Problems

Extreme Edge, Inc.

Income Statements

For the Years Ended December 31, 2017, 2016 and 2015

($ in thousands)

2017 2016 2015

Sales revenue	$1,340	$1,200	$1,000
Less: Cost of goods sold	685	660	600
Gross profit	655	540	400
Operating expenses:
Depreciation expense	200	120	100
Amortization expense	5	5	5
Other operating expenses	368 573	345 470	255 360
Income from operations	82	70	40
Interest (financing) expense	32	10	10
Pretax income	50	60	30
Income tax expense (40%)	20	24	12
Net income	$ 30	$ 36	$ 18
Earnings per share	$0.60	$0.72	$0.45

Extreme Edge, Inc.

Balance Sheets

December 31, 2017, 2016 and 2015

($ in thousands)

2017 2016 2015

Assets
Cash	$ 65	$ 90	$ 30
Accounts receivable, net	150	80	90
Inventory	298	228	170
Total current assets	513	398	290
Property, Plant and Equipment:
Equipment (at cost)	800	600	500
Less: accumulated depreciation	(420)	(220)	(100)
Equipment, net of accumulated depreciation	380	380	400
Intangible Assets:
Customer database (at cost)	25	25	25
Less: accumulated amortization	(15)	(10)	(5)
Customer database, net of accumulated amortization	10	15	20
Total Assets	$903	$793	$710
Liabilities
Accounts payable	$ 44	$145	$160
Accrued liabilities	6	20	32
Total current liabilities	50	165	192
Long-term Liabilities:
Notes payable	300	100	100
Total Liabilities	350	265	292
Shareholders' Equity
Common stock, $1 par	50	50	40
Additional paid-in-capital on common stock	430	430	360
Total contributed capital	480	480	400
Retained earnings	73	48	18
Total Shareholders' Equity	553	528	418
Total Liabilities and Shareholders' Equity	$903	$793	$710

Problem 6-1

Required: Refer to the Chapter6 Homework Spreadsheets above. Compute the 2017 vertical common-size financial statements for Extreme Edge.

Extreme Edge, Inc.

Vertical Common-Size Income Statements

For the Years Ended December 31, 2017, 2016 and 2015

2017 2016 2015

Sales revenue		100.0%	100.0%
Less: Cost of goods sold		55.0%	60.0%
Gross profit		45.0%	40.0%
Operating expenses:
Depreciation expense		10.0%	10.0%
Amortization expense		0.4%	0.5%
Other operating expenses		28.8%	25.5%
Income from operations		5.8%	4.0%
Interest (financing) expense		0.8%	1.0%
Pretax income		5.0%	3.0%
Income tax expense (40%)		2.0%	1.2%
Net income		3.0%	1.8%

Extreme Edge, Inc.

Vertical Common-Size Balance Sheets

December 31, 2017, 2016 and 2015

2016 2015 2014

Assets
Cash		11.3%	4.2%
Accounts receivable, net		10.1%	12.7%
Inventory		28.8%	23.9%
Total current assets		50.2%	40.8%
Property, Plant and Equipment:
Equipment (at cost)		75.7%	70.4%
Less: accumulated depreciation		(27.7)%	(14.1)%
Equipment, net of accumulated depreciation		47.9%	56.3%
Intangible Assets:
Customer database (at cost)		3.2%	3.5%
Less: accumulated amortization		(1.3)%	(0.7)%
Customer database, net of accumulated amortization		1.9%	2.8%
Total Assets		100.0%	100.0%
Liabilities
Accounts payable		18.3%	22.5%
Accrued liabilities		2.5%	4.5%
Total current liabilities		20.8%	27.0%
Long-term Liabilities:
Notes payable		12.6%	14.1%
Total Liabilities		33.4%	41.1%
Shareholders' Equity
Common stock, $1 par		6.3%	5.6%
Additional paid-in-capital on common stock		54.2%	50.7%
Total contributed capital		60.5%	56.3%
Retained earnings		6.1%	2.5%
Total Shareholders' Equity		66.6%	58.9%
Total Liabilities and Shareholders' Equity		100.0%	100.0%