Skip to main content

Business Accounting Financial Accounting: Information for Decisions

1 Introduction: The common size percents are calculated as percentages of a base value. Total assets are taken as a base for balance sheet items and for items of income statement, net sales is taken as a base value for computation of percentages. To compute: The common size percents of the given companies. Key figures A Company G Company Cash and cash equivalents 6.0% 14.0% Account receivables , net 7.5% 7.2% Inventories 1.0% 0 Retained earnings 37.6% 57.7% Cost of sales 61.4% 39.0% Revenues 100.0% 100.0% Total assets 100.0% 100.0% Formula used for calculation of balance sheet items like cash and cash equivalents, account receivables, inventories, retained earnings and total assets − Common size percent = Balance sheet item Total assets × 100 Formula used for calculation of income statement items like cost of sales and revenues − Common size percent = Income statement item Revenues × 100 2 Introduction: The retained earnings are the portion of net income saved by the company for future and the rest is distributed as dividends. The purpose for which such portion is retained might vary from company to company. To find: The company which retains a higher portion of cumulative net income. G Company retains a higher portion of cumulative net income in the company. Ratio of retained earnings(A Company) = Retained earnings Net income × 100 Net income = Revenues − Cost of sales = 182795 − 112258 = 70537 Ratio of retained earnings = 87152 70537 = 1.2 Ratio of retained earnings(G Company) = Retained earnings Net income × 100 Net income = Revenues − Cost of sales = 66001 − 25691 = 40310 Ratio of retained earnings = 75706 40310 = 1.9 3 Introduction: The gross margin ratio is the ratio of gross margin and net sales of a company. To find: The company which has a higher gross margin ratio on sales. G Company has a higher gross margin ratio on sales. Gross margin(A Company) = Sales − Cost of goods sold = 182795 − 112258 = 70537 Gross margin ratio(A Company) = Gross margin Sales × 100 = 70537 182795 × 100 =38 .6% Gross margin(G Company) = Sales − Cost of goods sold = 66001 − 25691 = 40310 Gross margin ratio(G Company) = Gross margin Sales × 100 = 40310 66001 × 100 =61 .1% 4 Introduction: The percent of total assets as inventory is calculated by dividing inventory and total assets. To find: The company which holds a higher percent of its total assets as inventory. A Company holds a higher percent of its total assets as inventory. Total assets as inventory(A Company) = Inventory Total assets × 100 = 2111 231839 × 100 = 0.9 % Total assets as inventory(G Company) = Inventory Total assets × 100 = 0 231839 × 100 = 0.0 %

1 Introduction: The common size percents are calculated as percentages of a base value. Total assets are taken as a base for balance sheet items and for items of income statement, net sales is taken as a base value for computation of percentages. To compute: The common size percents of the given companies. Key figures A Company G Company Cash and cash equivalents 6.0% 14.0% Account receivables , net 7.5% 7.2% Inventories 1.0% 0 Retained earnings 37.6% 57.7% Cost of sales 61.4% 39.0% Revenues 100.0% 100.0% Total assets 100.0% 100.0% Formula used for calculation of balance sheet items like cash and cash equivalents, account receivables, inventories, retained earnings and total assets − Common size percent = Balance sheet item Total assets × 100 Formula used for calculation of income statement items like cost of sales and revenues − Common size percent = Income statement item Revenues × 100 2 Introduction: The retained earnings are the portion of net income saved by the company for future and the rest is distributed as dividends. The purpose for which such portion is retained might vary from company to company. To find: The company which retains a higher portion of cumulative net income. G Company retains a higher portion of cumulative net income in the company. Ratio of retained earnings(A Company) = Retained earnings Net income × 100 Net income = Revenues − Cost of sales = 182795 − 112258 = 70537 Ratio of retained earnings = 87152 70537 = 1.2 Ratio of retained earnings(G Company) = Retained earnings Net income × 100 Net income = Revenues − Cost of sales = 66001 − 25691 = 40310 Ratio of retained earnings = 75706 40310 = 1.9 3 Introduction: The gross margin ratio is the ratio of gross margin and net sales of a company. To find: The company which has a higher gross margin ratio on sales. G Company has a higher gross margin ratio on sales. Gross margin(A Company) = Sales − Cost of goods sold = 182795 − 112258 = 70537 Gross margin ratio(A Company) = Gross margin Sales × 100 = 70537 182795 × 100 =38 .6% Gross margin(G Company) = Sales − Cost of goods sold = 66001 − 25691 = 40310 Gross margin ratio(G Company) = Gross margin Sales × 100 = 40310 66001 × 100 =61 .1% 4 Introduction: The percent of total assets as inventory is calculated by dividing inventory and total assets. To find: The company which holds a higher percent of its total assets as inventory. A Company holds a higher percent of its total assets as inventory. Total assets as inventory(A Company) = Inventory Total assets × 100 = 2111 231839 × 100 = 0.9 % Total assets as inventory(G Company) = Inventory Total assets × 100 = 0 231839 × 100 = 0.0 %

