Question

Simon company year end balance sheets follows: At December 31 Current Year 1 Year Ago 2...

Simon company year end balance sheets follows:

At December 31 Current Year 1 Year Ago 2 Years Ago
Assets
Cash 36,333 41,645 42,109
Accounts receivable 103,260 72,158 55,044
Merchandise inventory 131,115 95,351 59,806
Prepaid expenses 11,473 10,824 4,495
Plant assets 315,697 295,434 255,546
Total assets 597,878 515,412 417,000
Liability and Equity
Accounts payable 148,872 87,976 55,044
Common Stock 10 par value 163,500 163,500 163,500”
Retained earnings 176,477 143,020 108,142
Long term notes payable 109,029 120,916 90,314
Total liabilities and payable 597,878 515,412 417,000

1.Express the balance sheets in common size(Do not round intermediate calculations and round your final percentage answers to 1 decimal place)

2.Assuming annual sales have not changed in the last three years, is the change in accounts receivable as a percentage of total assets favorable or unfavorable?

3. Assuming annual sales have not changed in the last three years, is the change in merchandise inventory as a percentage of total assets favorable or unfavorable?

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Answer #1
At December 31 Current Year 1 Year Ago 2 Years Ago
Assets
Cash $ 36,333.00 6.1% $ 41,645.00 8.1% $ 42,109.00 10.1%
Accounts receivable $103,260.00 17.3% $ 72,158.00 14.0% $ 55,044.00 13.2%
Merchandise inventory $131,115.00 21.9% $ 95,351.00 18.5% $ 59,806.00 14.3%
Prepaid expenses $ 11,473.00 1.9% $ 10,824.00 2.1% $    4,495.00 1.1%
Plant assets $315,697.00 52.8% $295,434.00 57.3% $255,546.00 61.3%
Total assets $597,878.00 100.0% $515,412.00 100.0% $417,000.00 100.0%
Liability and Equity
Accounts payable $148,872.00 24.9% $ 87,976.00 17.1% $ 55,044.00 13.2%
Common Stock 10 par value $163,500.00 27.3% $163,500.00 31.7% $163,500.00 39.2%
Retained earnings $176,477.00 29.5% $143,020.00 27.7% $108,142.00 25.9%
Long term notes payable $109,029.00 18.2% $120,916.00 23.5% $ 90,314.00 21.7%
Total liabilities and payable $597,878.00 100.0% $515,412.00 100.0% $417,000.00 100.0%

Part B: Since A/R has increased as percentage of total assets in three years with sales being the same, it is unfavorable

Part C: Since inventory levels has increased over three years with sales being same, it indicates that company has increased production without increase in sales and thus it represents unfavorable position.

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