Question

Here are comparative statement data for Duke Company and Lord Company, two competitors. All balance sheet data are as of December 31, 2022, and December 31, 2021.

		Duke Company				Lord Company
		2022		2021		2022		2021
Net sales		$1,849,000				$546,000
Cost of goods sold		1,063,200				289,000
Operating expenses		240,000				82,000
Interest expense		6,800				3,600
Income tax expense		62,000				28,000
Current assets		325,980		$312,410		83,336		$ 79,467
Plant assets (net)		526,800		500,000		139,729		125,812
Current liabilities		66,325		75,815		35,348		30,281
Long-term liabilities		113,990		90,000		29,620		25,000
Common stock, $10 par		500,000		500,000		120,000		120,000
Retained earnings		172,460		146,600		38,096		29,998

(a)

Prepare a vertical analysis of the 2022 income statement data for Duke Company and Lord Company. (Round all ratios to 1 decimal place, e.g. 2.5%.)

Condensed Income Statement For the Year Ended December 31, 2022
	Duke Company					Lord Company
	Dollars		Percent			Dollars		Percent
Net Sales	$1,849,000		100	%		$546,000		100	%
Costs of Goods Sold	1,063,200		enter percentages	%		289,000		enter percentages	%
select a summarizing line for the first part                                                          DividendsExpensesNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31Sales RevenuesTotal ExpensesTotal RevenuesNet SalesGross ProfitOperating ExpensesTotal Operating ExpensesIncome Before Income TaxesOther Revenues and GainsOther Expenses and LossesIncome From OperationsCost of Goods SoldInterest ExpenseIncome Tax Expense	785,800		enter percentages	%		257,000		enter percentages	%
select an income statement item                                                          DividendsExpensesNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31Sales RevenuesTotal ExpensesTotal RevenuesNet SalesGross ProfitOperating ExpensesTotal Operating ExpensesIncome Before Income TaxesOther Revenues and GainsOther Expenses and LossesIncome From OperationsCost of Goods SoldInterest ExpenseIncome Tax Expense	240,000		enter percentages	%		82,000		enter percentages	%
select a summarizing line for the second part                                                          DividendsExpensesNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31Sales RevenuesTotal ExpensesTotal RevenuesNet SalesGross ProfitOperating ExpensesTotal Operating ExpensesIncome Before Income TaxesOther Revenues and GainsOther Expenses and LossesIncome From OperationsCost of Goods SoldInterest ExpenseIncome Tax Expense	545,800		enter percentages	%		175,000		enter percentages	%
select an opening section name                                                          DividendsExpensesNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31Sales RevenuesTotal ExpensesTotal RevenuesNet SalesGross ProfitOperating ExpensesTotal Operating ExpensesIncome Before Income TaxesOther Revenues and GainsOther Expenses and LossesIncome From OperationsCost of Goods SoldInterest ExpenseIncome Tax Expense
select an income statement item                                                          DividendsExpensesNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31Sales RevenuesTotal ExpensesTotal RevenuesNet SalesGross ProfitOperating ExpensesTotal Operating ExpensesIncome Before Income TaxesOther Revenues and GainsOther Expenses and LossesIncome From OperationsCost of Goods SoldInterest ExpenseIncome Tax Expense	6,800		enter percentages	%		3,600		enter percentages	%
select a summarizing line for the third part                                                          DividendsExpensesNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31Sales RevenuesTotal ExpensesTotal RevenuesNet SalesGross ProfitOperating ExpensesTotal Operating ExpensesIncome Before Income TaxesOther Revenues and GainsOther Expenses and LossesIncome From OperationsCost of Goods SoldInterest ExpenseIncome Tax Expense	539,000		enter percentages	%		171,400		enter percentages	%
select an income statement item                                                          DividendsExpensesNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31Sales RevenuesTotal ExpensesTotal RevenuesNet SalesGross ProfitOperating ExpensesTotal Operating ExpensesIncome Before Income TaxesOther Revenues and GainsOther Expenses and LossesIncome From OperationsCost of Goods SoldInterest ExpenseIncome Tax Expense	62,000		enter percentages	%		28,000		enter percentages	%
select a closing name for this statement                                                          DividendsExpensesNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31Sales RevenuesTotal ExpensesTotal RevenuesNet SalesGross ProfitOperating ExpensesTotal Operating ExpensesIncome Before Income TaxesOther Revenues and GainsOther Expenses and LossesIncome From OperationsCost of Goods SoldInterest ExpenseIncome Tax Expense	$477,000		enter percentages	%		$143,400		enter percentages	%

(b1)

Compute the 2022 return on assets and the return on common stockholders’ equity for both companies. (Round all ratios to 1 decimal place, e.g. 2.5%.)

		Duke Company			Lord Company
Return on assets		enter percentages	%		enter percentages	%
Return on common stockholders’ equity		enter percentages	%		enter percentages	%

Answer 1

Ans. A		Duke   Company		Lord   Company
		Amount	%	Amount	%
	Net sales	$1,849,000	100.00%	$546,000	100.00%
	Cost of goods sold	$1,063,200	57.50%	$289,000	52.93%
	Gross profit	$785,800	42.50%	$257,000	47.07%
	Operating expense	$240,000	12.98%	$82,000	15.02%
	Income before interest and taxes	$545,800	29.52%	$175,000	32.05%
	Interest expense	$6,800	0.37%	$3,600	0.66%
	Income before taxes	$539,000	29.15%	$171,400	31.39%
	Income tax expense	$62,000	3.35%	$28,000	5.13%
	Net income	$477,000	25.80%	$143,400	26.26%
	*In a common size income statement, all precentages are calculated on the base of
	sales.
	Amount is percentage for Duke company =   Particular amount of 2022 / Sales * 100
	Amount is percentage for Lord company =   Particular amount of 2022 / Sales * 100
Ans. B 1	Return on assets =   Net income / Average assets * 100
	Duke Company	$477,000 / $832,595 * 100	57.29%
	Lord Company	$143,400 / $214,172 * 100	66.96%
	*Calculations for Total Assets:
		Duke   Company		Lord   Company
		2021 (Beginning)	2022 (Ending)	2021 (Beginning)	2022 (Ending)
	Current assets	$312,410	$325,980	$79,467	$83,336
	Plant assets	$500,000	$526,800	$125,812	$139,729
	Total assets	$812,410	$852,780	$205,279	$223,065
	*Average assets = (Beginning assets + Ending assets) / 2
	Duke Company	($812,410 + $852,780) / 2	$832,595
	Lord Company	($205,279 + $223,065) / 2	$214,172
Ans. B 2	Return on Common stockholder's equity =   Net income / Average Common stockholder's equity * 100
	Duke Company	$477,000 / $659,530 * 100	72.32%
	Lord Company	$143,400 / $154,047 * 100	93.09%
	*Calculations for Total Stockholder's Equity:
		Duke   Company		Lord   Company
		2021 (Beginning)	2022 (Ending)	2021 (Beginning)	2022 (Ending)
	Common stock	$500,000	$500,000	$120,000	$120,000
	Retained earnings	$146,600	$172,460	$29,998	$38,096
	Total stockholder's equity	$646,600	$672,460	$149,998	$158,096
	* Average Stockholder's equity =   (Beginning equity + Ending equity) / 2
	Duke Company	($646,600 + $672,460) / 2	$659,530
	Lord Company	($149,998 + $158,096) / 2	$154,047