Connect Access Card For Fundamental Accounting Principles
24th Edition
ISBN: 9781260158526
Author: John J Wild
Publisher: McGraw-Hill Education
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Chapter 17, Problem 2APSA
To determine
Concept Introduction:
Financial Statement analysis is done using the components of financial statement. These components are
Current Ratio is measure of the company's ability to pay off its current liabilities using its current assets. It is calculated by dividing the total current assets by total current liabilities. The formula of the current ratio is as follows:
Requirement-1:
To Calculate:
The Current ratio for each year
Expert Solution
Answer to Problem 2APSA
The Current ratios for each year are as follows:
| 2019 | 2018 | 2017 | |
| Current Ratio | 2.3 | 1.9 | 2.5 |
Explanation of Solution
The Current ratios for each year are calculated as follows:
| 2019 | 2018 | 2017 | |
| Current Assets (A) | 52390 | 37924 | 51748 |
| Current Liabilities (B) | 22800 | 19960 | 20300 |
| Current Ratio (A/B) | 2.3 | 1.9 | 2.5 |
To determine
Concept Introduction:
Financial Statement analysis is done using the components of financial statement. These components are Balance sheet, Income statement, Statement of Cash flows etc. Annual report of a company contains financial statement of that year and previous year for comparison. If the company has subsidiaries or segments, the financial statement shall be consolidated for whole business of the company.
Common Size Financial Statement:
Common Size Analysis is prepared as % format which shows readymade analysis for the financial statements. For the Income statement the common size format shows all the amounts as a % of sales revenue and for the Balance sheet the common size format shows the each items of the balance sheet as a % of the Total assets amount.
Requirement-2:
To Calculate:
The Common Size Income Statement
Expert Solution
Answer to Problem 2APSA
The Common Size Income Statement is as follows:
| KORBIN COMPANY | |||
| Common Size income Statement | |||
| 2019 | 2018 | 2017 | |
| Sales | 100.00% | 100.00% | 100.00% |
| Cost of Goods Sold | 51.08% | 62.50% | 55.36% |
| Gross Profit | 48.92% | 37.50% | 44.64% |
| Selling Expenses | 18.54% | 13.80% | 18.27% |
| Administrative Expenses | 9.13% | 8.80% | 8.20% |
| Total Expenses | 27.67% | 22.60% | 26.47% |
| Income before Taxes | 21.25% | 14.90% | 18.17% |
| Income Taxes | 7.35% | 3.05% | 5.64% |
| Net Income | 13.90% | 11.85% | 12.53% |
Explanation of Solution
The Common Size Income Statement is calculated as follows:
| KORBIN COMPANY | ||||||
| Common Size income Statement | ||||||
| 2019 | 2018 | 2017 | ||||
| Sales | 555000 | 100.00% | 340000 | 100.00% | 278000 | 100.00% |
| Cost of Goods Sold | 283500 | 51.08% | 212500 | 62.50% | 153900 | 55.36% |
| Gross Profit | 271500 | 48.92% | 127500 | 37.50% | 124100 | 44.64% |
| Selling Expenses | 102900 | 18.54% | 46920 | 13.80% | 50800 | 18.27% |
| Administrative Expenses | 50668 | 9.13% | 29920 | 8.80% | 22800 | 8.20% |
| Total Expenses | 153568 | 27.67% | 76840 | 22.60% | 73600 | 26.47% |
| Income before Taxes | 117932 | 21.25% | 50660 | 14.90% | 50500 | 18.17% |
| Income Taxes | 40800 | 7.35% | 10370 | 3.05% | 15670 | 5.64% |
| Net Income | 77132 | 13.90% | 40290 | 11.85% | 34830 | 12.53% |
To determine
Concept Introduction:
Financial Statement analysis is done using the components of financial statement. These components are Balance sheet, Income statement, Statement of Cash flows etc. Annual report of a company contains financial statement of that year and previous year for comparison. If the company has subsidiaries or segments, the financial statement shall be consolidated for whole business of the company.
