Chapter 7, Problem 2AA

To determine

Concept introduction:

Financial Statements:

Financial statements refer to the annual written records of the organization, which show financial affairs of the organization. In other words, we can say that annual statements that are prepared to measure the financial progress of the organization are known as financial statements.

Requirement 1:

The amount of sales and selling, general and administrative expenses for the fiscal year 2017 and 2016.

Answer to Problem 2AA

For company A;

	Fiscal year 2017	Fiscal year 2016
Sales	$229234 millions	$215639 millions
Selling, general and administrative expenses	$15261 millions	$14194 millions

For company B;

	Fiscal year 2017	Fiscal year 2016
Sales	$110855 millions	$90272 millions
Selling, general and administrative expenses	$19765 millions	$17470 millions

Explanation of Solution

Amount of sales a, general and administrative expenses for the fiscal year 2017 and fiscal year 2016 can be known with the help of consolidated statement of operations or consolidated statements of income. So, let’s check these statements of both companies.

For company A;

	Fiscal year 2017	Fiscal year 2016
Sales	$229234 millions	$215639 millions
Selling, general and administrative expenses	$15261 millions	$14194 millions

For company B;

	Fiscal year 2017	Fiscal year 2016
Sales	$110855 millions	$90272 millions
Selling, general and administrative expenses	$19765 millions	$17470 millions

To determine

Concept introduction:

Financial Statements:

Financial statements refer to the annual written records of the organization, which show financial affairs of the organization. In other words, we can say that annual statements that are prepared to measure the financial progress of the organization are known as financial statements.

Requirement 2:

Ratio of total sale expenses and general & administrative expenses to sales for the fiscal year 2017 and 2016

Answer to Problem 2AA

For company A;

	Fiscal year 2017	Fiscal year 2016
Ratio of total sale expenses and general & administrative expenses to sales	6.66%	6.58%

For company B;

	Fiscal year 2017	Fiscal year 2016
Ratio of total selling expenses and general & administrative expenses to sales	17.83%	19.35%

Explanation of Solution

$\begin{array}{l}\text{Ratio of total selling selling expenses and general \& administartive expenses to sales = }\\ \frac{\text{Total selling selling expenses and general \& administartive expenses}}{\text{Sales}}\text{ X 100}\\ \text{For company A;}\\ \text{For fiscal year 2017;}\\ \text{Total selling selling expenses and general \& administartive expenses = \$15261 millions}\\ \text{Sales = \$229234 millios}\\ \text{Now, let's put the values in above given formula;}\\ \text{Ratio of total selling selling expenses and general \& administartive expenses to sales}=\\ \frac{\text{\$15261}}{\text{\$229234}}\text{ X 100}\\ \text{= 6}\text{.66\%}\\ \text{For fiscal year 2016;}\\ \text{Total selling selling expenses and general \& administartive expenses = \$14194 millions}\\ \text{Sales = \$215639 millios}\\ \text{Now, let's put the values in above given formula;}\\ \text{Ratio of total selling selling expenses and general \& administartive expenses to sales}=\\ \frac{\text{\$14194}}{\text{\$215639}}\text{ X 100}\\ \text{= 6}\text{.58\%}\end{array}$

$\begin{array}{l}\text{For company B;}\\ \text{For fiscal year 2017;}\\ \text{Total selling selling expenses and general \& administartive expenses = \$19765 millions}\\ \text{Sales = \$110855 millios}\\ \text{Now, let's put the values in above given formula;}\\ \text{Ratio of total selling selling expenses and general \& administartive expenses to sales}=\\ \frac{\text{\$19765}}{\text{\$110855}}\text{ X 100}\\ \text{= 17}\text{.83\%}\\ \text{For fiscal year 2016;}\\ \text{Total selling selling expenses and general \& administartive expenses = \$17470 millions}\\ \text{Sales = \$90272 millios}\\ \text{Now, let's put the values in above given formula;}\\ \text{Ratio of total selling selling expenses and general \& administartive expenses to sales}=\\ \frac{\text{\$17470}}{\text{\$90272}}\text{ X 100}\\ \text{= 19}\text{.35\%}\end{array}$

To determine

Concept introduction:

Financial Statements:

Financial statements refer to the annual written records of the organization, which show financial affairs of the organization. In other words we can say that annual statements that are prepared to measure the financial progress of the organization are known as financial statements.

Requirement 3:

To explain:

The company spends more on selling, general and administrative expenses.

Answer to Problem 2AA

Company B, spends more on selling, general and administrative expenses as a percent of sales.

Explanation of Solution

For knowing which company spends more on selling, general and administrative expenses as a percent of sales? Let’s calculate ratio of total selling and general & administrative expenses to sales;

$\begin{array}{l}\text{Ratio of total selling selling expenses and general \& administartive expenses to sales = }\\ \text{For company A;}\\ \text{For fiscal year 2017;}\\ \text{Ratio of total selling selling expenses and general \& administartive expenses to sales}=\\ \frac{\text{\$15261}}{\text{\$229234}}\text{ X 100}\\ \text{= 6}\text{.66\%}\\ \text{For fiscal year 2016;}\\ \text{Ratio of total selling selling expenses and general \& administartive expenses to sales}=\\ \frac{\text{\$14194}}{\text{\$215639}}\text{ X 100}\\ \text{= 6}\text{.58\%}\end{array}$

$\begin{array}{l}\text{For company B;}\\ \text{For fiscal year 2017;}\\ \text{Ratio of total selling selling expenses and general \& administartive expenses to sales}=\\ \frac{\text{\$19765}}{\text{\$110855}}\text{ X 100}\\ \text{= 17}\text{.83\%}\\ \text{For fiscal year 2016;}\\ \text{Ratio of total selling selling expenses and general \& administartive expenses to sales}=\\ \frac{\text{\$17470}}{\text{\$90272}}\text{ X 100}\\ \text{= 19}\text{.35\%}\end{array}$

Hence, it is clear that company B, spends more on selling, general and administrative expenses as a percent of sales because this company hahigher ratio in 2017 and 2016.