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Chapter 15: Q3TI (page 812)

Monroe Corp. reported the following amounts on its balance sheet at December 31, 2018 and 2017:

2018, 2017

Cash and Receivables \( 35,000 \) 40,000

Merchandise Inventory 20,000 15,000

Property, Plant, and Equipment, Net 80,000 60,000

Total Assets \( 135,000 \) 115,000

Prepare a vertical analysis of Monroe Corp. for 2018 and 2017.

Short Answer

Expert verified

Answer

Vertical analysis of Monroe Corp is given below indicating that value of current assets increase in balance sheet.

Step by step solution

01

Calculations

Balance Sheet(partial)

Dec 31, 2018 and 2017


2018($)
Percent of Total
2017($)
Percent of Total

Cash &

receivables

35,000
35,000
35,000
35,000
Merchandise Inventory
20,000
20,000
15,000
15,000
Property plant and Equipment
80,000
59.26%
60,000
52.17%
Total Assets
135,000
100%
115,000
100%
02

Workings

Balance Sheet(partial)

Dec 31, 2018 and 2017


2018($)
Percent of Total
2017($)
Percent of Total35,000

Cash &

receivables


35,000
(35,000/135,000)*100
40,000
(40,000/115,000)*100
Merchandise Inventory
Total Assets
(20,000/135,000)*100
15,000
(15,000/115,000)*100
Property plant and Equipment
80,000
(80,000/135,000)*100
60,000
(60,000/115,000)*100
Total Assets
135,000
100%
115,000

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Most popular questions from this chapter

Data for Research Enterprises follows:

2019

2018

2017

Total current assets

\(490,000

\)320,000

\(230,000

Total current liabilities

\)235,000

\(160,000

\)115,000

Compute the dollar amount of change and the percentage of change in Research Enterprises’ working capital each year during 2019 and 2018. What do the calculated changes indicate?

Data for Connor, Inc. and Alto Corp. follow:

Connor Alto

Net Sales Revenue \( 13,000 \) 22,000

Cost of Goods Sold 7,917 15,730

Other Expenses 4,342 5,170

Net Income \( 741 \) 1,100

Requirements

1. Prepare common-size income statements.

2. Which company earns more net income?

3. Which company’s net income is a higher percentage of its net sales revenue?

The financial statements of Ion Corporation include the following items:

Current Year Preceding Year

Balance Sheet:

Cash \( 6,000 \) 8,000

Short-term Investments 4,400 10,700

Net Accounts Receivable 21,600 29,200

Merchandise Inventory 30,800 27,600

Prepaid Expenses 6,000 3,600

Total Current Assets 68,800 79,100

Total Current Liabilities 53,200 37,200

Income Statement:

Net Sales Revenue $ 184,800

Cost of Goods Sold 126,000

Compute the following ratios for the current year:

7. Current ratio

8. Acid-test ratio

9. Inventory turnover

10. Gross profit percentage

The following data are adapted from the financial statements of Bridget’s Shops, Inc.:

Total Current Assets $ 1,216,000

Accumulated Depreciation 2,000,000

Total Liabilities 1,540,000

Preferred Stock 0

Debt Ratio 55%

Current Ratio 1.60

Prepare Bridget’s condensed balance sheet as of December 31, 2018.

Ross’s Lipstick Company’s long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders’ equity, and the current ratio may not fall below 1.50. If Ross fails to meet any of these requirements, the company’s lenders have the authority to take over management of the company.Changes in consumer demand have made it hard for Ross to attract customers.

Current liabilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Ross’s management is scrambling to improve the current ratio. The controller points out that an investment can be classified as either long-term or short-term, depending on management’s intention. By deciding to convert an investment to cash within one year, Ross can classify the investment as short-term—a current asset. On the controller’s recommendation, Ross’s board of directors votes to reclassify long-term investments as short-term.

Requirements

1. What effect will reclassifying the investments have on the current ratio? Is Ross’s true financial position stronger as a result of reclassifying the investments?

2. Shortly after the financial statements are released, sales improve; so, too, does the current ratio. As a result, Ross’s management decides not to sell the investments it had reclassified as short-term. Accordingly, the company reclassified the investments as long-term. Has management behaved unethically? Give the reasoning underlying of your answer.
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