Requirement-3:
To Calculate:
The Trend analysis for the balance sheet items
Expert Solution
Answer to Problem 2APSA
The Trend analysis for the balance sheet items is as follows:
| KORBIN COMPANY | |||
| Comparative Balance Sheets Trend analysis | |||
| 2019 | 2018 | 2017 | |
| Assets: | |||
| Current Assets | 52390 | 37924 | 51748 |
| Trend % | 101.24% | 73.29% | 100.00% |
| Long Term Investments | 0 | 500 | 3950 |
| Trend % | 0.00% | 12.66% | 100.00% |
| Plant assets, net | 100000 | 96000 | 60000 |
| Trend % | 166.67% | 160.00% | 100.00% |
| Total Assets | 152390 | 134424 | 115698 |
| Trend % | 131.71% | 116.19% | 100.00% |
| Liabilities and Equity: | |||
| Current Liabilities | 22800 | 19960 | 20300 |
| Trend % | 112.32% | 98.33% | 100.00% |
| Common Stock | 72000 | 72000 | 60000 |
| Trend % | 120.00% | 120.00% | 100.00% |
| Other paid in capital | 9000 | 9000 | 6000 |
| Trend % | 150.00% | 150.00% | 100.00% |
| 48590 | 33464 | 29398 | |
| Trend % | 165.28% | 113.83% | 100.00% |
| Total Liabilities and Equity | 152390 | 134424 | 115698 |
| Trend % | 131.71% | 116.19% | 100.00% |
Explanation of Solution
The Trend analysis for the balance sheet items is calculated as follows:
| KORBIN COMPANY | |||
| Comparative Balance Sheets Trend analysis | |||
| 2019 | 2018 | 2017 | |
| Assets: | |||
| Current Assets (A) | 52390 | 37924 | 51748 |
| Trend % = A / 51748 | 101.24% | 73.29% | 100.00% |
| Long Term Investments (B) | 0 | 500 | 3950 |
| Trend % = B / 3950 | 0.00% | 12.66% | 100.00% |
| Plant assets, net (C) | 100000 | 96000 | 60000 |
| Trend % = C / 60000 | 166.67% | 160.00% | 100.00% |
| Total Assets (D) | 152390 | 134424 | 115698 |
| Trend % = D / 115698 | 131.71% | 116.19% | 100.00% |
| Liabilities and Equity: | |||
| Current Liabilities (E) | 22800 | 19960 | 20300 |
| Trend % = E / 20300 | 112.32% | 98.33% | 100.00% |
| Common Stock (F) | 72000 | 72000 | 60000 |
| Trend % = F / 60000 | 120.00% | 120.00% | 100.00% |
| Other paid in capital (G) | 9000 | 9000 | 6000 |
| Trend % = G / 6000 | 150.00% | 150.00% | 100.00% |
| Retained Earnings (H) | 48590 | 33464 | 29398 |
| Trend % = H / 29398 | 165.28% | 113.83% | 100.00% |
| Total Liabilities and Equity (I) | 152390 | 134424 | 115698 |
| Trend % = I / 115698 | 131.71% | 116.19% | 100.00% |
To determine
Concept Introduction:
Financial Statement analysis is done using the components of financial statement. These components are Balance sheet, Income statement, Statement of Cash flows etc. Annual report of a company contains financial statement of that year and previous year for comparison. If the company has subsidiaries or segments, the financial statement shall be consolidated for whole business of the company.
