Question

LUTUM ASSELS Current Liabilities Fixed Assets, Net Investments Long-Term Debt Dividends Declared on Common Stock during the Year Income Summary income) Retained Earnings, January 1, Year 4 Common Stock Premium on Common Stock Required: Find the ending balance in Retained Earnings as of December 31, 2018. 400,000 600,000 100,000 500,000 50,000 225,000 125,000 150,000 250,000 4. Comparative income statements for 2018 and 2017 follow. 2018 2017 Sales $9,434,000 $7,862,000 Cost of Sales 7,075, 400 5,660,640 Gross Profit $2,358,600 $2,201,360 Operating Expenses 1,367,690 1,365,060 Operating Income $ 990,910 $ 836,300 Interest Expense 157,500 126,000 Earnings Before Tax $ 833, 410 $ 710,300 Income Taxes 400,000 317,200 Net Income $ 433, 410 $_393, 100 Required: a. Prepare a vertical common-size analysis of this statement for each year, using sales as the base. b. Comment briefly on the changes between the two years, based on the vertical common-size statement. 5. Toledo Toy, a manufacturer of infants' blocks, presented the following data in its last annual report. This trend analysis begins with the year of formation, 2015. 2018 2017 2016 2015 Sales $61,000 $41,000 $25,000 $13,000 Cost of Sales $41,300 $28,175 $17,201 $ 9,000 Net Income $ 9,919 $ 6,412 $ 3,850 $ 2,000 Cases of Blocks Shipped 33,126 22,681 13,900 7,400 Required: a. Using 2015 as the base year, perform a horizontal, common-size analysis. b. Comment on the results of the horizontal analysis. 6. Szabo Company computed the following data for 2018. Days' sales in receivables Accounts receivable turnover Accounts receivable turnover in days Days' sales in inventory Merchandise inventory turnover Inventory turnover in days Required: a. Explain what the operating cycle is and how to calculate it. b. Calculate Szabo Company's operating cycle. 38.7 days 9.6 times 35.1 days 68.5 days 5.9 times 58.7 days Page 2 of 3

Answer 1

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Answer 4	Vertical Analysis
Answer a	Amount $	% of Total Sales	Amount $	% of Total Sales		Answer b
Assets	2018		2017		Change %	Remarks
Sales	9,434,000.00	100.00%	7,862,000.00	100.00%
Cost of Sales	7,075,400.00	75.00%	5,660,640.00	72.00%	3.00%	Cost of Sales increased by 3% from last year.
Gross Profit	2,358,600.00	25.00%	2,201,360.00	28.00%	-3.00%	Gross Profit decreased by 3% from last year.
Operating Expenses	1,367,690.00	14.50%	1,365,060.00	17.36%	-2.87%	Operating Expenses decreased by 2,87% from last year.
Operating Income	990,910.00	10.50%	836,300.00	10.64%	-0.13%	Operating Income decreased by 0.13% from last year.
Interest Expense	157,500.00	1.67%	126,000.00	1.60%	0.07%	Interest Expense increased by 0.07% from last year.
Earnings before tax	833,410.00	8.83%	710,300.00	9.03%	-0.20%	Earnings before tax decreased by 0.20% from last year.
Income taxes	400,000.00	4.24%	317,200.00	4.03%	0.21%	Income taxes increased by 0.21% from last year.
Net Income	433,410.00	4.59%	393,100.00	5.00%	-0.41%	Net Income decreased by 0.41% from last year.
Answer 5	Answer a
Toledo Toy	Amount $	Amount $	Horizontal Analysis
	2016	2015	Increase or (Decrease) 2015 over 2014		Answer b
			Dollars	Percent	Remarks
Sales	25,000.00	13,000.00	12,000.00	92.31%	Sales increased by 92.31% from 2015.
Cost of Sales	17,201.00	9,000.00	8,201.00	91.12%	Cost of Sales increased by 91.12% from 2015.
Net Income	3,850.00	2,000.00	1,850.00	92.50%	Net Income increased by 92.50% from 2015.
Cases of Blocks Shipped	13,900.00	7,400.00	6,500.00	87.84%	Cases of Blocks Shipped increased by 87.84% from 2015.
	Amount $	Amount $	Horizontal Analysis
	2017	2015	Increase or (Decrease) 2015 over 2014		Answer b
			Dollars	Percent	Remarks
Sales	41,000.00	13,000.00	28,000.00	215.38%	Sales increased by 215.38% from 2015.
Cost of Sales	28,175.00	9,000.00	19,175.00	213.06%	Cost of Sales increased by 213.06% from 2015.
Net Income	6,412.00	2,000.00	4,412.00	220.60%	Net Income increased by 220.60% from 2015.
Cases of Blocks Shipped	22,681.00	7,400.00	15,281.00	206.50%	Cases of Blocks Shipped increased by 206.50% from 2015.
	Amount $	Amount $	Horizontal Analysis
	2016	2015	Increase or (Decrease) 2015 over 2014		Answer b
			Dollars	Percent	Remarks
Sales	61,000.00	13,000.00	48,000.00	369.23%	Sales increased by 369.23% from 2015.
Cost of Sales	41,300.00	9,000.00	32,300.00	358.89%	Cost of Sales increased by 358.89% from 2015.
Net Income	9,919.00	2,000.00	7,919.00	395.95%	Net Income increased by 395.95% from 2015.
Cases of Blocks Shipped	33,126.00	7,400.00	25,726.00	347.65%	Cases of Blocks Shipped increased by 347.65% from 2015.
Answer 6	Szabo Company
Operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods and received cash from customers in exchange of goods.
Operating cycle (days) is calculated as:	Accounts Receivables turnover (days) + Days of sales in Inventory
Accounts Receivables turnover (days)		35.10
Days of sales in Inventory		68.50
Operating cycle (days)		103.60