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Chapter 15: Q13E (page 839)

Data for Mulberry Designs, Inc. follow:


Requirements

1. Prepare a horizontal analysis of the comparative income statement of Mulberry

Designs, Inc. Round percentage changes to one decimal place.

2. Why did 2018 net income increase by a higher percentage than net sales

revenue?

Short Answer

Expert verified

Answer

  1. Given below

  2. Net Income Increase by higher percentage than net revenue because total expenses increase at lower rate of 9.85% compare to increase in net revenue of 15.75%.

Step by step solution

01

Analysis Table


2018

($) (a)

2017

($)(b)

Amount($)

Increase/ Decrease (c) = (a-b)

Percentage

% (c/b)

Net Sales Revenue

431,000

372,350

58,650

15.75%

Expenses:





Cost of Goods Sold

203,850

186,000

17,850

9.6%

Selling and Administrative Expenses

99,000

93,250

5,750

6.17%

Other Expenses

9,000

4,650

4,350

93.55%

Total Expenses

311,850

283,900

27,950

9.85%






Net Income

119,150

88,450

30,700

34.71%

02

Calculation

Net Income is made by two variables

Net Income = Sales Revenue - Total Expenses

So if sales revenue did not increase much, the other reason is that total expenses increased even less than the increase in sales. Due to this the Net Income went up.

The numbers in part 1 above are a proof. The total net income increased by 34.71% whereas sales just increased by 15.8%. If you see the Total Expenses, the increase is much less than increase in sales, which is less than 10%.

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Most popular questions from this chapter

Big Beautiful Photo Shop has asked you to determine whether the company’s ability to pay current liabilities and total liabilities improved or deteriorated during 2018. To answer this question, you gather the following data:

2018

2017

Cash

\(58,000

\)47,000

Short-term Investments

34,000

0

Net Accounts Receivable

140,000

124,000

Merchandise Inventory

217,000

272,000

Total Assets

530,000

565,000

Total Current Liabilities

288,000

205,000

Long-term Notes Payable

40,000

50,000

Income from Operations

165,000

158,000

Interest Expense

55,000

41,000

Compute the following ratios for 2018 and 2017, and evaluate the company’s ability to pay its current liabilities and total liabilities:

a. Current ratio

b. Cash ratio

c. Acid-test ratio

d. Debt ratio

e. Debt to equity ratio

Net sales revenue, net income, and common stockholders’ equity for Eyesight Mission Corporation, a manufacturer of contact lenses, follow for a four-year period.

2019

2018

2017

2016

Net Sales Revenue

\(766000

\)708000

\(644000

\)664000

Net Income

60000

38000

36000

44000

Ending Common Stockholder’s Equity

368000

352000

326000

296000

Requirements

1.Compute trend analyses for each item for 2017–2019. Use 2016 as the base year, and round to the nearest whole percent.

2.Compute the rate of return on common stockholders’ equity for 2017–2019, rounding to three decimal places.

Computing EPS and P/E ratio

Requirements

1. Compute earnings per share (EPS) for 2018 for Accel’s. Round to the nearest cent.

2. Compute Accel’s Companies’ price/earnings ratio for 2018. The market price per

share of Accel’s stock is $12.50.

3. What do these results mean when evaluating Accel’s Companies’ profitability?

The financial statements of Valerie’s Natural Foods include the following items:

Compute the following ratios for the current year:

  1. Current ratio

  2. Cash ratio

  3. Acid-test ratio

  4. Inventory turnover

  5. Day’s sales in inventory

  6. Day’s sales in receivables

  7. Gross profit percentage

Theta Designs, Inc. has the following data:

Theta Designs INC
Vertical Analysis
For the year ended December 31, 2017, and 2018

Assets

2018 (\()

2017 (\))

Total current assets

25,000

73,440

Property, Plant and Equipment, Net

153,600

168,300

Other Assets

21,400

64,260

Total Assets

200,000

306,000

Liabilities

Total current liabilities

27,600

49,266

Long term debt

72,400

208,998

Total Liabilities

100,000

258,264

Stockholders’ Equity

Total stockholders’ Equity

100,000

47,736

Total liabilities and stockholders’ equity

200,000

306,000

Perform a vertical analysis of Theta Designs’s balance sheet for each year.
See all solutions

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