Problem 2 Common Size Statements - You have been assigned to analyze what is going on with RGS Company over the last 3 years. You have gathered the following information.

At December 31	Current Yr				1 Yr Ago			2 Yrs Ago
Assets
Cash		$	25,790		$	29,268		$	29,875
Accounts receivable, net			74,022			51,732			40,655
Merchandise inventory			93,981			65,653			43,293
Prepaid expenses			8,144			7,760			3,491
Plant assets, net			222,454			211,441			193,786
Total assets		$	424,391		$	365,854		$	311,100
Liabilities and Equity
Accounts payable		$	104,617		$	61,211		$	41,065
Long-term notes payable			78,190			84,146			68,753
Common stock, $10 par value			162,500			163,500			162,500
Retained earnings			79,084			56,997			38,782
Total liabilities and equity		$	424,391		$	365,854		$	311,100

1. Prepare common-size balance sheets for RGS Company.

2. Assuming annual sales have not changed in the last three years, is the change in accounts receivable as a percentage of total assets favorable or unfavorable? Why?

3. Assuming annual sales have not changed in the last three years, is the change in merchandise inventory as a percentage of total assets favorable or unfavorable? Why?