salary proclamation and income explanation, make up the foundation of any organization’s financial.

To discuss:

Discuss the financial statement.

Answer to Problem 89PSA

The company is in very good position, there are some information about the income statement and from the balance sheet:

1. Sale volume has increase
2. Profit also increase
3. Current assets increase from 2018 to 2019
4. Fixed assets purchase by the company for the production.
5. Total fixed assets increase.
6. Goodwill purchase
7. Company repayment the long-term debt
8. Company purchase own share from the market
9. Company increase the retained earning
10. Reduce the income tax payable.

Explanation of Solution

The organization is in excellent position, there are some data about the pay explanation and from the balance sheet:

1.Sale volume has increment

2.Profit additionally increment

3.Current assets increment from 2018 to 2019

4.Fixed assets buy by the organization for the generation.

5.Total fixed assets increment.

6.Goodwill buy

7.Company reimbursement the long haul obligation

8.Company buy possess share from the market

9.Company increment the held procuring

10.Reduce the pay charge payable.