Question

Problem 13-2A Ratios, common-size statements, and trend percents LO P1, P2, P3

[The following information applies to the questions displayed below.]

Selected comparative financial statements of Korbin Company follow:

KORBIN COMPANY
Comparative Income Statements
For Years Ended December 31, 2017, 2016, and 2015
	2017			2016			2015
Sales	$	496,208		$	380,136		$	263,800
Cost of goods sold		298,717			237,965			168,832
Gross profit		197,491			142,171			94,968
Selling expenses		70,462			52,459			34,822
Administrative expenses		44,659			33,452			21,895
Total expenses		115,121			85,911			56,717
Income before taxes		82,370			56,260			38,251
Income taxes		15,321			11,533			7,765
Net income	$	67,049		$	44,727		$	30,486

KORBIN COMPANY
Comparative Balance Sheets
December 31, 2017, 2016, and 2015
	2017			2016			2015
Assets
Current assets	$	52,317		$	40,932		$	54,716
Long-term investments		0			900			4,290
Plant assets, net		100,212			106,279			63,704
Total assets	$	152,529		$	148,111		$	122,710
Liabilities and Equity
Current liabilities	$	22,269		$	22,069		$	21,474
Common stock		67,000			67,000			49,000
Other paid-in capital		8,375			8,375			5,444
Retained earnings		54,885			50,667			46,792
Total liabilities and equity	$	152,529		$	148,111		$	122,710

Problem 13-2A Part 1

Required:
1. Complete the below table to calculate each year's current ratio.

2. Complete the below table to calculate income statement data in common-size percents. (Round your percentage answers to 2 decimal places.)

For each ratio listed, identify whether the change in ratio value from 2016 to 2017 is usually regarded as favorable or unfavorable.

Answer 1

1. Current Ratio = Current Assets / Current Liabilities
2017 = 52317/22269 = 2.35
2016 = 40932/22069 = 1.85
2015 = 54716/21474 = 2.55

Change in ratio from 2016 to 2017 is favorable since it increases

2.

	2017	Common Size	2016	Common Size	2015	Common Size
Sales	496208	100.00%	380136	100.00%	263800	100.00%
Cost of goods sold	298717	60.20%	237965	62.60%	168832	64.00%
Gross profit	197491	39.80%	142171	37.40%	94968	36.00%
Selling expenses	70462	14.20%	52459	13.80%	34822	13.20%
Administrative expenses	44659	9.00%	33452	8.80%	21895	8.30%
Total expenses	115121	23.20%	85911	22.60%	56717	21.50%
Income before taxes	82370	16.60%	56260	14.80%	38251	14.50%
Income taxes	15321	3.09%	11533	3.03%	7765	2.94%
Net income	67049	13.51%	44727	11.77%	30486	11.56%

Common SIze is calculated using sales of year as a base.

	2017	Common Size	2016	Common Size	2015	Common Size
Assets
Current assets	52317	34.30%	40932	27.64%	54716	44.59%
Long-term investments	0	0.00%	900	0.61%	4290	3.50%
Plant assets, net	100212	65.70%	106279	71.76%	63704	51.91%
Total assets	152529	100.00%	148111	100.00%	122710	100.00%
Liabilities and Equity
Current liabilities	22269	14.60%	22069	14.90%	21474	17.50%
Common stock	67000	43.93%	67000	45.24%	49000	39.93%
Other paid-in capital	8375	5.49%	8375	5.65%	5444	4.44%
Retained earnings	54885	35.98%	50667	34.21%	46792	38.13%
Total liabilities and equity	152529	100.00%	148111	100.00%	122710	100.00%

COmmon Size is calculated by taking total assets as a base