Question

Exercise 13-6 Common-size percents LO P2 Simon Company's year-end balance sheets follow. Current Yr 1 Yr Ago 2 Yrs Ago At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $ 26,310 77,041 99,830 8,910 247,637 $ 459,728 $ 32,339 $ 32,696 54,930 44,916 71,119 46,897 8,406 3,560 229,523 205,531 $ 396,317 $ 333,600 $ 116,762 $ 68,987 $ 43,595 87,293 163,500 92,173 $ 459,728 89,330 75,937 163,500 163,500 74,500 50,568 $ 396,317 $ 333,600 1. Express the balance sheets in common-size percents. (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?

Answer 1

Solution of the above problem is as under:

Requirement-1

SIMON COMPANY
Common-Size Comparative Balance Sheets
As at December 31
Particulars	Current Year (In %)	1 Year Ago (In %)	2 Year Ago (In %)
Assets
Cash	5.7	8.2	9.8
Accounts Receivable, net	16.8	13.9	13.5
Merchandise Inventory	21.7	17.9	14.1
Prepaid Expenses	1.9	2.1	1.1
Plant Assets, net	53.9	57.9	61.6
Total Assets	100	100	100
Liabilities and Equity
Accounts Payable	25.4	17.4	13.1
Long-term Notes Payable secured by mortgages on Plant Assets	19.0	22.5	22.8
Common Stock, $10 par	35.6	41.3	49.0
Retained Earnings	20.0	18.8	15.2
Total Liabilities and Equity	100	100	100

Requirement-2 and 3:

Assuming that annual sales have not changed in the last three years, Change in Accounts Receivable and Merchandise Inventory as a percentage of Total Assets is as under:

		Trend
Requirement	Particulars	Current Year	1 Year Ago	2 Year Ago	Favorable/Unfavorable
2	Change in Accounts Receivable	16.8	13.9	13.5	Favorable
3	Change in Merchandise Inventory	21.7	17.9	14.1	Favorable