Chapter 13, Problem 1AA

Use Apple’s financial statements in Appendix A to answer the following.

1. Using fiscal 2015 as the base year, compute trend percents for fiscal years 2015, 2016, and 2017 for net sales, cost of sales, operating income, other income (expense) net, provision for income taxes, and net income. Round percents to one decimal.
2. Compute common-sizepercents for fiscal years 2016 and 2017 for the following categories of assets: (a) total current assets; (b) property, plant and equipment, net; and (c) goodwill plus acquired intangible assets, net. Round percents to one decimal.
3. Using current assets as a percent of total assets to measure liquidity, did Apple’s asset makeup become more liquid or less liquid in 2017?

To determine

Trend percents:

A horizontal form of analysis which reveals a pattern in data across successive period is known as trend percents. In this analysis items are expressed as a percentage of a base year and items are taken line by line.

Common size percents:

Common size percent is the percent of each account expressed as a percentage of the sales value.

1.

To compute: Year 2013, 2014 and 2015 trend percents for net sales, cost of sales, operating income, other income(expense)net, provision for income taxes and net income of A Company by using 2013 as base year.

Explanation of Solution

To compute trend percents, base amount is required firstly. Base amount is an amount which is predecided.

Formula to calculate trend percent is:

  $\text{Trend}\text{Percent}\text{(\%)=}\frac{\text{Analysis Period Amount}}{\text{Base Period Amount}}\text{×100}$

Trend percents are shown below:

Particulars	2015(%)	2014(%)	2013(%)
Net sales	136.75	106.95	100
Cost of sales	131.41	105.30	100
Operating income	145.37	107.15	100
Other income (expense) net	111.16	84.78	100
Provision for income taxes	145.76	106.52	100
Net income	144.16	106.68	100

Working Notes:

Trend percents for Sales:

  $\begin{array}{l}\text{Trend}\text{percent 2015}=\frac{\$233,715}{\$170,910}\times 100\\ =136.75\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2014}=\frac{\$182,795}{\$170,910}\times 100\\ =106.95\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2013}=\frac{\$170,910}{\$170,910}\times 100\\ =100\%\end{array}$

Trend percents for Cost of sales:

  $\begin{array}{l}\text{Trend}\text{percent 2015}=\frac{\$140,089}{\$106,606}\times 100\\ =131.41\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2014}=\frac{\$112,258}{\$106,606}\times 100\\ =105.30\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2013}=\frac{\$106,606}{\$106,606}\times 100\\ =100\%\end{array}$

Trend percents for operating income:

  $\begin{array}{l}\text{Trend}\text{percent 2015}=\frac{\$71,230}{\$48,999}\times 100\\ =145.37\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2014}=\frac{\$52,503}{\$48,999}\times 100\\ =107.15\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2013}=\frac{\$48,999}{\$48,999}\times 100\\ =100\%\end{array}$

Trend percents for other income (expense) net:

  $\begin{array}{l}\text{Trend}\text{percent 2015}=\frac{\$1,285}{\$1,156}\times 100\\ =111.16\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2014}=\frac{\$980}{\$1,156}\times 100\\ =84.78\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2013}=\frac{\$1,156}{\$1,156}\times 100\\ =100\%\end{array}$

Trend percents for provision for income tax:

  $\begin{array}{l}\text{Trend}\text{percent 2015}=\frac{\$19,121}{\$13,118}\times 100\\ =145.76\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2014}=\frac{\$13,973}{\$13,118}\times 100\\ =106.52\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2013}=\frac{\$13,118}{\$13,118}\times 100\\ =100\%\end{array}$

Trend percents for net income:

  $\begin{array}{l}\text{Trend}\text{percent 2015}=\frac{\$53,394}{\$37,037}\times 100\\ =144.16\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2014}=\frac{\$39,510}{\$37,037}\times 100\\ =106.68\%\end{array}$

  $\begin{array}{l}\text{Trend}\text{percent 2013}=\frac{\$37,037}{\$37,037}\times 100\\ =100\%\end{array}$

Thus, Except other income (expenses). All other items show increased percents in every year.

To determine

To compute: Common size percent of (a) total current assets (b) property, plant and equipment, net and (c) goodwill plus acquired tangible assets, net for A Company for the year 2014 and 2015.

Explanation of Solution

Formula to calculate common size percent is:

  $\text{Common Size Percent}\text{(\%)=}\frac{\text{Analysis Year Amount}}{\text{Base Year Amount}}\times 100$

Common size percents are shown below:

Particulars	2015(%)	2014(%)
(a) Total current assets	30.77	29.56
(b) Property, plant and equipment, net	7.74	8.9
(c) Goodwill plus acquired intangible assets, net	3.10	3.78

Working notes:

(a) Common size percents of total current assets:

  $\begin{array}{l}\text{Common}\text{size}\text{percent}2015\text{=}\frac{\text{\$89,378}}{\text{\$290,479}}\times 100\\ =30.77\%\end{array}$

  $\begin{array}{l}\text{Common}\text{size}\text{percent}2014\text{=}\frac{\$68,531}{\$231,839}\times 100\\ =29.56\%\end{array}$

(b) Common size percents of property, plant and equipment, net:

  $\begin{array}{l}\text{Common}\text{size}\text{percent}2015\text{=}\frac{\text{\$22,471}}{\text{\$290,479}}\times 100\\ =7.74\%\end{array}$

  $\begin{array}{l}\text{Common}\text{size}\text{percent}2014\text{=}\frac{\$20,624}{\$231,839}\times 100\\ =8.9\%\end{array}$

(c) Common size percents of goodwill plus acquired intangible assets, net:

  $\begin{array}{l}\text{Common}\text{size}\text{percent}2015\text{=}\frac{\text{\$9009}}{\text{\$290,479}}\times 100\\ =3.10\%\end{array}$

  $\begin{array}{l}\text{Common}\text{size}\text{percent}2014\text{=}\frac{\$8758}{\$231,839}\times 100\\ =3.78\%\end{array}$

To determine

To explain: Changes across the year for the income statement trends computed in part 1 and the balance sheet percents computed in part 2.

Explanation of Solution

• Trend percents of income statement items represent an increased trend. Such as net sales trend percent is 136.75 in the year 2015 and 106.95 in the 2014 same has been increases with 29.8 (136.75-106.95).
• Only other income is reduced in 2014, all other income statement trends show increased numbers.
• Common size percent of balance sheet items shows increase in the current assets of the company. For example total current assets of the company have been increased to 30.77% in 2015 year from 29.56% in 2014.
• Other assets marginaly reduced in 2015 as a percentage of total assets.

Thus, A Company works quite efficiently.