E14-1 Prepare horizontal analysis
Financial information for Kurzen Inc. is presented below.
December 31, 2017 December 31, 2016
Current assets $125,000 $100,000
Plant assets (net) 396,000 330,000
Current liabilities 91,000 70,000
Long-term liabilities 133,000 95,000
Common Stock, $1 par 161,000 115,000
Retained earnings 136,000 150,000
Instructions
Prepare a schedule showing a horizontal analysis for 2017 using 2016 as the base year.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
2017 2016 Amount Percentage
Assets
Current assets Value Value ? ?
Plant assets (net) Value Value ? ?
Total assets ? ? ? ?
Liabilities
Current liabilities Value Value ? ?
Long-term liabilities Value Value ? ?
Total liabilities ? ? ? ?
Stockholders’ Equity
Common stock, $1 par Value Value ? ?
Retained earnings Value Value ? ?
Total stockholders’ equity ? ? ? ?
Total liabilities and stockholders’ equity ? ? ? ?
After you have completed E14-1 consider the additional question.
1. Assume that Plant assets and long-term liabilities changed in 2017 to $415,000 and $152,000 respectively
Show impact on the horizontal analysis for 2017.
Increase or (Decrease)
KURZEN INC.
Condensed Balance Sheets
December 31
E14-1 Solution
2017 2016 Amount Percentage
Assets
Current assets $125,000 $100,000 $25,000 25.0%
Liabilities
Current liabilities $91,000 $70,000 $21,000 30.0%
Long-term liabilities 133,000 95,000 $38,000 40.0%
KURZEN INC.
Condensed Balance Sheets
December 31
Increase or (Decrease)
Percentage
KURZEN INC.
Condensed Balance Sheets
December 31
Increase or (Decrease)
E14-2 Prepare vertical analysis
Operating data for Navarro Corporation are presented below.
2017 2016
Net sales $750,000 $600,000
Cost of goods sold 465,000 390,000
Selling expenses 105,000 66,000
Administrative expenses 60,000 54,000
Income tax expense 36,000 27,000
Net income 84,000 63,000
Instructions
Prepare a schedule showing a vertical analysis for 2017 and 2016.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
Amount Percent Amount Percent
Net Sales Value ? Value ?
Cost of goods sold Value ? Value ?
Gross Profit ? ? ? ?
Selling expenses Value ? Value ?
Administrative expenses Value ? Value ?
Total operating expenses ? ? ? ?
Income before income taxes Value ? Value ?
Income tax expense Value ? Value ?
Net income ? ? ? ?
After you have completed E14-2, consider the additional question.
1. Assume that 2017 net sales changed to $735,000. Show the impact of this change on
the vertical analysis for 2017.
2017
2016
NAVARRO CORPORATION
Condensed Income Statements
For the Years Ended December 31
14-2 Solution
Amount Percent Amount Percent
Net Sales $750,000 100.0% $600,000 100.0%
Cost of goods sold
465,000 62.0% 390,000 65.0%
Gross Profit 285,000 38.0% 210,000 35.0%
NAVARRO CORPORATION
Condensed Income Statements
For the Years Ended December 31
2017
2016
E14-2 Solution to additional question
1. Assume that 2017 net sales changed to $735,000. Show the impact of this change on
the vertical analysis for 2017.
Amount Percent Amount Percent
Net Sales $735,000 100.0% $600,000 100.0%
Cost of goods sold
465,000 63.3% 390,000 65.0%
Gross Profit 270,000 36.7% 210,000 35.0%
NAVARRO CORPORATION
Condensed Income Statements
For the Years Ended December 31
2017
2016
P14-3 Perform ratio analysis and evaluate financial position and operating results
Condensed balance sheet and income statement data for Landwehr Corporation appear
below and on page 644.
2018 2017 2016
Cash 25,000 20,000 18,000
Accounts receivable (net) 50,000 45,000 48,000
Other current assets 90,000 95,000 64,000
Investments 75,000 70,000 45,000
Plant and equipment (net) 400,000 370,000 358,000
640,000 600,000 533,000
Current liabilities 75,000 80,000 70,000
Long-term debt 80,000 85,000 50,000
Common stock, $10 par 340,000 310,000 300,000
Retained earnings 145,000 125,000 113,000
640,000 600,000 533,000
2018 2017
Sales revenue $740,000 $700,000
Less: Sales returns and allowances 40,000 50,000
Net sales 700,000 650,000
Cost of goods sold 420,000 400,000
Gross profit 280,000 250,000
Operating expenses (including income taxes) 235,000 220,000
Net income $45,000 $30,000
Additional information:
1. The market price of Landwehr’s common stock was $4.00, $5.00, and $8.00 for
2016, 2017 and 2018, respectively.
2. All dividends are paid in cash.
Instructions
(a) Compute the following ratios for 2017 and 2018.
(1) Profit margin.
(2) Asset turnover.
(3) Earnings per share (Weighted-average common shares in 2018 were 32,000 and
in 2017 were 31,000.)
(4) Price-earnings ratio.
(5) Payout ratio.
(6) Debt to assets ratio.
