Question

Please answer Problem 13-18A

LO 13-1 Problem 13-17A Horizontal analysis Financial statements for Allendale Company follow. CHECK FIGURES Total assets: +11.1% Total liabilities: +14.4% ALL ENDALE COMPANY Balance Sheets As of December 31 Year 4 Year 3 $ 40,000 20,000 54,000 135,000 25,000 274,000 27.000 270.000 29,000 $600,000 $ 36,000 6,000 46,000 143,000 10,000 241,000 20,000 255,000 24.000 $540,000 Assets Current assets Cash Marketable securities Accounts receivable (net) Inventories Prepaid items Total current assets Investments Plant (net Land Total assets Liabilities and Stockholders'Equity Liabilities Current liabilities Notes payable Accounts payable Salaries payable Total current liabilities Noncurrent liabilities Bonds payable Other Total noncurrent liabilities Total liabilities Stockholders' equity Preferred stock (par value $10,4% cumulative, nonparticipating: 8,000 shares authorized and issued) Common stock (no par: 50,000 shares authorized; 10,000 shares issued) Retained earnings Total stockholders' equity Total liabilities and stockholders equity $ 17,000 113,800 21,000 151,800 $ 6,000 100,000 15,000 121,000 100,000 32,000 132,000 283,800 100,000 27,000 127,000 248,000 80,000 80,000 80,000 156,200 316,200 $600,000 80,000 132,000 292,000 $540,000

Answer 1

ALLENDALE COMPANY
Balance Sheets
As of December 31
	Year 4			Year4 Vertical Analysis	Year 3			Year 3 Vertical Analysis
Assets
Current assets
Cash	$	40,000		6.67%	$	36,000		7%
Marketable securities		20,000		3.33%		6,000		1%
Accounts receivable (net)		54,000		9.00%		46,000		9%
Inventories		135,000		22.50%		143,000		26%
Prepaid items		25,000		4.17%		10,000		2%
Total current assets		274,000		45.67%		241,000		45%
Investments		27,000		4.50%		20,000		4%
Plant (net)		270,000		45.00%		255,000		47%
Land		29,000		4.83%		24,000		4%
Total assets	$	600,000		100.00%	$	540,000		100%
Liabilities and Stockholders’ Equity				0.00%				0%
Liabilities				0.00%				0%
Current liabilities				0.00%				0%
Notes payable	$	17,000		2.83%	$	6,000		1%
Accounts payable		113,800		18.97%		100,000		19%
Salaries payable		21,000		3.50%		15,000		3%
Total current liabilities		151,800		25.30%		121,000		22%
Noncurrent liabilities				0.00%				0%
Bonds payable		100,000		16.67%		100,000		19%
Other		32,000		5.33%		27,000		5%
Total noncurrent liabilities		132,000		22.00%		127,000		24%
Total liabilities		283,800		47.30%		248,000		46%
Stockholders’ equity				0.00%				0%
Preferred stock, (par value $10, 4% cumulative, non-participating; 8,000 shares authorized and issued)		80,000		13.33%		80,000		15%
Common stock (no par; 50,000 shares authorized; 10,000 shares issued)		80,000		13.33%		80,000		15%
Retained earnings		156,200		26.03%		132,000		24%
Total stockholders’ equity		316,200		52.70%		292,000		54%
Total liabilities and stockholders’ equity	$	600,000		100.00%	$	540,000		100%
ALLENDALE COMPANY
Statements of Income and Retained Earnings
For the Years Ended December 31
	2019				2018
Revenues
Sales (net)	$	230,000		96.64%	$	210,000		97.67%
Other revenues		8,000		3.36%		5,000		2.33%
Total revenues		238,000		100.00%		215,000		100.00%
Expenses				0.00%				0.00%
Cost of goods sold		120,000		50.42%		103,000		47.91%
Selling, general, and administrative		55,000		23.11%		50,000		23.26%
Interest expense		8,000		3.36%		7,200		3.35%
Income tax expense		23,000		9.66%		22,000		10.23%
Total expenses		206,000		86.55%		182,200		84.74%
Net earnings (net income)		32,000		13.45%		32,800		15.26%
Retained earnings, January 1		132,000		55.46%		107,000		49.77%
Less: Preferred stock dividends		3,200		1.34%		3,200		1.49%
Common stock dividends		4,600		1.93%		4,600		2.14%
Retained earnings, December 31	$	156,200		65.63%	$	132,000		61.40%

Explanation :For the Balance sheet when you do vertical analysis you would Consider total assets as bass and calculate Percent of any item with respect to the Total assets.

For Income statement you should take total revenue as base and calculate the percent of any item in the income statement

Analysis :When we compare the Percent from year 3 to year 4 , if we find any unusual changes like in total liability which as decreased compare to year 3 in year 4 we can analyse it saying that the company if reducing its liability year on year when we compare it to total asset, once we calculate it its is very easy for us to interpret and view the financial statements in different dimensions so that we can analyse what really happening inside the company and it would be useful to determine weather the company is investment grade or not