Chapter 12, Problem 89PSB

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.

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

Answer to Problem 89PSB

Common size for income statement ( horizontal)

Particular	2019	2018	2017
Revenues	129.07	114.91	100.00
Costs and expenses:
Cost of goods sold	115.58	114.49	100.00
Selling and administrative	155.02	109.32	100.00
Interest	75.26	102.33	100.00
Other expenses (income)	-1887.25	-2209.80	100.00
Total costs and expenses	124.30	113.23	100.00
Income before income taxes	149.75	122.15	100.00
Income taxes	151.47	112.19	100.00
Net income S	149.09	125.92	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 89PSB

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 89PSB

Common size statement (vertical)

Balance sheet

ASSETS	2019	2018	2019	2018
Current assets:
Cash and equivalents	301,695	269,648	13.66	14.13
Accounts receivable, less allowance for doubtful accounts of $20,568 and $18,322	670,469	604236	30.35	31.66
Inventories	601,396	469,582	27.23	24.61
Deferred income taxes	23,415	24,397	1.06	1.28
Prepaid expenses	43,624	36,478	1.98	1.91
Total current assets	1640599	1404341	74.28	73.59
Property, plant. and equipment	376,700	353,008	17.05	18.50
GooMvill	162,325	127,695	7.35	6.69
Other asses	29,158	23,598	1.32	1.24
Total assets	2208782	1908442	100.00	100.00
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion o4 longterm deb: S	63,169	5665	2.86	0.30
Notes payable	112,596	110423	5.10	5.79
Accounts payable	128,696	139364	5.83	7.30
Accrued liabilides	143,874	133569	6.51	7.00
Income taxes payable	23.541	38972	0.00	2.04
Total current liabilities S	471,876	427993	21.36	22.43
Longterm debt	16,254	83,456	0.74	4.37
Noncurrent deferred income taxes	33,489	31238	1.52	1.64
Other noncurrent liabilities	46,685	27,434	2.11	1.44
Commitments and contingencies 0 0	0	0	0.00	0.00
Redeemable pre4ened stock 200 200	200	200	0.01	0.01
Total liabilities S	568504	570321	25.74	29.88
Stockholders equity:
Common stock at stated value:
Class A convertible-27,723 and 25,832 shares outrancing	164	175	0.01	0.01
Class 13-49,756 and 47,652 shares outstanding	3,152	3120	0.14	0.16
Capital in excess of stated value	110,596	96546	5.01	5.06
Treasury stock (common at cost)	-8741	-7859	-0.40	-0.41
Retained earnings	1535107	1246339	69.50	65.31
Total stockholderi equity 5	1640278	1338321	74.26	70.13
Total liabditits and stockholders equity	2208782	1908642	100.00	100.01

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 89PSB

ASSETS	2019	2018	Difference	percentage
Current assets:
Cash and equivalents	301,695	269,648	32,047	11.88
Accounts receivable, less allowance for doubtful accounts of $20,568 and $18,322	670,469	604236	66,233	10.96
Inventories	601,396	469,582	131,814	28.07
Deferred income taxes	23,415	24,397	-982	-4.03
Prepaid expenses	43,624	36,478	7,146	19.59
Total current assets	1640599	1404341	236,258	16.82
Property, plant. and equipment	376,700	353,008	23,692	6.71
GooMvill	162,325	127,695	34,630	27.12
Other asses	29,158	23,598	5,560	23.56
Total assets	2208782	1908442	300,340	15.74

Explanation of Solution

ASSETS	2019	2018	Difference	percentage
Current assets:
Cash and equivalents	301,695	269,648	32,047	11.88
Accounts receivable, less allowance for doubtful accounts of $20,568 and $18,322	670,469	604236	66,233	10.96
Inventories	601,396	469,582	131,814	28.07
Deferred income taxes	23,415	24,397	-982	-4.03
Prepaid expenses	43,624	36,478	7,146	19.59
Total current assets	1640599	1404341	236,258	16.82
Property, plant. and equipment	376,700	353,008	23,692	6.71
GooMvill	162,325	127,695	34,630	27.12
Other asses	29,158	23,598	5,560	23.56
Total assets	2208782	1908442	300,340	15.74

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 89PSB

Stockholders’ equity:			Difference	Percentage
Common stock at stated value:
Class A convertible-27,723 and 25,832 shares outstanding	164	175	-11	-6.29
Class B-49,756 and 47,652 shares outstanding	3,152	3120	32	1.03
Capital in excess of stated value	110,596	96546	14,050	14.55
Treasury stock (common at cost)	-8741	-7859	-882	11.22
Retained earnings	1535107	1246339	288,768	23.17
Total stockholdeing equity 5	1640278	1338321	301,957	22.56
Total liabditits and stockholders equity	2208782	1908642	300,140	15.73

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 89PSB

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.