(b) Based on the ratios calculated, discuss briefly the improvement or lack thereof in
financial position and operating results from 2017 to 2018 of Landwehr Corporation.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a)
Profit margin: Profit margin:
Net income Value Net income Value
Net sales Value Net sales Value
Asset turnover: Asset turnover:
Net sales Value Net sales Value
Average total assets Value Average total assets Value
Earnings per share: Earnings per share:
Net income – Pfd. Dividends Value Net income – Pfd. Dividends Value
Weighted average common shares outstanding
Value Weighted average common shares outstanding Value
Price-earnings ratio: Price-earnings ratio:
Market price per share Value Market price per share Value
Earnings per share Value Earnings per share Value
Payout ratio: Payout ratio:
Cash dividends declared on common Value Cash dividends declared on common Value
Net income Value Net income Value
Debt to assets ratio: Debt to assets ratio:
Total liabilities Value Total liabilities Value
Total assets Value Total assets Value
2018
2017
LANDWEHR CORPORATION
Balance Sheets
December 31
LANDWEHR CORPORATION
Income Statement
For the Years Ended December 31
(b) Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results
from 2017 to 2018 of Landwehr Corporation.
After you have completed P14-3, consider the additional question.
1. Assume that that the net income for 2017 and the weighted average common shares outstanding changed to $38,000 and 31,500 respectively.
Also assume that 2018 net sales and total liabilities also changed to $680,000 and $160,000 respectively. Show the impact of these changes on
the ratios for 2017 and 2018.
Response
P14-3 Solution
(a) Profit margin: Profit margin:
Net income $30,000 4.6% Net income $45,000 6.4%
Net sales $650,000 Net sales $700,000
Earnings per share: Earnings per share:
Net income – Pfd. Dividends $30,000 $0.97 Net income – Pfd. Dividends $45,000 $1.41
Weighted average common shares outstanding 31,000 Weighted average common shares outstanding 32,000
Price-earnings ratio: Price-earnings ratio:
Market price per share $5.00 5.2 Market price per share $8.00 5.7 times
Earnings per share $0.97 times Earnings per share $1.41
(b) Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results
from 2017 to 2018 of Landwehr Corporation.
2017
2018
The underlying profitability of the corporation appears to have improved. For example, profit margin and earnings per share have both
P14-3 Solution to additional question
1. Assume that that the net income for 2017 and the weighted average common shares outstanding changed to $38,000 and 31,500 respectively.
Also assume that 2018 net sales and total liabilities also changed to $680,000 and $160,000 respectively. Show the impact of these changes on
the ratios for 2017 and 2018.
(a) Profit margin: Profit margin:
Earnings per share: Earnings per share:
Net income – Pfd. Dividends $38,000 $1.21 Net income – Pfd. Dividends $45,000 $1.41
Weighted average common shares outstanding 31,500 Weighted average common shares outstanding 32,000
2017
2018
P14-9 Prepare a statement of comprehensive income
The ledger of Jaime Corporation at December 31, 2017, contains the following summary data.
Net sales $1,700,000 Cost of goods sold $1,100,000
Selling expenses 120,000 Administrative expenses 150,000
Other revenues and gains
20,000 Other expenses and losses 28,000
Your analysis reveals the following additional information that is not included in the above data.
1. The entire Puzzles Division was discontinued on August 31. The income from operations for
this division before income taxes was $20,000. The Puzzles Division was sold at a loss of
$90,000 before income taxes.
2. The company had an unrealized gain on available-for-sale securities of $120,000 before
income taxes for the year.
3. The income tax rate on all items is 25%.
Instructions
Prepare a statement of comprehensive income for the year ended December 31, 2017.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
Net sales Value
Cost of goods sold Value
Gross Profit ?
Selling and administrative expenses Value
Income from operations ?
Other revenues and gains Value
Other expenses and losses Value ?
Income before income taxes ?
Income tax expense ?
Income from continuing operations ?
Discontinued operations
Income from operations of discontinued
division, net of $5,000 income taxes ?
Loss from disposal of discontinued
division, net of $22,500 tax savings ? ?
Net income ?
Unrealized gain on available for sale securities,
net of $30,000 income tax
income taxes ?
Comprehensive income ?
After you have completed P14-9, consider the additional question.
1. Assume that the Puzzles Division loss from sale of the division changed to $75,000
and the unrealized gain on available for sale securities also changed to $100,000. Show the
impact of these changes on the statement of comprehensive income.
JAIME CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2017
P14-9 Solution
Net sales $1,700,000
Cost of goods sold
1,100,000
Gross Profit 600,000
Discontinued operations
Income from operations of discontinued
division, net of $5,000 income taxes 15,000
Loss from disposal of discontinued
JAIME CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2017
P14-9 Solution to additional question
1. Assume that the Puzzles Division loss from sale of the division changed to $75,000
and the unrealized gain on available for sale securities also changed to $100,000. Show the
impact of these changes on the statement of comprehensive income.
Net sales $1,700,000
Cost of goods sold
1,100,000
Other expenses and losses 28,000 8,000
Income before income taxes
322,000
Income tax expense 80,500
Income from continuing operations 241,500
Discontinued operations
Income from operations of discontinued
division, net of $5,000 income taxes 15,000
Loss from disposal of discontinued
JAIME CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2017