Chapter 17, Problem 1APSA

Requirement-1:

To determine

To calculate: The trend analysis for income statements and balance sheet

Answer to Problem 1APSA

Solution: The trend analysis for income statements and balance sheet is as follows:

HAROUN COMPANY
Comparative Income Statements Trend analysis
	2015	2014	2013	2012	2011	2010	2009
Sales	182.5%	161.2%	147.6%	136.2%	127.8%	119.6%	100.0%
Cost of Goods Sold	212.6%	176.1%	153.9%	136.9%	128.3%	121.2%	100.0%
Gross Profit	131.0%	135.7%	136.8%	135.1%	126.9%	117.0%	100.0%
Operating Expenses	279.7%	216.9%	198.3%	144.1%	123.7%	122.0%	100.0%
Net Income	52.7%	92.9%	104.5%	130.4%	128.6%	114.3%	100.0%

HAROUN COMPANY
Comparative Balance Sheets Trend analysis
	2015	2014	2013	2012	2011	2010	2009
Assets:
Cash (A)	65.2%	87.6%	92.1%	94.4%	98.9%	96.6%	100.0%
Accounts receivables, net (B)	226.9%	238.0%	215.7%	166.7%	147.2%	139.8%	100.0%
Merchandise Inventory (C)	298.9%	221.8%	195.8%	167.8%	152.2%	131.7%	100.0%
Other Current Assets (D)	400.0%	355.6%	155.6%	377.8%	311.1%	311.1%	100.0%
Long Term Investments (E)	0.0%	0.0%	0.0%	100.0%	100.0%	100.0%	100.0%
Plant assets, net (F)	278.6%	277.8%	241.7%	130.2%	134.9%	118.6%	100.0%
Total Assets (G)	246.8%	222.3%	195.4%	144.4%	138.6%	124.0%	100.0%
Liabilities and Equity:
Current Liabilities (H)	432.6%	369.5%	254.6%	217.7%	193.6%	185.1%	100.0%
Long term Liabilities (I)	323.5%	285.0%	278.0%	142.5%	145.0%	155.0%	100.0%
Common Stock (J)	153.8%	153.8%	153.8%	130.8%	130.8%	100.0%	100.0%
Other paid in capital (K)	166.7%	166.7%	166.7%	113.3%	113.3%	100.0%	100.0%
Retained Earnings (L)	213.2%	179.2%	137.7%	124.5%	109.4%	91.2%	100.0%
Total Liabilities and Equity (M)	246.8%	222.3%	195.4%	144.4%	138.6%	124.0%	100.0%

Explanation of Solution

The trend analysis for income statements and balance sheet is explained as follows:

HAROUN COMPANY
Comparative Income Statements Trend analysis
($ thousands)	2015	2014	2013	2012	2011	2010	2009
Sales (A)	1694	1496	1370	1264	1186	1110	928
Trend % = A / 928	182.5%	161.2%	147.6%	136.2%	127.8%	119.6%	100.0%
Cost of Goods Sold (B)	1246	1032	902	802	752	710	586
Trend % = B / 586	212.6%	176.1%	153.9%	136.9%	128.3%	121.2%	100.0%
Gross Profit (C)	448	464	468	462	434	400	342
Trend % = C / 342	131.0%	135.7%	136.8%	135.1%	126.9%	117.0%	100.0%
Operating Expenses (D)	330	256	234	170	146	144	118
Trend % = D / 118	279.7%	216.9%	198.3%	144.1%	123.7%	122.0%	100.0%
Net Income (E)	118	208	234	292	288	256	224
Trend % = E / 224	52.7%	92.9%	104.5%	130.4%	128.6%	114.3%	100.0%

HAROUN COMPANY
Comparative Balance Sheets Trend analysis
($ thousands)	2015	2014	2013	2012	2011	2010	2009
Assets:
Cash (A)	58	78	82	84	88	86	89
Trend % = A / 89	65.2%	87.6%	92.1%	94.4%	98.9%	96.6%	100.0%
Accounts receivables, net (B)	490	514	466	360	318	302	216
Trend % = B / 216	226.9%	238.0%	215.7%	166.7%	147.2%	139.8%	100.0%
Merchandise Inventory (C)	1838	1364	1204	1032	936	810	615
Trend % = C / 615	298.9%	221.8%	195.8%	167.8%	152.2%	131.7%	100.0%
Other Current Assets (D)	36	32	14	34	28	28	9
Trend % = D / 9	400.0%	355.6%	155.6%	377.8%	311.1%	311.1%	100.0%
Long Term Investments (E)	0	0	0	146	146	146	146
Trend % = E / 146	0.0%	0.0%	0.0%	100.0%	100.0%	100.0%	100.0%
Plant assets, net (F)	2020	2014	1752	944	978	860	725
Trend % = F / 725	278.6%	277.8%	241.7%	130.2%	134.9%	118.6%	100.0%
Total Assets (G)	4442	4002	3518	2600	2494	2232	1800
Trend % = G / 1805	246.8%	222.3%	195.4%	144.4%	138.6%	124.0%	100.0%
Liabilities and Equity:
Current Liabilities (H)	1220	1042	718	614	546	522	282
Trend % = H / 282	432.6%	369.5%	254.6%	217.7%	193.6%	185.1%	100.0%
Long term Liabilities (I)	1294	1140	1112	570	580	620	400
Trend % = I / 400	323.5%	285.0%	278.0%	142.5%	145.0%	155.0%	100.0%
Common Stock (J)	1000	1000	1000	850	850	650	650
Trend % = J / 650	153.8%	153.8%	153.8%	130.8%	130.8%	100.0%	100.0%
Other paid in capital (K)	250	250	250	170	170	150	150
Trend % = K / 150	166.7%	166.7%	166.7%	113.3%	113.3%	100.0%	100.0%
Retained Earnings (L)	678	570	438	396	348	290	318
Trend % = L / 318	213.2%	179.2%	137.7%	124.5%	109.4%	91.2%	100.0%
Total Liabilities and Equity (M)	4442	4002	3518	2600	2494	2232	1800
Trend % = M / 1804	246.8%	222.3%	195.4%	144.4%	138.6%	124.0%	100.0%

Conclusion

Hence, Horizontal Analysis is used to analyses the trend of a particular item of a statement.

Requirement-2:

To determine

To analyze: The trends of the financial statements

Answer to Problem 1APSA

Solution: The Analysis of trends of the financial statements is as follows:

• Income Statement shows the increasing trend for sales revenues during the years and mix trend for the net income.

• Balance sheet shows the Increasing trend for total assets.

Explanation of Solution

The Analysis of trends of the financial statements is explained as follows:

• Income Statement shows the increasing trend for sales revenues during the years and mix trend for the net income. The net income shows the increasing trend from year 2009 to 2012 but a decreasing trend from year 2012 to 2015.

• Balance sheet shows the Increasing trend for total assets from the year 2009 to 2015.

Conclusion

Hence, Horizontal Analysis is used to analyses the trend of a particular item of a statement.