Financial Statement Analysis Chapter 15 Demonstration Problems Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

15-2 Data for Sun Rise, Inc. follow: E15-15D SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and Net Sales Revenue$500,000$430,000 Expenses: Cost of Goods Sold225,000210,000 Selling and Administrative Expenses107,00098,000 Other Expenses15,00011,000 Total Expenses347,000319,000 Net Income$153,000$111,000 Requirements 1.Prepare a horizontal analysis of the comparative income statement of Sun Rise, Inc. Round percentage changes to one decimal place. 2.Why did 2015 net income increase by a higher percentage than net sales revenue?

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-3 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70,000 Expenses: Cost of Goods Sold 225,000210,000 Selling and Administrative Expenses 107,00098,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $500,000 − $430,000 ═ $70,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-4 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,000 Selling and Administrative Expenses 107,00098,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$70,000 ÷ $430,000﴿ × 100 ═ 16.3%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-5 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015,000 Selling and Administrative Expenses 107,00098,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $225,000 − $210,000 ═ $15,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-6 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$15,000 ÷ $210,000﴿ × 100 ═ 7.1%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-7 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $107,000 − $98,000 ═ $9,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-8 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009, Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$9,000 ÷ $98,000﴿ × 100 ═ 9.2%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-9 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009, Other Expenses 15,00011,0003,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $15,000 − $11,000 ═ $3,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-10 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009, Other Expenses 15,00011,0003, Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$3,000 ÷ $11,000﴿ × 100 ═ 27.3%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-11 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009, Other Expenses 15,00011,0003, Total Expenses 347,000319,00028,000 Net Income $153,000$111,000 Calculation: ═ $347,000 − $319,000 ═ $28,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-12 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009, Other Expenses 15,00011,0003, Total Expenses 347,000319,00028, Net Income $153,000$111,000 Calculation: ═ ﴾$28,000 ÷ $319,000﴿ × 100 ═ 8.8%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-13 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009, Other Expenses 15,00011,0003, Total Expenses 347,000319,00028, Net Income $153,000$111,000$42,000 Calculation: ═ $153,000 − $111,000 ═ $42,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-14 E15-15D—Req.1 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009, Other Expenses 15,00011,0003, Total Expenses 347,000319,00028, Net Income $153,000$111,000$42, % Calculation: ═ ﴾$42,000 ÷ $111,000﴿ × 100 ═ 37.8%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-15 E15-15D—Req.2 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 Increase (Decrease) AmountPercentage Net Sales Revenue $500,000$430,000$70, % Expenses: Cost of Goods Sold 225,000210,00015, Selling and Administrative Expenses 107,00098,0009, Other Expenses 15,00011,0003, Total Expenses 347,000319,00028, Net Income $153,000$111,000$42, % Net income increased by a higher percentage than total net sales revenue during 2015 because revenues increased at a higher rate than total expenses.

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-16 Comet, Inc. net revenue and net income for the following five-year period, using 2012 as the base year, follow: E15-16D Requirements 1.Compute trend analysis for net revenue and net income. Round to the nearest full percent. 2.Which grew faster during the period, net revenue or net income? Net Revenue $870,000$860,000$842,000$730,000$800,000 Net Income $70,000$64,000$55,000$40,000$50,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-17 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$800,000 ÷ $800,000﴿ × 100 ═ 100% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-18 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$730,000 ÷ $800,000﴿ × 100 ═ 91% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-19 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$842,000 ÷ $800,000﴿ × 100 ═ 105% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-20 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$860,000 ÷ $800,000﴿ × 100 ═ 108% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-21 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$870,000 ÷ $800,000﴿ × 100 ═ 109% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-22 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$50,000 ÷ $50,000﴿ × 100 ═ 100% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 100%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-23 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$40,000 ÷ $50,000﴿ × 100 ═ 80% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 80%100%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-24 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$55,000 ÷ $50,000﴿ × 100 ═ 110% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 110%80%100%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-25 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$64,000 ÷ $50,000﴿ × 100 ═ 128% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 128%110%80%100%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-26 E15-16D—Req.1 Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$70,000 ÷ $50,000﴿ × 100 ═ 140% Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 140%128%110%80%100%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-27 E15-16D—Req.2 Net income grew at a faster rate (40%) than net revenue (9%) Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 140%128%110%80%100%

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-28 The following data are adapted from the financial statements of Landmark, Inc.: E15-24D Requirement Prepare Landmark’s condensed balance sheet as of December 31, Total Current Assets$ 800,000 Accumulated Depreciation1,500,000 Total Liabilities1,200,000 Preferred Stock0 Debt Ratio75% Current Ratio1.2

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-29 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities Plant AssetsLong-term Liabilities Less: Accumulated DepreciationTotal Liabilities Plant Assets, NetStockholders’ Equity Total Assets Total Liabilities and Stockholder’s Equity

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-30 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities Less: Accumulated DepreciationTotal Liabilities Plant Assets, NetStockholders’ Equity Total Assets Total Liabilities and Stockholder’s Equity Calculation: Current Liabilities═ Current Assets ÷ Current Ratio ═ $800,000 ÷ 1.2 ═ $666,667

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-31 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, NetStockholders’ Equity Total Assets Total Liabilities and Stockholder’s Equity

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-32 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, NetStockholders’ Equity Total Assets Total Liabilities and Stockholder’s Equity Calculation: Long-term Liabilities═ Total Liabilities − Current Liabilities ═ $1,200,000 − $666,667 ═ $533,333

LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, NetStockholders’ Equity Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-33 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 Calculation: Total Assets═ Total Liabilities ÷ Debt ratio ═ $1,200,000 ÷ 75% ═ $1,600,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-34 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, NetStockholders’ Equity Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-35 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Calculation: Plant Assets, Net═ Total Assets − Total Current Assets ═ $1,600,000 − $800,000 ═ $800,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-36 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated Depreciation $1,500,000 Total Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-37 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant Assets $2,300,000 Long-term Liabilities 533,333 Less: Accumulated Depreciation $1,500,000 Total Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity $400,000 Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Calculation: Plant Assets═ Plant Assets + Accumulated Depreciation ═ $800,000 + $1,500,000 ═ $2,300,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-38 E15-24D Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant Assets $2,300,000 Long-term Liabilities 533,333 Less: Accumulated Depreciation $1,500,000 Total Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity $400,000 Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Calculation: Stockholder’s Equity═ Total Liabilities and Stockholder’s Equity − Total Liabilities ═ $1,600,000 − $1,200,000 ═ $400,000

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall15-39 E15-24D LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant Assets $2,300,000 Long-term Liabilities 533,333 Less: Accumulated Depreciation $1,500,000 Total Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity $400,000 Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000

End of Chapter 15 Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall