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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Common-Size Analyses Meagley Company presents the following condensed income statement and balance sheet information for 2020 anti 2019:

Chapter 5, Problem 15E, Common-Size Analyses Meagley Company presents the following condensed income statement and balance

Required:

Next Level Prepare Meagley’s common-size income statements and balance sheets for 2020 and 2019. What trends do your analyses reveal in Meagley’s operations and financial position?

To determine

Prepare the common size income statement and balance sheets for the years 2019 and 2020 and explain the trends that reveal Company M’s operational and financial position.

Explanation

Balance Sheet: Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Common size financial statements: These are the financial statements in which all the items are expressed as percentages, assuming a base value, to help the intra-comparison of financial data for different years, and inter-comparison of data with other companies.

Prepare the common size income statements for the years 2019 and 2020:

Company M
Common size Income Statement
 2020 2019
ParticularsAmount% Amount%
Sales100,000100 90,000100
Cost of goods sold(60,000)(60) (51,000)(56.7)
Gross profit40,00040 39,00043.3
Operating expenses(21,300)(21.3) (21,900)(24.3)
Interest revenue1,5001.5 1,4001.6
Interest expense(3,700)(3.7)(2,500)(2.8)
Income before taxes16,50016.5 16,00017.8
Income tax expense(5,000)(5.0) (4,700)(5.2)
Net Income11,50011.5 11,30012.5
Earnings per share$1.92 $1.95 

Table (1)

Prepare the common size balance sheets for the years 2019 and 2020:

Company M
Common size Balance Sheet
 2020 2019
ParticularsAmount% Amount%
Cash3,0002...

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