1. Horizontal Analysis

   Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the companys financial statements for the 2 most recent years.

   Kepler Company Comparative Balance Sheets
   	This Year	Last Year
   Assets
   Current assets:
   Cash	$50,000.00	$100,000.00
   Accounts receivable, net	300,000.00	150,000.00
   Inventory	600,000.00	400,000.00
   Prepaid expenses	25,000.00	30,000.00
   Total current assets	$975,000.00	$680,000.00
   Property and equipment, net	125,000.00	150,000.00
   Total assets	$1,100,000.00	$830,000.00
   Liabilities and Stockholders Equity
   Current liabilities:
   Accounts payable	$400,000.00	$290,000.00
   Short-term notes payable	200,000.00	60,000.00
   Total current liabilities	$600,000.00	$350,000.00
   Long-term bonds payable, 12%	100,000.00	150,000.00
   Total liabilities	$700,000.00	$500,000.00
   Stockholders equity:
   Common stock (100,000 shares)	200,000.00	200,000.00
   Retained earnings	200,000.00	130,000.00
   Total liabilities and stockholders equity	$1,100,000.00	$830,000.00

   Kepler Company Comparative Income Statements
   	This Year	Last Year
   Sales	$950,000.00	$900,000.00
   Less: Cost of goods sold	(500,000.00)	(490,000.00)
   Gross margin	$450,000.00	$410,000.00
   Less operating expenses:
   Selling and Administrative expenses	(275,000.00)	(260,000.00)
   Operating income	$175,000.00	$150,000.00
   Less:
   Interest expense	(12,000.00)	(18,000.00)
   Net income before taxes	$163,000.00	$132,000.00
   Less:
   Income taxes	(65,200.00)	(52,800.00)
   Net income after taxes	$97,800.00	$79,200.00
   Less:
   Dividends	(27,800.00)	(19,200.00)
   Net income, retained	$70,000.00	$60,000.00

   Required:

   1(a). Compute the percentage change for the balance sheet. (Note: Enter a decrease as a negative number if applicable. Round all percentages to one decimal place.)

   Kepler Company
   Comparative Balance Sheets
   	This Year	Last Year	Percentage Change
   Assets
   Current assets:
   Cash	$50,000.00	$100,000.00	fill in the blank 398d18faffaf001_1%
   Accounts receivable, net	300,000.00	150,000.00	fill in the blank 398d18faffaf001_2
   Inventory	600,000.00	400,000.00	fill in the blank 398d18faffaf001_3
   Prepaid expenses	25,000.00	30,000.00	fill in the blank 398d18faffaf001_4
   Total current assets	$975,000.00	$680,000.00	fill in the blank 398d18faffaf001_5
   Property and equipment, net	125,000.00	150,000.00	fill in the blank 398d18faffaf001_6
   Total assets	$1,100,000.00	$830,000.00	fill in the blank 398d18faffaf001_7
   Liabilities and Stockholders Equity
   Current liabilities:
   Accounts payable	$400,000.00	$290,000.00	fill in the blank 398d18faffaf001_8
   Short-term notes payable	200,000.00	60,000.00	fill in the blank 398d18faffaf001_9
   Total current liabilities	$600,000.00	$350,000.00	fill in the blank 398d18faffaf001_10
   Long-term bonds payable, 12%	100,000.00	150,000.00	fill in the blank 398d18faffaf001_11
   Total liabilities	$700,000.00	$500,000.00	fill in the blank 398d18faffaf001_12
   Stockholders' equity:
   Common stock (100,000 shares)	200,000.00	200,000.00	fill in the blank 398d18faffaf001_13
   Retained earnings	200,000.00	130,000.00	fill in the blank 398d18faffaf001_14
   Total liabilities and stockholders equity	$1,100,000.00	$830,000.00	fill in the blank 398d18faffaf001_15

   1(b). Compute the percentage change for the income statement. (Note: Round all percentages to one decimal place.)

   Kepler Company
   Comparative Income Statements
   	This Year	Last Year	Percentage Change
   Sales	$950,000.00	$900,000.00	fill in the blank 95f89c00f030fc1_1%
   Less: Cost of goods sold	(500,000.00)	(490,000.00)	fill in the blank 95f89c00f030fc1_2
   Gross margin	$450,000.00	$410,000.00	fill in the blank 95f89c00f030fc1_3
   Less operating expenses:
   Selling and Administrative expenses	(275,000.00)	(260,000.00)	fill in the blank 95f89c00f030fc1_4
   Operating income	$175,000.00	$150,000.00	fill in the blank 95f89c00f030fc1_5
   Less:
   Interest expense	(12,000.00)	(18,000.00)	fill in the blank 95f89c00f030fc1_6
   Net income before taxes	$163,000.00	$132,000.00	fill in the blank 95f89c00f030fc1_7
   Less:
   Income taxes	(65,200.00)	(52,800.00)	fill in the blank 95f89c00f030fc1_8
   Net income after taxes	$97,800.00	$79,200.00	fill in the blank 95f89c00f030fc1_9
   Less:
   Dividends	(27,800.00)	(19,200.00)	fill in the blank 95f89c00f030fc1_10
   Net income, retained	$70,000.00	$60,000.00	fill in the blank 95f89c00f030fc1_11

   2. Based on the analysis completed, select "Yes" or "No" on any significant trends identified for Kepler Company.

   Management should take a closer look at inventory and accounts receivable
   Liabilities have increased because of notes payable
   Accounts receivable has tripled
   Management should take a closer look at accounts receivable and prepaid expenses
   Management should take a closer look at cash, prepaid expenses and property and equipment
   Liabilities increased due to bonds payable
   Management should take a closer look at retained earnings
   Management should take a closer look bonds payable
   Cash has decreased
   Accounts receivable has doubled
   Inventory has increased

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