From Book: Common-Sized Financial Statements (LO 9.7) Eikner, Inc. operates two small clothing stores in southeastern Idaho. Following are this company's income statements for the years ended December 31, 2006 through 2008, and year-end balance sheets for 2006 through 2008. Eikner, Inc. Income Statements For the Years Ended December 31, 2006-2008 Sales 2006 $641,900 2007 2008 $652,000 $654,500 Cost of goods Sold (304,500) (323,700) (339,200) Gross Profit $337,400 $328,300 $315,300 Operating Expenses (154,200) (155,800) (161,900) Operating Income $183,200 $172,500 $153,400 Other Revenue (Expense)** 13,400 (6,400) (1,200) Income before Income Tax $196,600 $166,100 $152,200 Income Tax Expense (78,600) (66,400) (60,900) Net Income $118.000 $ 99.700 $ 91.300 *All of the company's sales are on a credit basis. Includes interest expense of the following amounts: $8,900 (2000); $7,400 (2001); and $7,100 (2002). Eikner, Inc. Balance Sheets December 31, 2006-2008 2006 2007 2008 ASSETS Cash Accounts Receivable (net) Inventory Prepaid Expenses $ 22.000 72,500 $ 9,100 103,300 $ 3,700 116,900 109,800 102,000 89,000 2,500 1,400 1,700 Total Current Assets Property & Equipment (net) $206,800 $215,800 $211,300 212,000 Other Assets Total Assets 3,200 $422,000 201,500 2,600 $419.900 189,400 1,500 $402.200 LIABILITIES Accounts Payable Notes Payable Accrued Liabilities $.51.900 $ 57,200 $ 64,900 25,000 41,100 15,000 35,800 12,000 7,400 Total Current Liabilities $118,000 $108,000 $ 84.300 Bonds Payable Total Liabilities 100,000 $218,000 80,000 $188,000 STOCKHOLDERS' EQUITY Common Stock $ 50.000 Additional Paid-in Capital 130,000 130,000 Retained Earnings 24,000 51,900 $ 50,000 80,000 $164,300 $ 50,000 130,000 57,900 Total Stockholders' Equity $204,000 $231,900 $237,900 Total Liabilities and Stockholders' Equity $422,000 $419,900 $402.200 Required: (a) Prepare common-sized income statements for Eikner, Inc. for 2006 through 2008. (b) What major structural changes occurred over this three-year period in Eikner's income statement data? Are these changes apparently favorable or unfavorable? Explain. After solving parts (a) and (b), answer the following multiple choice question: Which of the following statements is true? Cash has increased (favorable) and accounting receivable has increased. Accounts payable has increased (favorable) Liabilities are decreasing (favorable) Retained earnings is decreasing (favorable)