Question

Lydex Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	860,000	$	1,230,000
Marketable securities		0		300,000
Accounts receivable, net		2,820,000		1,920,000
Inventory		3,630,000		2,300,000
Prepaid expenses		260,000		200,000
Total current assets		7,570,000		5,950,000
Plant and equipment, net		9,580,000		9,080,000
Total assets	$	17,150,000	$	15,030,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	4,550,000	$	3,040,000
Note payable, 10%		3,680,000		3,080,000
Total liabilities		8,230,000		6,120,000
Stockholders' equity:
Common stock, $70 par value		7,000,000		7,000,000
Retained earnings		1,920,000		1,910,000
Total stockholders' equity		8,920,000		8,910,000
Total liabilities and stockholders' equity	$	17,150,000	$	15,030,000

Lydex Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	15,890,000	$	13,880,000
Cost of goods sold		12,712,000		10,410,000
Gross margin		3,178,000		3,470,000
Selling and administrative expenses		2,124,286		1,616,000
Net operating income		1,053,714		1,854,000
Interest expense		368,000		308,000
Net income before taxes		685,714		1,546,000
Income taxes (30%)		205,714		463,800
Net income		480,000		1,082,200
Common dividends		470,000		541,100
Net income retained		10,000		541,100
Beginning retained earnings		1,910,000		1,368,900
Ending retained earnings	$	1,920,000	$	1,910,000

To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:

Current ratio	2.4
Acid-test ratio	1.2
Average collection period	32	days
Average sale period	60	days
Return on assets	9.6	%
Debt-to-equity ratio	0.69
Times interest earned ratio	5.9
Price-earnings ratio	10

Required:

1. Present the balance sheet in common-size format.

2. Present the income statement in common-size format down through net income.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Part 1
			Amount/Total Assets
	This Year	Last Year	This Year	Last Year
Assets
Current assets:
Cash	$          860,000	$             1,230,000	5.01%	8.18%
Marketable securities	$                     -	$                300,000	0.00%	2.00%
Accounts receivable, net	$      2,820,000	$             1,920,000	16.44%	12.77%
Inventory	$      3,630,000	$             2,300,000	21.17%	15.30%
Prepaid expenses	$          260,000	$                200,000	1.52%	1.33%
Total current assets	$      7,570,000	$             5,950,000	44.14%	39.59%
Plant and equipment, net	$      9,580,000	$             9,080,000	55.86%	60.41%
Total assets	$    17,150,000	$          15,030,000	100.00%	100.00%
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$      4,550,000	$             3,040,000	26.53%	20.23%
Note payable, 10%	$      3,680,000	$             3,080,000	21.46%	20.49%
Total liabilities	$      8,230,000	$             6,120,000	47.99%	40.72%
Stockholders' equity:
Common stock, $70 par value	$      7,000,000	$             7,000,000	40.82%	46.57%
Retained earnings	$      1,920,000	$             1,910,000	11.20%	12.71%
Total stockholders' equity	$      8,920,000	$             8,910,000	52.01%	59.28%
Total liabilities and stockholders' equity	$    17,150,000	$          15,030,000	100.00%	100.00%
Part 2
			Amount/Net Sale
	This Year	Last Year	This Year	Last Year
Sales (all on account)	$    15,890,000	$          13,880,000	100.00%	100.00%
Cost of goods sold	$    12,712,000	$          10,410,000	80.00%	75.00%
Gross margin	$      3,178,000	$             3,470,000	20.00%	25.00%
Selling and administrative expenses	$      2,124,286	$             1,616,000	13.37%	11.64%
Net operating income	$      1,053,714	$             1,854,000	6.63%	13.36%
Interest expense	$          368,000	$                308,000	2.32%	2.22%
Net income before taxes	$          685,714	$             1,546,000	4.32%	11.14%
Income taxes (30%)	$          205,714	$                463,800	1.29%	3.34%
Net income	$          480,000	$             1,082,200	3.02%	7.80%
Common dividends	$          470,000	$                541,100	2.96%	3.90%
Net income retained	$            10,000	$                541,100	0.06%	3.90%
Beginning retained earnings	$      1,910,000	$             1,368,900	12.02%	9.86%
Ending retained earnings	$      1,920,000	$             1,910,000	12.08%	13.76%