Bob Cleary, the controller of Mountain-Pacific Railroad, has prepared the financial statements for 2014 and 2015, shown below and on the next page. The market prices of the company’s stock as of January 1, 2014, December 31, 2014, and December 31, 2015, were $50, $45, and $70 per share, respectively. Assume an income tax rate of 34 percent and assume that interest expense was incurred only on long-term debt (including the current maturities of long-term debt).

REQUIRED:
a. Prepare common-size balance sheets and income statements for 2014 and 2015 and analyze the results.

b. Which income statement account experienced the largest shift from 2014 to 2015? Did this shift appear to have any impact on the balance sheet? Explain.
c. What benefits do common-size financial statements provide over standard financialstatements?

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Balance Sheet Assets Current assets: 2015 2014 Cash Short-term marketable securities Accounts receivable Inventory Prepaid expenses $ 10,000 125,000 500,000 200,000 50,000 $ 885,000 225,000 430,000 (65,000) $1,475,000 $312,000 120,000 150,000 210,000 75,000 $ 867,000 225,000 540,000 (100,000) $1,532,000 Total current assets Long-term investments Property, plant, and equipment Less: Accumulated depreciation Total assets Liabilities and Shareholders' Equity Current liabilities: $ 10,000 5,000 125,000 50,000 100,000 S 290,000 350,000 200,000 135,000 500,000 $1,475,000 Accounts payable Wages payable Dividends payable Income taxes payable Curent portion of long-term debt $ 50,000 2,000 5,000 35,000 175,000 $ 267,000 450,000 110,000 95,000 610,000 $1,532,000 Total current liabilities Mortgage payable Common stock ($10 par value) Additional paid-in capital Retained earnings Total liabilities and shareholders' equity Income Statement 2015 2014 Revenue: $1,955,000 4,150,000 Net cash sales $2,775,000 1,410,000 Net credit sales Total revenue $6,105,000 $4,185,000 Cost of goods sold Beginning inventory Net purchases Cost of goods available for sale Less: Ending inventory $210,000 4,005,000 $4,215,000 200,000 300,000 2,475,000 $2,775,000 210,000 2,565,000 $1,620,000 Cost of goods sold 4,015,000 $2,090,000 Gross profit Selling and administrative expenses $ 75,000 575,000 $90,000 Depreciation expense General selling expenses General administrative expenses 600,00 Net operating income Interest expense Net income from continuing operations 480,000 1130,000 420,000 1,110,000 $ 510,000 65,000 $960,000 50,000 before taxes Income taxes Net income before unusual items Unusual loss-net of tax benefit $910,000 310,000 $600,000 S 445,000 151,000 S 294,000 of $60,000 115,000 $ 485,000 Net income S 294,000 Statement of Retained Earnings Beginning retained earnings balance Plus: Net income Less: Dividends Ending retained earnings balance 2012 2011 $610,000 485,000 (595,000) S 500,000 326,000 294,000 (10,000) $610,000