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Business Accounting Connect Access Card for Financial Accounting: Information and 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.

Connect Access Card for Financial Accounting: Information and Decisions

Connect Access Card for Financial Accounting: Information and Decisions

8th Edition

ISBN: 9781259662966

Author: John J Wild

Publisher: McGraw-Hill Education

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Chapter 13 Solutions

Connect Access Card for Financial Accounting: Information and 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

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