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Question 4P-a

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Intermediate Accounting (Kieso)
Found in: Page 1452

Short Answer

(Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.

GILMOUR COMPANY

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2018 AND 2017

December 31

2018

2017

Assets

Cash

$ 180,000

$ 275,000

Accounts receivable (net)

220,000

155,000

Short-term investments

270,000

150,000

Inventories

1,060,000

980,000

Prepaid expenses

25,000

25,000

Plant & equipment

2,585,000

1,950,000

Accumulated depreciation

(1,000,000)

(750,000)

$3,340,000

(2,785,000)

Liabilities and Stockholders’ Equity

Accounts payable

$ 50,000

$ 75,000

Accrued expenses

170,000

200,000

Bonds payable

450,000

190,000

Common stock

2,100,000

1,770,000

Retained earnings

570,000

550,000

$3,340,000

(2,785,000)

Instructions

(Round to two decimal places.)

  1. Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity.

Percentage value can be found by dividing assets or liabilities by total assets or total liabilities.

See the step by step solution

Step by Step Solution

Meaning of Horizontal Analysis

Horizontal analysis is a financial statement analysis approach that involves comparing financial data from one accounting period to data from a subsequent period. Investigators utilize this strategy to evaluate real-world patterns.

Preparing a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity

GILMOUR COMPANY

Comparative Balance Sheet

December 31, 2018, and 2017

December 31

Asset 2018 2017

Cash

$180,000

5.39%

$ 275,000

9.87%

Accounts receivable (net

220,000

6.59

155,000

5.57

Short-term Investments

270,000

8.08

150,000

5.39

Inventories

1,060,000

31.74

980,000

35.18

Prepaid expenses

25,000

0.75

25,000

0.902

Plant and equipment

2,585,000

77.39

1,950,000

70.02

Accumulated depreciation

(1,000,000)

(29.94)

(750,000)

(26.93)

Total

$3,340,000

100.00%

$2,785,000

100.00%

Liabilities and Stockholders’ Equity

Accounts payable

$ 50,000

1.50%

$ 75,000

2.69%

Accrued expenses

170,000

5.09

200,000

7.18

Bonds payable

450,000

13.47

190,000

6.82

Common stock

2,100,000

62.87

1,770,000

63.56

Retained earnings

570,000

17.07

550,000

19.75

Total

$3,340,000

100.00%

$2,785,000

100.00%

Working note:

All the percentage values should be determined by using the formula as follows:

Like to find Cash percentage use:

Most popular questions for Business-studies Textbooks

(Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years

BRADBURN CORPORATION

BALANCE SHEET

MARCH 31

Assets

2018

2017

Cash

$ 18,200

$ 12,500

Notes receivable

148,000

132,000

Accounts receivable (net)

131,800

125,500

Inventories (at cost)

105,000

50,000

Plant & Equipment (net of depreciation)

1,449,000

1,420,500

Total assets

$1,852,000

$1,740,500

Liabilities and Stockholders’ Equity

Accounts payable

$ 79,000

$ 91,000

Notes payable

76,000

61,500

Accrued liabilities

9,000

6,000

Common stock (130,000 shares, $10 par)

1,300,000

1,300,000

Retained earnings*

388,000

282,000

Total liabilities and stockholders’ equity

$1,852,000

$1,740,500

*Cash dividends were paid at the rate of $1 per share in the fiscal year 2017 and $2 per share in the fiscal year 2018.

BRADBURN CORPORATION

INCOME STATEMENT

FOR THE FISCAL YEARS ENDED MARCH 31

2018

2017

Sales revenue

$3,000,000

$2,700,000

Cost of goods sold*

1,530,000

1,425,000

Gross margin

1,470,000

1,275,000

Operating expenses

860,000

780,000

Income before income taxes

610,000

495,000

Income taxes (40%)

244,000

198,000

Net income

$ 366,000

$ 297,000

Depreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2017, and 2018, respectively, are included in the cost of goods sold.

Instructions

(a). Compute the following items for Bradburn Corporation.

  1. Acid-test (quick) ratio for fiscal years 2017 and 2018.

Your firm has been engaged to examine the financial statements of Almaden Corporation for the year 2017. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2012. The client provides you with the following information.

ALMADEN CORPORATION

BALANCE SHEET

DECEMBER 31, 2017

Asset

Liabilities

Current assets

$1,881,100

Current liabilities

$ 962,400

Other assets

5,171,400

Long-term liabilities

1,439,500

Capital

4,650,600

$7,052,500

$7,052,500

An analysis of current assets discloses the following.

Cash (restricted in the amount of $300,000 for plant expansion)

$571,000

Investments in Land

185,000

Accounts receivable less allowance of $30,000

480,000

Inventories (LIFO flow assumption)

645,100

$1,881,100

Other assets include:

Prepaid expenses

$ 62,400

Plant and equipment less accumulated depreciation of $1,430,000

4,130,000

The cash surrender value of life insurance policy

84,000

Unamortized bond discount

34,500

Notes receivable (short-term)

162,300

Goodwill

252,000

Land

446,200

$5,171,400

Current liabilities include:

Accounts payable

$ 510,000

Notes payable (due 2020

157,400

Estimated income taxes payable

145,000

Premium on common stock

150,000

$ 962,400

Long-term liabilities include

Unearned revenue

$ 489,500

Dividends payable (cash

200,000

8% bonds payable (due May 1, 2022)

750,000

$1,439,500

Capital includes:

Retained earnings

$2,810,600

Common stock, par value $10; authorized 200,000 shares, 184,000 shares issued

1,840,000

$4,650,600

The supplementary information below is also provided.

  1. On May 1, 2017, the corporation issued at 95.4, $750,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization.
  2. The bookkeeper made the following mistakes.
    1. In 2015, the ending inventory was overstated by $183,000. The ending inventories for 2016 and 2017 were correctly computed.
    2. In 2017, accrued wages in the amount of $225,000 were omitted from the balance sheet, and these expenses were not charged on the income statement.
    3. In 2017, a gain of $175,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings.
  3. A major competitor has introduced a line of products that will compete directly with Almaden’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor’s line will be of comparable quality but priced 50% below Almaden’s line. The competitor announced its new line on January 14, 2018. Almaden indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses but permit recovery of only a portion of fixed costs.
  4. You learned on January 28, 2018, prior to completion of the audit, of heavy damage because of a recent fire to one of Almaden’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail.

Instructions

Analyze the above information to prepare a corrected balance sheet for Almaden in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings.

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