Question

1.) Express the following comparative income statements in common-size percents. Using the common-size percentages, which item is most responsible for the decline in net income? Reason for Income Statement Decline in Net Income Express the following comparative income statements in common-size percents. (Round your percentage answers to 1 decimal place.) GOMEZ CORPORATION Comparative Income Statements For Years Ended December 31 Current Year Prior Year % % Sales Cost of goods sold 770,000 $635,000 284,400 568,100 Gross profit Operating expenses Net income 350.600 201,900 262,400 129,200 72,700 S 88,200 Reason for Income Statement Decline in Net Income Using the common-size percentages, which item is most responsible for the decline in net income? 2.) CRUZ, INC Comparative Balance Sheets December 31, 2019 2019 2018 Assets $ 71,600 18,000 Cash Accounts receivable, net Inventory Prepaid expenses 30,900 64,700 4,000 38,200 71,700 3,300 Total current assets 131,200 171,200 93,500 (7,000) Furniture 80,600 Accum. depreciation-Furniture (12,500) $239,300 $217,700 Total assets Liabilities and Equity Accounts payable Wages payable Income taxes payable Total current liabilities $ 11,300 S 16,000 3,800 2,100 21,900 55,800 77,700 6,800 1,100 19,200 22,800 Notes payable (long-term) Total liabilities Equity Common stock, $5 par value Retained earnings 42,000 174,100 138,700 23,200 $239,300 1,300 Total liabilities and equity $217,700 CRUZ, INC Income Statement For Year Ended December 31, 2019 Sales $372,800 239,900 132,900 Cost of goods sold Gross profit Operating expenses Depreciation 28,700 expense Other expenses 68,100 96,800 36,100 13,200 Income before taxes Income taxes expense Net income 22,900 Use the above balance sheet and income statement to prepare the operating activities section by direct method. Assume all the sales were made on credit basis. (Amounts to be deducted should be indicated with a minus sign.) Cash flows from operating activities

Answer 1

GOMEZ CORPORATION Condensed income statement for the years ended december 31 current year $ % 7,70,000 100 % 5,68,100 73.8 % 2,01,900 26.2 % 129200 16.8 % 72,700 9.4 % sales cost of goods sold gross profit operating expenses net income prior year $ % 6,35,000 100 284400 44.8 3,50,600 55.2 262400 41.3 88,200 13.9 % % % % Cost of goods sold item is the most responsible for decline in the net income

22900 28700 CRUZ INC statement of cash flows (partial) for the year end december 31 2019 cash from operating activities net income adjustments to net income to cash provided by operating activities add depreciation expense changes in current assets and liabilities add accounts receivable add inventory less prepaid exp less accounts payable add wages payable less income tax payable total adjustments to the net income net cash flows provided by operating activities 7300 7000 -1000 -4700 3000 -1000 39300 62200