Chapter 17, Problem 6E

Requirement-1

To determine

To Calculate:

The Common Size percentages for the given balance sheets

The Common Size percentages for the given balance sheets are as follows:

Simon Company
Common Size Balance Sheet
	Current Year (%)	1 Year ago (%)	2 Years ago (%)
ASSETS:
Cash	6.1%	8.0%	10.0%
Accounts Receivable, net	17.1%	14.0%	13.3%
Merchandise Inventory	21.5%	18.5%	14.3%
Prepaid Expenses	2.0%	2.1%	1.3%
Plant assets, net	53.3%	57.3%	61.1%
TOTAL ASSETS	100.0%	100.0%	100.0%
LIABILITIES AND EQUITY:
Accounts Payable	24.8%	16.9%	13.6%
Long Term Notes Payable	18.8%	22.8%	22.1%
Common Stock, $78 par value	31.3%	36.7%	43.3%
Retained Earnings	25.1%	23.5%	21.0%
TOTAL LIABILITIES AND EQUITY	100.0%	100.0%	100.0%

The Common Size percentages for the given balance sheets are calculated as follows:

Simon Company
Common Size Balance Sheet
	Current Year ($)	Current Year (%)	1 Year ago ($)	1 Year ago (%)	2 Years ago ($)	2 Years ago (%)
	A	B = A / 523000	C	D = C/445000	C	D = C/377500
ASSETS:
Cash	31,800	6.1%	35,625	8.0%	37,800	10.0%
Accounts Receivable, net	89,500	17.1%	62,500	14.0%	50,200	13.3%
Merchandise Inventory	112,500	21.5%	82,500	18.5%	54,000	14.3%
Prepaid Expenses	10,700	2.0%	9,375	2.1%	5,000	1.3%
Plant assets, net	278,500	53.3%	255,000	57.3%	230,500	61.1%
TOTAL ASSETS	523,000	100.0%	445,000	100.0%	377,500	100.0%
LIABILITIES AND EQUITY:
Accounts Payable	129,900	24.8%	75,250	16.9%	51,250	13.6%
Long Term Notes Payable	98,500	18.8%	101,500	22.8%	83,500	22.1%
Common Stock, $78 par value	163,500	31.3%	163,500	36.7%	163,500	43.3%
Retained Earnings	131,100	25.1%	104,750	23.5%	79,250	21.0%
TOTAL LIABILITIES AND EQUITY	523,000	100.0%	445,000	100.0%	377,500	100.0%

Concept Introduction:

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.

Answer to Problem 6E

The Common Size percentages for the given balance sheets are as follows:

Simon Company
Common Size Balance Sheet
	Current Year (%)	1 Year ago (%)	2 Years ago (%)
ASSETS:
Cash	6.1%	8.0%	10.0%
Accounts Receivable, net	17.1%	14.0%	13.3%
Merchandise Inventory	21.5%	18.5%	14.3%
Prepaid Expenses	2.0%	2.1%	1.3%
Plant assets, net	53.3%	57.3%	61.1%
TOTAL ASSETS	100.0%	100.0%	100.0%
LIABILITIES AND EQUITY:
Accounts Payable	24.8%	16.9%	13.6%
Long Term Notes Payable	18.8%	22.8%	22.1%
Common Stock, $78 par value	31.3%	36.7%	43.3%
Retained Earnings	25.1%	23.5%	21.0%
TOTAL LIABILITIES AND EQUITY	100.0%	100.0%	100.0%

Explanation of Solution

The Common Size percentages for the given balance sheets are calculated as follows:

Simon Company
Common Size Balance Sheet
	Current Year ($)	Current Year (%)	1 Year ago ($)	1 Year ago (%)	2 Years ago ($)	2 Years ago (%)
	A	B = A / 523000	C	D = C/445000	C	D = C/377500
ASSETS:
Cash	31,800	6.1%	35,625	8.0%	37,800	10.0%
Accounts Receivable, net	89,500	17.1%	62,500	14.0%	50,200	13.3%
Merchandise Inventory	112,500	21.5%	82,500	18.5%	54,000	14.3%
Prepaid Expenses	10,700	2.0%	9,375	2.1%	5,000	1.3%
Plant assets, net	278,500	53.3%	255,000	57.3%	230,500	61.1%
TOTAL ASSETS	523,000	100.0%	445,000	100.0%	377,500	100.0%
LIABILITIES AND EQUITY:
Accounts Payable	129,900	24.8%	75,250	16.9%	51,250	13.6%
Long Term Notes Payable	98,500	18.8%	101,500	22.8%	83,500	22.1%
Common Stock, $78 par value	163,500	31.3%	163,500	36.7%	163,500	43.3%
Retained Earnings	131,100	25.1%	104,750	23.5%	79,250	21.0%
TOTAL LIABILITIES AND EQUITY	523,000	100.0%	445,000	100.0%	377,500	100.0%

Concept Introduction:

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 determine

To identify:

If the change in the Accounts Receivable is favorable and unfavorable

Answer to Problem 6E

The change in the Accounts Receivable is unfavorable.

Explanation of Solution

The Common Size percentages for the given balance sheets are as follows:

Simon Company
Common Size Balance Sheet
	Current Year (%)	1 Year ago (%)	2 Years ago (%)
ASSETS:
Cash	6.1%	8.0%	10.0%
Accounts Receivable, net	17.1%	14.0%	13.3%
Merchandise Inventory	21.5%	18.5%	14.3%
Prepaid Expenses	2.0%	2.1%	1.3%
Plant assets, net	53.3%	57.3%	61.1%
TOTAL ASSETS	100.0%	100.0%	100.0%
LIABILITIES AND EQUITY:
Accounts Payable	24.8%	16.9%	13.6%
Long Term Notes Payable	18.8%	22.8%	22.1%
Common Stock, $78 par value	31.3%	36.7%	43.3%
Retained Earnings	25.1%	23.5%	21.0%
TOTAL LIABILITIES AND EQUITY	100.0%	100.0%	100.0%

The Accounts receivables as % of total assets are showing an increasing trend over the years, hence the change in the Accounts Receivable is unfavorable.

Concept Introduction:

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-3

To determine

To identify:

If the change in the Merchandise Inventory as % of Total Assets is favorable and unfavorable

Answer to Problem 6E

The change in the Merchandise Inventory as % of Total Assets is unfavorable.

Explanation of Solution

The Common Size percentages for the given balance sheets are as follows:

Simon Company
Common Size Balance Sheet
	Current Year (%)	1 Year ago (%)	2 Years ago (%)
ASSETS:
Cash	6.1%	8.0%	10.0%
Accounts Receivable, net	17.1%	14.0%	13.3%
Merchandise Inventory	21.5%	18.5%	14.3%
Prepaid Expenses	2.0%	2.1%	1.3%
Plant assets, net	53.3%	57.3%	61.1%
TOTAL ASSETS	100.0%	100.0%	100.0%
LIABILITIES AND EQUITY:
Accounts Payable	24.8%	16.9%	13.6%
Long Term Notes Payable	18.8%	22.8%	22.1%
Common Stock, $78 par value	31.3%	36.7%	43.3%
Retained Earnings	25.1%	23.5%	21.0%
TOTAL LIABILITIES AND EQUITY	100.0%	100.0%	100.0%

The Merchandise Inventory as % of total assets are showing an increasing trend over the years, hence the change in the Merchandise inventory is unfavorable.