Solution Summary: The author explains that the common size percents are calculated as percentages of a base value.

Financial Accounting: Information for Decisions

Financial Accounting: Information for Decisions

8th Edition

ISBN: 9781259533006

Author: John J Wild

Publisher: McGraw-Hill Education

See similar textbooks

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

Blurred answer

Chapter 13, Problem 1BTN

Chapter 13, Problem 3BTN

Students have asked these similar questions

Provide correct answer general accounting question

none

General accounting question

Chapter 13 Solutions

Financial Accounting: Information for Decisions

Ch. 13 - Explain the difference between financial reporting...Ch. 13 - Prob. 2DQ Ch. 13 - Prob. 3DQ Ch. 13 - Prob. 4DQ Ch. 13 - Prob. 5DQ Ch. 13 - Prob. 6DQ Ch. 13 - Prob. 7DQ Ch. 13 - Prob. 8DQ Ch. 13 - Prob. 9DQ Ch. 13 - Prob. 10DQ

Ch. 13 - Prob. 11DQ Ch. 13 - Prob. 12DQ Ch. 13 - Prob. 13DQ Ch. 13 - Prob. 14DQ Ch. 13 - Prob. 15DQ Ch. 13 - Prob. 16DQ Ch. 13 - Prob. 17DQ Ch. 13 - Financial reporting Cl. Which of the following...Ch. 13 - Prob. 2QS Ch. 13 - Prob. 3QS Ch. 13 - Prob. 4QS Ch. 13 - Prob. 5QS Ch. 13 - Prob. 6QS Ch. 13 - Prob. 7QS Ch. 13 - Prob. 8QS Ch. 13 - Prob. 9QS Ch. 13 - Prob. 1E Ch. 13 - Prob. 2E Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Prob. 5E Ch. 13 - Prob. 6E Ch. 13 - Prob. 7E Ch. 13 - Prob. 8E Ch. 13 - Risk and capital structure analysis P3 Refer to...Ch. 13 - Prob. 10E Ch. 13 - Prob. 11E Ch. 13 - Prob. 12E Ch. 13 - Prob. 14E Ch. 13 - Prob. 15E Ch. 13 - Prob. 1PSA Ch. 13 - Prob. 2PSA Ch. 13 - Prob. 3PSA Ch. 13 - Prob. 4PSA Ch. 13 - Prob. 5PSA Ch. 13 - Prob. 6PSA Ch. 13 - Prob. 1PSB Ch. 13 - Prob. 2PSB Ch. 13 - Prob. 3PSB Ch. 13 - Prob. 4PSB Ch. 13 - Prob. 5PSB Ch. 13 - Prob. 6PSB Ch. 13 - Prob. 13SP Ch. 13 - Prob. 1BTN Ch. 13 - Prob. 2BTN Ch. 13 - Prob. 3BTN Ch. 13 - Prob. 7BTN Ch. 13 - Prob. 9BTN

Knowledge Booster

Background pattern image

Similar questions

SEE MORE QUESTIONS

Recommended textbooks for you

Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning

Text book image

Survey of Accounting (Accounting I)

Accounting

ISBN:9781305961883

Author:Carl Warren

Publisher:Cengage Learning

Text book image

Financial Accounting

Accounting

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Cengage Learning

Text book image

Financial Accounting

Accounting

ISBN:9781337272124

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Cengage Learning

Text book image

Managerial Accounting

Accounting

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:South-Western College Pub

Text book image

Managerial Accounting: The Cornerstone of Busines...

Accounting

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Cengage Learning

SEE MORE TEXTBOOKS