E14-13 Horizontal analysis-income statement Data for Verifine Designs, Inc. follow: Verifine Designs INC- Comparative Income Statement -Years ended December 31, 2011 and 2010 2011 2010 Net sales revenue $428,950 $371,000 Expenses: Cost of goods sold $203,850 $189,350 Selling and general expenses 99,350 93,000 Other expense 6,750 5,000 Total expenses 309,950 287,350 Cash and cash equivalents $119,000 $83,650 Requirements: 1. Prepare a horizontal analysis of the comparative income statement of Verifine Designs Ince. Round percentage changes to the nearest one-tenth percent (three decimal places) 2. Why did 2011 net income increase by a higher percentage than net sales revenue? E14-15 Vertical analysis of a balance sheet- Eta Graphics has the following data: Eta Graphics Inc.- Balance sheet- December 31,2010 Assets Total currents assets $41,870 Property,plant and equipment, net 206,870 Other assets 34,870 Total assets $283,610 Liabilities Total current liabilities $47,870 Long term debt 107,870 Total liabilities 155,740 Stockholder?s Equity Total stockholders equity 127,870 Total liabilities and stockholders equity $283,610 Requirement: 1. Perform a vertical analysis of Eta?s balance sheet. P14-23A Common size statements, analysis of profitability and financial position and comparison with the industry The Russell Department s Stores, Inc. chief executive officer has asked you to compare the company?s profit performance and financial position with the average for the industry. The CEO has given you the company?s income statement and balance sheet as well as the industry average data for retailers. Russell Department Stores Inc. Income Statement compared with Industry Average ?Year ended December 31, 2010 Russell Industry Average Net Sales $777,000 100.0% Cost of goods sold 523,698 65.8 Gross Profit 253,302 34.2 Operating expenses 162,393 19.7 Operating income 90,909 14.5 Other expenses 7,770 0.4 Net Income $83,139 14.1% Russell Department Stores Inc. Balance Sheet compared with Industry Average ?December 31, 2010 Russell Industry Average Current Assets $3330,750 70.9% Fixed Assets, net 123,480 23.6 Intangible assets, net 9,800 0.8 Other assets 25,970 4.7 Total assets $490,000 100.0% Current liabilities $227,360 48.1% Long term liabilities 111,720 16.6 Stockholders equity 150,920 35.3 Total Liabilites $490,000 100.0% Requirements: 1. Prepare a common-size income statement and balance sheet for Russell. The first column of each statement should present Russell?s common-size statement and the second column, the industry averages. 2. For the profitability analysis, compute Russell?s (a) ration of gross profit to net sales, (b0 ration of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is Russells profit performance better or worse than the industry average? 3. For the analysis of financial position, compute Russells (a) ration of current assets to total assets and (b)ratio of stockholders equity to total assets. Compare these ratios with the industry averages. Is Russells financial position better or worse than the industry averages?

E1413 (10-15 min) Req. 1 Verifine Designs, Inc. Income Statement Years Ended December 31, 2011 and 2010 Net sales revenue Expenses: Cost of goods sold Selling and general expenses Other expense Total expenses Net income Req. 2 2011 $428,950 2010 $371,000 $203,850 99,350 6,750 309,950 $119,000 $189,350 93,000 5,000 287,350 $83,650 Increase (Decrease) Amount Percent % % % % % % E1415 (10-15 min) Eta Designs, Inc. Balance Sheet December 31, 2010 Amount Percent Assets Total current assets Property, plant, and equipment, net Other assets Total assets $41,870 206,870 34,870 $283,610 % $47,870 107,870 155,740 % % Liabilities Total current liabilities Long-term debt Total liabilities Stockholders' Equity Total stockholders' equity Total liabilities and stockholders' equity 127,870 $283,610 % P14-23A (20-30 min) Req. 1 Russell Department Stores, Inc. Common-Size Income Statement Compared to Industry Average Year Ended December 31, 2010 Russell (%) Net sales Cost of goods sold Gross profit Operating expenses Operating income Other expenses Net income Industry Average (%) 100.0 65.8 34.2 19.7 14.5 0.4 14.1 Russell Department Stores, Inc. Common-Size Balance Sheet Compared with Industry Average December 31, 2010 Russell (%) Current assets Fixed assets, net Intangible assets, net Other assets Total assets Current liabilities Long term liabilities Stockholders' equity Total liabilitites and stockholders' liabilities Req. 2 Req. 3 Industry Average (%) 70.9 23.6 0.8 4.7 100.0 48.1 16.6 35.3 100.0