Question
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
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 | |
| 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 | |
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 | |
| 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 | |
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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Financial And Managerial Accounting For Decision Makers
Authors: Michelle Hanlon, Robert Magee, Glenn Pfeiffer, Thomas Dyckman
4th Edition
1618533614, 9781618533616
