(Preparing common size financial statements, LO 2) Examine the balance sheets and income statements for Fairplay Inc. (Fairplay).

Additional information:

Required:

a. Prepare common size balance sheets and income statements for 2003, 2004, and 2005.

b. Analyze and interpret the common size financial statements you prepared.

c. How are these common size statements more useful than the statements originally prepared by Fairplay?

d. Why would it be unwise to examine the common size financial statements without considering the financial statements originally prepared by Fairplay?

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Fairplay Inc. Balance Sheets As of December 31 2005 2004 2003 Cash Accounts receivable Inventory $ 9,000 $ 12,000 $ 10,000 52,600 46,400 35,000 59,250 46,000 45,000 Other current assets 12,000 11,000 8,000 Total current assets 132,850 115,400 98,000 Capital assets (net of amortization) 255,000 210,000 185,000 Total assets $387,850 $325,400 $283,000 Bank loans $ 48,310 $ 27,400 $ 23,000 Accounts payable and accrued liabilities 45,900 41,000 38,000 Total current liabilities 94,210 68,400 61,000 Long-term liabilities 70,000 62,000 50,000 Capital stock 125,000 125,000 +125,000 Retained earnings 98,640 70,000 47,000 Total liabilities and shareholders' equity $387,850 $325,400 $283,000