Vertical Analysis of Income Statement For 20Y2, Fielder Industries Inc. initiated a sales promotion campaign that included the expenditure of an additional $40,000 for advertising. At the end of the year, Leif Grando, the president, is presented with the following condensed comparative income statement: Fielder Industries Inc. Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 20Y2 20Y1 Sales $1,300,000 $1,180,000 Cost of goods sold (682,500) (613,600) Gross profit $617,500 $566,400 Selling expenses $(260,000) $(188,800) Administrative expenses (169,000) (177,000) Total operating expenses $(365,800) $(429,000) $188,500 Operating income $200,600 Other revenue 78,000 70,800 Income before income tax expense $266,500 $271,400 Income tax expense (117,000) (106,200) Net income $149,500 $165,200 Required: 1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Round to one decimal place. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Fielder Industries Inc. Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 20Y2 20Y2 2011 Amount 20Y1 Percent Amount Percent Sales $1,300,000 100 % $1,180,000 100 % Cost of goods sold (682,500) X % (613,600) X % Gross profit $617,500 % $566,400 % Selling expenses $(260,000) % (188,800) % Administrative expenses (169,000) % (177,000) % Total operating expenses $(429,000) % $(365,800) % Operating income $188,500 % $200,600 % Other revenue 78,000 % 70,800 % Income before income tax expense $266,500 % $271,400 % Income tax expense (117,000) % (106,200) % Net income $149,500 % $165,200 % 2. The net income as a percent of sales has decreased All the costs and expenses, other than selling expenses, have maintained their approximate cost as a percent of sales relationship between 20Y1 and 20Y2. Selling expenses as a percent of sales, however, have increased Apparently, the new advertising campaign has not been successful. The increased expense has not produced sufficient sales to maintain relative profitability. Thus, selling expenses as a percent of sales have increased Effect of Transactions on Current Position Analysis Data pertaining to the current position of Lucroy Industries Inc. are as follows: Cash $800,000 Marketable securities 550,000 Accounts and notes receivable (net) 850,000 Inventories 700,000 300,000 Prepaid expenses Accounts payable 1,200,000 Notes payable (short-term) 700,000 Accrued expenses 100,000 Required: 1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios to one decimal place. a. Working capital b. Current ratio C. Quick ratio 2. Compute the working capital, the current ratio, and the quick ratio after each of the following transactions, and record the results in the appropriate columns. Consider each transaction separately and assume that only that transaction affects the data given. Round ratios to one decimal place. Transaction Working Capital Current Ratio Quick Ratio a. Sold marketable securities at no gain or loss, $500,000. b. Current ratio c. Quick ratio 2. Compute the working capital, the current ratio, and the quick ratio after each of the following transactions, and record the results in the appropriate columns. Consider each transaction separately and assume that only that transaction affects the data given. Round ratios to one decimal place. Transaction Working Capital Current Ratio Quick Ratio a. Sold marketable securities at no gain or loss, $500,000. b. Paid accounts payable, $287,500. c. Purchased goods on account, $400,000. d. Paid notes payable, $125,000. e. Declared a cash dividend, $325,000. f. Declared a common stock dividend on common stock, $150,000. g. Borrowed cash from bank on a long-term note, $1,000,000. h. Received cash on account, $75,000. IIII i. Issued additional shares of stock for cash, $2,000,000. j. Paid cash for prepaid expenses, $200,000
