Common-Size Balance Sheets and Horizontal Analysis Comparative balance sheets for Farinet Company for the past two years are as follows:

Required 1. Using the format in Exhibit 13-5, prepare common-size comparative balance sheets for the two years for Farinet Company.
2. What observations can you make about changes in the relative composition of Farinet’s accounts from the common-size balance sheets? List at least five observations.
3. Using the format in Exhibit 13-1, prepare comparative balance sheets for Farinet Company, including columns for the dollars and for the percentage increase or decrease in each item on the statement.
4. Identify the five items on the balance sheet that experienced the largest change from one year to the next. For each of these items, explain where you would look to find additional information about the change.

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December 31 2008 2007 Cash Accounts receivable Inventory $ 16,000 $ 20,000 40,000 30,000 30,000 50,000 Prepaid rent 18,000 12,000 Total current assets $104,000 $112,000 Land $150,000 $150,000 Plant and equipment 800,000 600,000 Accumulated depreciation (130,000) (60,000) Total long-term assets $820,000 $690,000 Total assets $924,000 $802,000 Accounts payable Income taxes payable Short-term notes payable $ 24,000 6,000 $ 20,000 10,000 70,000 50,000 Total current liabilities $100,000 $ 80,000 Bonds payable $150,000 $200,000 Common stock $400,000 $300,000 Retained earnings 274,000 222,000 Total stockholders' equity $674,000 $522,000 Total liabilities and stockholders' equity $924,000 $802,000