Requirement-4:
To Indicate:
- If cost of goods sold make up greater portion of the sales for most of the years
- If income as % of sales improves in the most recent year
- If plant assets grew in the last years
Expert Solution
Answer to Problem 2APSA
- The cost of goods sold made up greater portion (>50%) of the sales for most of the years
- The income as % of sales has improved in the year 2017
- Plant assets grew in the last years over 167%
Explanation of Solution
The Common Size Income Statement is as follows:
| KORBIN COMPANY | |||
| Common Size income Statement | |||
| 2019 | 2018 | 2017 | |
| Sales | 100.00% | 100.00% | 100.00% |
| Cost of Goods Sold | 51.08% | 62.50% | 55.36% |
| Gross Profit | 48.92% | 37.50% | 44.64% |
| Selling Expenses | 18.54% | 13.80% | 18.27% |
| Administrative Expenses | 9.13% | 8.80% | 8.20% |
| Total Expenses | 27.67% | 22.60% | 26.47% |
| Income before Taxes | 21.25% | 14.90% | 18.17% |
| Income Taxes | 7.35% | 3.05% | 5.64% |
| Net Income | 13.90% | 11.85% | 12.53% |
The Trend analysis for the balance sheet items is calculated as follows:
| KORBIN COMPANY | |||
| Comparative Balance Sheets Trend analysis | |||
| 2019 | 2018 | 2017 | |
| Assets: | |||
| Current Assets (A) | 52390 | 37924 | 51748 |
| Trend % = A / 51748 | 101.24% | 73.29% | 100.00% |
| Long Term Investments (B) | 0 | 500 | 3950 |
| Trend % = B / 3950 | 0.00% | 12.66% | 100.00% |
| Plant assets, net (C) | 100000 | 96000 | 60000 |
| Trend % = C / 60000 | 166.67% | 160.00% | 100.00% |
| Total Assets (D) | 152390 | 134424 | 115698 |
| Trend % = D / 115698 | 131.71% | 116.19% | 100.00% |
| Liabilities and Equity: | |||
| Current Liabilities (E) | 22800 | 19960 | 20300 |
| Trend % = E / 20300 | 112.32% | 98.33% | 100.00% |
| Common Stock (F) | 72000 | 72000 | 60000 |
| Trend % = F / 60000 | 120.00% | 120.00% | 100.00% |
| Other paid in capital (G) | 9000 | 9000 | 6000 |
| Trend % = G / 6000 | 150.00% | 150.00% | 100.00% |
| Retained Earnings (H) | 48590 | 33464 | 29398 |
| Trend % = H / 29398 | 165.28% | 113.83% | 100.00% |
| Total Liabilities and Equity (I) | 152390 | 134424 | 115698 |
| Trend % = I / 115698 | 131.71% | 116.19% | 100.00% |
Hence,
- The cost of goods sold made up greater portion (>50%) of the sales for most of the years
- The income as % of sales has improved in the year 2017
- Plant assets grew in the last years over 167%
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Chapter 17 Solutions
Connect Access Card For Fundamental Accounting Principles
Ch. 17 - Prob. 1DQCh. 17 - Prob. 2DQCh. 17 - Prob. 3DQCh. 17 - 4. What three factors would influence your...Ch. 17 - Prob. 5DQCh. 17 - Prob. 6DQCh. 17 - Prob. 7DQCh. 17 - Prob. 8DQCh. 17 - Prob. 9DQCh. 17 - Prob. 10DQ
Ch. 17 - What ratios would you compute to evaluate...Ch. 17 - Why would a company’s return on total assets be...Ch. 17 - 13. Where on the income statement does a company...Ch. 17 - Prob. 14DQCh. 17 - Prob. 15DQCh. 17 - Prob. 16DQCh. 17 - Prob. 17DQCh. 17 - Prob. 1QSCh. 17 - QS 17-2 Standard of comparison C2
Identify which...Ch. 17 - Prob. 3QSCh. 17 - Trend percents P1 Use the following information to...Ch. 17 - QS17-5 Common-size analysis P2
Refer to the...Ch. 17 - QS 17-6 Computing current ratio and acid-test...Ch. 17 - QS 17-7 Computing accounts receivable turnover and...Ch. 17 - QS 17-8 Computing inventory turnover and days'...Ch. 17 - QS17-9 Computing total asset turnover P3
Dundee...Ch. 17 - Prob. 10QSCh. 17 - Prob. 11QSCh. 17 - QS 17-12 Computing price-earnings ratio and...Ch. 17 - Prob. 13QSCh. 17 - Prob. 14QSCh. 17 - QS 17-15A Identifying unusual and/or infrequent...Ch. 17 - Exercise 17-1
Building blocks of analysis
Match...Ch. 17 - Prob. 2ECh. 17 - Prob. 3ECh. 17 - Prob. 4ECh. 17 - Prob. 5ECh. 17 - Prob. 6ECh. 17 - Prob. 7ECh. 17 - Prob. 8ECh. 17 - Prob. 9ECh. 17 - Prob. 10ECh. 17 - Exercise 17-11 Analyzing profitability P3 Q Refer...Ch. 17 - Prob. 12ECh. 17 - Prob. 13ECh. 17 - Prob. 14ECh. 17 - Prob. 15ECh. 17 - Exercise 17-16 Interpreting financial ratios A1 P3...Ch. 17 - Prob. 17ECh. 17 - Prob. 18ECh. 17 - Problem 17-1A Calculating and analyzing trend...Ch. 17 - Problem 17-2A Ratios, common-size statements, and...Ch. 17 - Problem 17-3A
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Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License