1.
To compute:
1.
Explanation of Solution
Formula to calculate current ratio is,
2017
Given,
Current assets are $54,860.
Current liabilities are $22,370.
Substitute $54,860for current assets and $22,370 for current liabilities in the above formula.
2016
Given,
Current assets are $32,660.
Current liabilities are $19,180
Substitute $32,660 for current assets and $19,180 for current liabilities.
2015
Given,
Current assets are $36,300.
Current liabilities are $16,500.
Substitute $36,300 for current assets and $16,500 for current liabilities in the above formula.
Thus, current ratios of B Company are 2.45, 1.70 and 2.2 for the year 2017, 2016 and 2015 respectively.
2.
To prepare: Common size income statement of B Company.
2.
Explanation of Solution
Common size income statement is express in form of percentage which helps to analyze the statement in a better way.
B COMPANY | ||||||
Common Size Income Statement | ||||||
For the Year Ended December31, 2017, 2016 and 2015 | ||||||
| Common size percents | |||||
Particulars | 2017($) | 2016($) | 2015($) | 2017 | 2016 | 2015 |
Sales | 198,800 | 166,000 | 143,800 | 100 | 100 | 100 |
Cost of goods sold | 108,890 | 86,175 | 66,200 | 54.77 | 52 | 46.04 |
Gross profit | 89,910 | 79,825 | 77,600 | 45.23 | 48.1 | 54 |
Selling expenses | 22,680 | 19,790 | 18,000 | 11.41 | 12 | 12.52 |
Administrative expenses | 16,760 | 14,610 | 15,700 | 8.43 | 8.80 | 11 |
Total expenses | 39,440 | 34,400 | 33,700 | 19.84 | 20.8 | 23.52 |
Income before taxes | 50,470 | 45,425 | 43,900 | 25.39 | 27.3 | 30.48 |
Income taxes | 60,50 | 5,910 | 5,300 | 3.04 | 3.56 | 3.7 |
Net income | 44,420 | 39,515 | 38,600 | 22.34 | 23.80 | 26.84 |
Table (1) |
Hence, B Company has common size percents of net income 22.34%, 23.80% and 26.84% in the year of 2017, 2016 and 2015 respectively.
Working Notes:
Formula to calculate common size percent is:
2017
Calculation of common percent of sales,
Calculation of common percent of cost of goods sold,
Calculation of common percent of gross profit,
Calculation of common percent of selling expenses,
Calculation of common percent of administrative expenses,
Calculation of common percent of income taxes,
Calculation of common percent of net income,
2016
Calculation of common percent of sales,
Calculation of common percent of cost of goods sold,
Calculation of common percent of gross profit,
Calculation of common percent of selling expenses,
Calculation of common percent of administrative expenses,
Calculation of common percent of income taxes,
Calculation of common percent of net income,
2015
Calculation of common percent of sales,
Calculation of common percent of cost of goods sold,
Calculation of common percent of gross profit,
Calculation of common percent of selling expenses,
Calculation of common percent of administrative expenses,
Calculation of common percent of income taxes,
Calculation of common percent of net income,
3.
To compute: Trend percents of balance sheet items taking 2015 as base year.
3.
Explanation of Solution
Balance Sheet of B Company as mentioned below:
B Company | ||||
Balance Sheet | ||||
For the year ended December 31, 2017 and 2016 | ||||
| Trend Percents (%) | |||
Particular | 2017($) | 2016($) | 2017 | 2016 |
Assets |
| |||
Current assets | 54,860 | 32,660 | 151.13 | 90 |
Long-term investments | 0 | 17,00 | 0 | 16.04 |
Plant assets, net | 112,810 | 113,660 | 142.8 | 143.87 |
Total assets | 167,670 | 148,020 | 133.18 | 117.57 |
Liabilities and Equity |
| |||
Current liabilities | 22,370 | 19,180 | 135.58 | 116.24 |
Common stock | 46,500 | 46,500 | 125.68 | 125.68 |
Other paid- in capital | 13,850 | 13,850 | 122.57 | 122.57 |
| 84,950 | 68,490 | 139.03 | 112.09 |
Total liabilities and equity | 167,670 | 148,200 | 133.18 | 117.57 |
Table (2) |
Thus, total assets trend percent in 2017 is 133.18% and in 2016 is 117.57%
Working notes:
Formula to calculate trend percent is,
2017
Calculation of trend percent of current assets,
Calculation of trend percent of long term investments,
Calculation of trend percent of plant assets,
Calculation of trend percent of total assets,
Calculation of trend percent of current liabilities,
Calculation of trend percent of common stock,
Calculation of trend percent of other paid in capital,
Calculation of trend percent of retained earnings,
Calculation of trend percent of total liabilities and equity,
2016
Calculation of trend percent of current assets,
Calculation of trend percent of long term investments,
Calculation of trend percent of plant assets,
Calculation of trend percent of total assets,
Calculation of trend percent of current liabilities,
Calculation of trend percent of common stock,
Calculation of trend percent of other paid in capital,
Calculation of trend percent of retained earnings,
Calculation of trend percent of total liabilities and equity,
4.
To explain: Analyze computed ratios and percents.
4.
Explanation of Solution
- 2:1 is the ideal current ratio which a company should maintain. Near to ideal ratio of B Company is in the year of 2015 which is 2.2:1.
- On the basis of common size percents and trend percents there is an increasing element in the relative percent.
- B Company has common size percents of net income 22.34%, 23.80% and 26.84% in the year of 2017, 2016 and 2015 respectively. Total assets trend percent of the company in 2017 is 133.18% and in 2016 is 117.57% which shows increment of 15.61%
Thus, B Company’s trend percents show its efficiency in its operations.
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