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 $ 32,972 93,653 121,355 10,300 300,573 $558,853 $ 39,312 $ 38,172 65,424 51,421 90,910 57,574 10,117 4,329 276,007 246,094 $481,770 $397,500 $141,937 $ 83,862 $ 53,519 108, 216 163,500 145,200 $558,853 113,023 90,483 163,500 163,500 121,385 89,998 $481,770 $397,500 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

Simon Company
Common Size Comparative balance Sheet
December 31st
	Current year	1 Year ago	2 Years ago
Assets
Cash	5.9%	8.2%	9.6%
Accounts Receivables , net	16.8%	13.6%	12.9%
Merchandise Inventory	21.7%	18.9%	14.5%
Prepaid Expenses	1.8%	2.1%	1.1%
Plant Assets ,Net	53.8%	57.3%	61.9%
Total Assets	100.0%	100.0%	100.0%
Liabilities and Equity
Accounts Payable	25.4%	17.4%	13.5%
Long Term Notes Payable Secured by mortgage on plant assets	19.4%	23.5%	22.8%
Common Stock $10 Par	29.3%	33.9%	41.1%
Retained Earnings	26.0%	25.2%	22.6%
Total Liabilities and Equity	100.0%	100.0%	100.0%

.Requirement 2 and 3

Change in accounts receivable	Favorable
Change in merchandise inventory	Favorable