Exercise 17-3 Computation and analysis of trend percents

Compute trend percents for the above accounts, using 2009 as the base year.
Particulars

2013

Sales
Cost of Goods Sold
Accounts Receivable

2012
614,600
297,608
29,808

399,091
193,314
23,307

Calculation of Trend Percent

Particulars

2013

Sales
Cost of Goods Sold
Accounts Receivable

2012

346.84%
349.90%
245.21%

225.22%
227.28%
191.73%

Exercise 17-5 Common-size percent computation and interpretation

Particulars
Sales
Cost of Goods Sold
Gross Profit
Less Operating expenses
Net Income

2011

%
721,000
474,600
281,740
151,300
130,440

100.00%
65.83%
39.08%
20.98%
18.09%

Interpretation;

The study which is based on ratios or percentages of the data of a

certain period normally one year of all the items of the financial accounts is known as
vertical analysis .Under this method the comparison of different items of a year are
compared with the selected base of the items of the financial statements.
Sales for the year 2010 was $540,000 and it increased to $721,000. With the increase
in sales Cost of goods sold rose from 52.17% to 65.83% . There has been a significant increase
in cost of goods sold , As a result of increase in cost of goods sold gross profit also
declines in 2011 from 47.83% to 39.08%.There has been slight increase in operating expenses
from 19.04% to 20.98% but this increase is not as much as there was increase in sales.
Net income has also reason for decline indeclined from 28.79% to 18.09% in 2011 . The main
reason for decline in net income was increase in xost of goods sold as compared to increase in sa
The management must take steps to control the cost of goods sold . If the management will not tak

steps to control the cost of goods sold then increase in sales will not generate the same proportion
net income as it should be.
On the basis of above analysis and calculations company's situation in most recent year has wors
Although there has been significant increase in sales but due to rise in the cost of goods sold
net income has declined as compared to rise in sales . The management must take steps to contro
the cost of goods sold.

Exercise 17-8 Liquidity analysis

1)
Compute the current ratio for the year ended 2012, 2011, and 2010
Particulars
Current ratio

2012

2011

Current Assets
Current liabilities
256,970
137,787

206,300
80,619

1.86

2.56

2)
Compute the acid-test ratio for the year ended 2012, 2011, and 2010.
Particulars
Asid test ratio

2012

2011

Current Assets -Merchandise Inventory -Prepaid expenses

Current liabilities
127,272
137,787

108,031
80,619

0.92

1.34

2011
320,555
157,116
21,958

2011
180.90%
184.72%
180.64%

2010
540,000
281,740
258,260
102,790
155,470

unts is known as
s of a year are

With the increase

been a significant increase
oss profit also
ease in operating expenses
s increase in sales.
8.09% in 2011 . The main
as compared to increase in sales.
If the management will not take any

2010
237,448
115,725
13,819

2010
134.00%
136.06%
113.68%

%
100.00%
52.17%
47.83%
19.04%
28.79%

2009
177,200
85,056
12,156

2009
100.00%
100.00%
100.00%

generate the same proportion of

in most recent year has worsened

in the cost of goods sold
ment must take steps to control

2010

153,662
53,004
2.90

2010

entory -Prepaid expenses

92,757
53,004
1.75