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

2. 15-2 Data for Sun Rise, Inc. follow: E15-15D SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2015 and 2014 20152014 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?

3. 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) 20152014AmountPercentage 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

4. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% 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%

5. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% 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

6. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 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%

7. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 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

8. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$9,000 ÷ $98,000﴿ × 100 ═ 9.2%

9. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $15,000 − $11,000 ═ $3,000

10. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$3,000 ÷ $11,000﴿ × 100 ═ 27.3%

11. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 Net Income $153,000$111,000 Calculation: ═ $347,000 − $319,000 ═ $28,000

12. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 8.8 Net Income $153,000$111,000 Calculation: ═ ﴾$28,000 ÷ $319,000﴿ × 100 ═ 8.8%

13. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 8.8 Net Income $153,000$111,000$42,000 Calculation: ═ $153,000 − $111,000 ═ $42,000

14. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 8.8 Net Income $153,000$111,000$42,00037.8% Calculation: ═ ﴾$42,000 ÷ $111,000﴿ × 100 ═ 37.8%

15. 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) 20152014AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 8.8 Net Income $153,000$111,000$42,00037.8% Net income increased by a higher percentage than total net sales revenue during 2015 because revenues increased at a higher rate than total expenses.

16. 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? 20162015201420132012 Net Revenue $870,000$860,000$842,000$730,000$800,000 Net Income $70,000$64,000$55,000$40,000$50,000

17. 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% 20162015201420132012 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

18. 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% 20162015201420132012 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

19. 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% 20162015201420132012 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

20. 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% 20162015201420132012 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

21. 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% 20162015201420132012 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

22. 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% 20162015201420132012 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%

23. 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% 20162015201420132012 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%

24. 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% 20162015201420132012 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%

25. 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% 20162015201420132012 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%

26. 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% 20162015201420132012 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%

27. 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%). 20162015201420132012 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%

28. 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, 2015. Total Current Assets$ 800,000 Accumulated Depreciation1,500,000 Total Liabilities1,200,000 Preferred Stock0 Debt Ratio75% Current Ratio1.2

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

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