Chapter 17, Problem 1BPSB

Requirement-1:

To determine

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

Answer to Problem 1BPSB

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

TRIPOLY COMPANY
Comparative Income Statements Trend analysis
	2015	2014	2013	2012	2011	2010	2009
Sales	65.1%	70.9%	73.3%	79.1%	86.0%	89.5%	100.0%
Cost of Goods Sold	72.6%	76.3%	77.4%	82.6%	89.5%	92.1%	100.0%
Gross Profit	59.2%	66.7%	70.0%	76.3%	83.3%	87.5%	100.0%
Operating Expenses	56.0%	69.3%	74.7%	84.0%	93.3%	96.0%	100.0%
Net Income	60.6%	65.5%	67.9%	72.7%	78.8%	83.6%	100.0%

TRIPOLY COMPANY
Comparative Balance Sheets Trend analysis
	2015	2014	2013	2012	2011	2010	2009
Assets:
Cash	64.7%	67.6%	76.5%	79.4%	88.2%	91.2%	100.0%
Accounts receivables, net	81.3%	85.0%	87.5%	90.0%	93.8%	96.3%	100.0%
Merchandise Inventory	79.8%	82.7%	85.6%	86.5%	89.4%	91.3%	100.0%
Other Current Assets	85.0%	85.0%	90.0%	95.0%	95.0%	100.0%	100.0%
Long Term Investments	32.7%	27.3%	23.6%	100.0%	100.0%	100.0%	100.0%
Plant assets, net	112.3%	113.2%	114.5%	90.7%	92.5%	94.3%	100.0%
Total Assets	88.5%	89.6%	91.5%	90.2%	92.7%	94.6%	100.0%
Liabilities and Equity:
Current Liabilities	52.9%	55.7%	66.4%	67.9%	75.0%	92.9%	100.0%
Long term Liabilities	35.4%	46.2%	54.6%	56.9%	74.6%	82.3%	100.0%
Common Stock	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
Other paid in capital	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
Retained Earnings	166.7%	157.8%	145.9%	137.0%	122.2%	107.4%	100.0%
Total Liabilities and Equity	88.5%	89.6%	91.5%	90.2%	92.7%	95.6%	100.0%

Explanation of Solution

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

TRIPOLY COMPANY
Comparative Income Statements Trend analysis
($ thousands)	2015	2014	2013	2012	2011	2010	2009
Sales (A)	560	610	630	680	740	770	860
Trend % = A / 860	65.1%	70.9%	73.3%	79.1%	86.0%	89.5%	100.0%
Cost of Goods Sold (B)	276	290	294	314	340	350	380
Trend % = B / 380	72.6%	76.3%	77.4%	82.6%	89.5%	92.1%	100.0%
Gross Profit (C)	284	320	336	366	400	420	480
Trend % = C / 480	59.2%	66.7%	70.0%	76.3%	83.3%	87.5%	100.0%
Operating Expenses (D)	84	104	112	126	140	144	150
Trend % = D / 150	56.0%	69.3%	74.7%	84.0%	93.3%	96.0%	100.0%
Net Income (E)	200	216	224	240	260	276	330
Trend % = E / 330	60.6%	65.5%	67.9%	72.7%	78.8%	83.6%	100.0%

TRIPOLY COMPANY
Comparative Balance Sheets Trend analysis
($ thousands)	2015	2014	2013	2012	2011	2010	2009
Assets:
Cash (A)	44	46	52	54	60	62	68
Trend % = A / 68	64.7%	67.6%	76.5%	79.4%	88.2%	91.2%	100.0%
Accounts receivables, net (B)	130	136	140	144	150	154	160
Trend % = B / 160	81.3%	85.0%	87.5%	90.0%	93.8%	96.3%	100.0%
Merchandise Inventory (C)	166	172	178	180	186	190	208
Trend % = C / 208	79.8%	82.7%	85.6%	86.5%	89.4%	91.3%	100.0%
Other Current Assets (D)	34	34	36	38	38	40	40
Trend % = D / 40	85.0%	85.0%	90.0%	95.0%	95.0%	100.0%	100.0%
Long Term Investments (E)	36	30	26	110	110	110	110
Trend % = E / 110	32.7%	27.3%	23.6%	100.0%	100.0%	100.0%	100.0%
Plant assets, net (F)	510	514	520	412	420	428	454
Trend % = F / 454	112.3%	113.2%	114.5%	90.7%	92.5%	94.3%	100.0%
Total Assets (G)	920	932	952	938	964	984	1040
Trend % = G / 1040	88.5%	89.6%	91.5%	90.2%	92.7%	94.6%	100.0%
Liabilities and Equity:
Current Liabilities (H)	148	156	186	190	210	260	280
Trend % = H / 280	52.9%	55.7%	66.4%	67.9%	75.0%	92.9%	100.0%
Long term Liabilities (I)	92	120	142	148	194	214	260
Trend % = I / 260	35.4%	46.2%	54.6%	56.9%	74.6%	82.3%	100.0%
Common Stock (J)	160	160	160	160	160	160	160
Trend % = J / 160	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
Other paid in capital (K)	70	70	70	70	70	70	70
Trend % = K / 70	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
Retained Earnings (L)	450	426	394	370	330	290	270
Trend % = L / 270	166.7%	157.8%	145.9%	137.0%	122.2%	107.4%	100.0%
Total Liabilities and Equity (M)	920	932	952	938	964	994	1040
Trend % = M / 1040	88.5%	89.6%	91.5%	90.2%	92.7%	95.6%	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 1BPSB

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

• Income Statement shows the Decreasing trend for sales revenues as well as for the net income.

• Balance sheet shows the Decreasing trend for total assets.

Explanation of Solution

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

• Income Statement shows the Decreasing trend for sales revenues as well as for the net income. The net income is continuously decreasing from the year 2009 to 2015.

• Balance sheet shows the Decreasing trend for total assets. The Total assets are continuously decreasing from the year 2009 to 2015.

Conclusion

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