For several years, Anne Schippel has been the business banker for the company, Dry Supply. After reviewing the company balance sheet, she makes the following observations. Three major asset accounts are on the books of Dry Supply: accounts receivable, inventory, and fixed assets. the amount of accounts receivable and inventory are characteristic of a wholesaler.

Please Review the Dry Supply Income Statement Spread and Balance Sheet Spread on the next two pages and follow the instructions below:

INSTRUCTIONS:

For each of Anne Schippel's observations listed below, develop questions you would ask Dry Supply in order to complete your balance sheet analysis.

Observation 1: Accounts receivable have remained in the $114,000 to $118,000 range

Observation 2: Inventory decreased during the period, while sales and accounts receivable increased.

Observation 3: fixed assets increased from $130,000 On December 31, 20 xx, to $163,000 on December 31, 20xy

Observation 4: Accounts payable showed a larger decrease than inventory. Some of the decrease is to be expected because inventory usually is financed by trade creditors.

Observation 5: Loans to shareholders has grown from $48,000 on December 31, 20xx, to $67,000 on December 31, 20xy.

Observation 6: With regard to equity, what two questions immediately come to mind?

Balance Sheet Spread: DRY SUPPLY

Common-sized report

($ in $000S) Review 12/31/20xx Review 12/31/20xy Review 12/31/20xz

Assets	Amount	%	Amount	%	Amount	%
Cash	$3	1.2	$ 12	4.6	$ 22	8.1
Accounts Receivable	114	46.9	118	45.4	117	43.3
Less:Allowance for doubtful accounts	5	2.1	5	1.9	5	1.9
Net Accounts Receivable	109	44.9	113	43.5	112	41.5
Inventory	73	30	72	27.7	67	24.8
Total Current Assets	185	76.1	197	75.8	201	74.4
Furniture and fixtures	76	31.3	75	28.8	78	28.9
Leasehold Improvements	1	.4	1	.4	0	0.0
Transportation Equipment	53	218	70	26.9	85	31.5
Gross Fixed Assets	130	53.5	146	56.2	163	60.4
Less: Accum. Depreciation	85	35	97	37.3	110	40.7
Net Fixed Assets	45	18.5	49	18.8	53	19.6
Cash-Value Life Insurance	13	5.3	14	5.4	16	5.9
Total Assets	$243	100	$260	100	$270	100

Review 12/31/20xx Review 12/31/20xy Review 12/31/20xz

Liabilities	Amount	%	Amount	%	Amount	%
Notes Payable bank short- term	$81	33.3	$68	26.2	$59	21.8
Accounts payable-trade	42	17.3	46	17.7	31	11.5
Income taxes payable	5	2.1	6	2.3	7	2.6
Accrued bonuses	10	4.1	11	4.2	12	4.4
Total current liabilities	138	56.8	131	50.4	109	40.4
Subordinated debt officers	48	19.8	58	22.3	67	24.8
Total liabilities	186	76.5	189	72.7	176	65.2
Net Worth
Common stock	2	0.8	2	.8	2	.7
Retained earnings	55	22.6	69	26.5	92.	34.1
Total net worth	57	23.5	71	27.3	94	34.8
Total liabilities and net worth	243	100	260	100	270	100

Income Statement Spread: DRY SUPPLY

Review 20xx Review 20xy Review 20xz

	Amount	%	Amount	%	Amount	%
Net sales	895	100	937	100	918	100
Costs of goods sold	645	72.1	667	71.2	631	68.7
Gross profit	250	27.9	270	28.8	287	31.3
Selling, Gen. And admin. Expense	157	17.5	173	18.5	180	19.6
Officers compensation	36	4	31	3.3	28	3.1
Rent Expenses	15	1.7	18	1.9	20	2.2
Bad Debt Expense	2	.2	1	.1	0	0
Profit sharing expense	7	.8	7	.7	0	0
Depreciation Expense	12	1.3	12	1.3	13	1.4
Total operating expense	229	25.6	242	25.8	241	26.3
Operating income	21	2.3	28	3.	46	5
Other income	0	0	0	0	0	0
Interest income	2	.2	2	.2	2	.2
Rental income	3	.3	3	.3	3	.3
Interest expense	6	.7	7	.7	11	1.2
Net profit before tax	20	2.2	26	2.8	40	4.4
Taxes	11	1.2	12	1.3	17	1.9
Net profit after tax	9	1	14	1.5	23	2.5