Question

Common-Size and Common-Base Year Financial Statements In addition to common-size financial statements, common base year financial statements are often used. Common base year financial statements are constructed by dividing the current year account value by the base year account value. Thus, the result shows the growth rate in the account. Using the following financial statements, construct the common-size balance sheet and common base year balance sheet for the company. Use 2006 as the base year.

Answer 1

Prepare the common size balance sheet for 2006 using the information given:

Common Size Balance Sheet for the Year 2006

Particulars	2006	Common size Balance Sheet
Assets
Current Assets
Cash	$10,168	2.54%
Accounts Receivable	$27,145	6.77%
Inventory	$59,324	14.80%
Total	$96,637	24.11%
Fixed Assets
Net Plant and Equipment	$304,165	75.89%
Total Assets	$400,802	100%
Current Liabilities
Accounts Payable	$73,185	18.26%
Notes Payable	$39,125	9.76%
Total	$112,310	28%
Long-term debt	$50,000	12.47%
Owner’s equity
Common stock and paid-in surplus	$80,000	19.96%
Accumulated retained earnings	$158,492	39.54%
Total	$238,492	59.50%
Total liabilities and owner’s equity	$400,802	100%

Prepare the common size balance sheet for 2007 using the information given:

Common Size Balance Sheet for the Year 2007

Particulars	2007	Common size Balance Sheet
Assets
Current Assets
Cash	$10,683	2.37%
Accounts Receivable	$28,613	6.34%
Inventory	$64,853	14.34%
Total	$104,149	23.08%
Fixed Assets
Net Plant and Equipment	$347,168	76.92%
Total Assets	$451,317	100%
Current Liabilities
Accounts Payable	$59,309	13.14%
Notes Payable	$48,168	10.67%
Total	$107,477	23.81%
Long-term debt	$62,000	13.74%
Owner’s equity
Common stock and paid-in surplus	$80,000	17.73%
Accumulated retained earnings	$201,840	44.72%

Total

$281,840

62.45%

Total liabilities and owner’s equity

$451,317

100%

Prepare the common base year balance sheet for the year 2007:

Common-Base Year Balance Sheet for the year 2007

	2006	2007	Common base year
Assets
Current assets
Cash	$10,168	$10,683	1.0506
Accounts receivable	$27,145	$28,613	1.0541
Inventory	$59,324	$64,853	1.0932
Total	$96,637	$104,149	1.0777
Fixed assets
Net plant and equipment	$304,165	$347,168	1.1414
Total assets	$400,802	$451,317	1.1260
Liabilities and Owners’ Equity
Current liabilities
Accounts payable	$73,185	$59,309	0.8104
Notes payable	$39,125	$48,168	1.2311
Total	$112,310	$107,477	0.9570
Long-term debt	$50,000	$62,000	1.2400
Owners' equity
Common stock and paid-in surplus	$80,000	$80,000	1.0000
Accumulated retained earnings	$158,492	$201,840	1.2735
Total	$238,492	$281,840	1.1818
Total liabilities and owners' equity	$400,802	$451,317	1.1260