1)
Complete the comparing across time analysis of Company S’s comparative financial statement.
1)

Explanation of Solution
Comparison of across time analysis of financial statements: In this method of analysis of financial statements, the amount of each current year item of the financial statement is compared with the previous year amount. The amount of each item increased or decreased in the current financial statements, and its respective percentage can be computed by taking the earlier statement as the base.
Comparing across time analysis of financial statements of Corporation S:
Corporation S | ||||
Comparative Income Statement | ||||
Year Ended Year 2 | ||||
Particulars | Year 2 | Year 1 | Increase (decrease) | |
Amount (A) | Amount (B) |
Amount (C) |
Percent (D) | |
Sales revenue | $ 453,000 | $ 447,000 | $6,000 | 1.34% |
Cost of goods sold | ($ 250,000) | ($ 241,000) | ($9,000) | 3.73% |
Gross profit | $ 203,000 | $ 206,000 | ($3,000) | -1.46% |
Operating expenses (Including interest on bonds) | ($ 167,000) | ($ 168,000) | ($1,000) | -0.60% |
Pre-tax Income | $ 36,000 | $ 38,000 | ($2,000) | -5.26% |
Income tax expense | ($ 10,800) | ($ 11,400) | ($600) | -5.26% |
Net income | $ 25,200 | $ 26,600 | ($1,400) | -5.26% |
Table (1)
Corporation S | ||||
Comparative | ||||
As on Year 2 | ||||
Particulars | Year 2 | Year 1 | Increase (decrease) | |
Amount (A) | Amount (B) |
Amount (C) |
Percent (D) | |
Cash | $ 6,800 | $ 3,900 | $2,900 | 74.36% |
$ 42,000 | $ 29,000 | $13,000 | 44.83% | |
Merchandise Inventory | $ 25,000 | $ 18,000 | $7,000 | 38.89% |
Prepaid expenses | $ 200 | $ 100 | $100 | 100.00% |
Property and equipment (net) | $ 130,000 | $ 120,000 | $10,000 | 8.33% |
Total assets | $ 204,000 | $ 171,000 | $33,000 | 19.30% |
Accounts payable | $ 17,000 | $ 18,000 | ($1,000) | -5.56% |
Income taxes payable | $ 1,000 | $ 1,000 | $0 | 0.00% |
Bonds payable (Interest rate: 10%) | $ 70,000 | $ 50,000 | $20,000 | 40.00% |
Common stock($10 par value) | $ 100,000 | $ 100,000 | $0 | 0.00% |
$ 16,000 | $ 2,000 | $14,000 | 700.00% | |
Total liabilities and equity | $ 204,000 | $ 171,000 | $33,000 | 19.30% |
Table (2)
2)
Determine the amount of
2)

Explanation of Solution
Current ratio: Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1.
Current ratio for Year 2:
Current ratio for Year 1:
The current ratio is increased by 1.43
Note: Current assets include Cash, Accounts receivable (net), Merchandise inventory and prepaid expenses. Current liabilities include Accounts payable and Income taxes payable.
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