BENNINGTON COMPANY Comparative Income Statements For Years Ended December 31, 20

Question

BENNINGTON COMPANY Comparative Income Statements For Years Ended December 31, 2006, 2005, and 2004 2006 2005 2004 Sales . . . . . . . . . . . . . . . . . . . . . . $444,000 $340,000 $236,000 Cost of goods sold . . . . . . . . . . . 267,288 212,500 151,040 Gross profit . . . . . . . . . . . . . . . . 176,712 127,500 84,960 Selling expenses . . . . . . . . . . . . . 62,694 46,920 31,152 Administrative expenses . . . . . . . 40,137 29,920 19,470 Total expenses . . . . . . . . . . . . . . 102,831 76,840 50,622 Income before taxes . . . . . . . . . . 73,881 50,660 34,338 Income taxes . . . . . . . . . . . . . . . 13,764 10,370 6,962 Net income . . . . . . . . . . . . . . . . $ 60,117 $ 40,290 $ 27,376 BENNINGTON COMPANY Comparative Balance Sheets December 31, 2006, 2005, and 2004 2006 2005 2004 Assets Current assets . . . . . . . . . . . . . . . $ 48,480 $ 37,924 $ 50,648 Long-term investments . . . . . . . . . 0 500 3,720 Plant assets, net . . . . . . . . . . . . . . . 90,000 96,000 57,000 Total assets . . . . . . . . . . . . . . . . . . $138,480 $134,424 $111,368 Liabilities and Equity Current liabilities . . . . . . . . . . . . . . $ 20,200 $ 19,960 $ 19,480 Common stock . . . . . . . . . . . . . . . 72,000 72,000 54,000 Other contributed capital . . . . . . . 9,000 9,000 6,000 Retained earnings . . . . . . . . . . . . . 37,280 33,464 31,888 Total liabilities and equity . . . . . . . . $138,480 $134,424 $111,368 Required 1. Compute each year

Explanation / Answer

1)Current ratio: December 31, 2006: $48,480 / $20,200 = 2.4 to 1 December 31, 2005: $37,924 / $19,960 = 1.9 to 1 December 31, 2004: $50,648 / $19,480 = 2.6 to 1 2) BENNINGTON COMPANY Common-Size Comparative Income Statement For Years Ended December 31, 2006, 2005, and 2004 2006 2005 2004 Sales 100.00% 100.00% 100.00% Cost of goods sold 60.20% 62.50% 64.00% Gross profit from sales 39.80% 37.50% 36.00% Selling expenses 14.12% 13.80% 13.20% Administrative expenses 9.04% 8.80% 8.25% Total expenses 23.16% 22.60% 21.45% Income before taxes 16.64% 14.90% 14.55% State and federal income taxes 3.10% 3.05% 2.95% Net income 13.54% 11.85% 11.60% 3) BENNINGTON COMPANY Balance Sheet Data in Trend Percentages December 31, 2006, 2005, and 2004 2006 2005 2004 Assets Current assets 95.72% 74.88% 100.00% Long-term investments 0.00% 13.44% 100.00% Plant and equipment 157.89% 168.42% 100.00% Total assets 124.34% 120.70% 100.00% Liabilities & Stockholders' Equity Current liabilities 103.70% 102.46% 100.00% Common stock 133.33% 133.33% 100.00% Other contributed capital 150.00% 150.00% 100.00% Retained earnings 116.91% 104.94% 100.00% Total liabilities and equity 124.34% 120.70% 100.00% 4)Significant relations revealed Bennington’s selling expenses, administrative expenses, and income taxes took larger portions of each sales dollar in 2005 than 2004. However, because the cost of goods sold took a smaller portion in 2005, some efficiency was gained. In 2006 these trends continued. Selling expenses, administrative expenses, and income taxes continued to take a greater portion of each sales dollar while the gross profit portion continued to improve. Bennington expanded its plant assets in 2005, financing the expansion through the sale of long-term investments, through a reduction in working capital (the current ratio decreased from 2.6 to 1 to 1.9 to 1), and perhaps through the sale of a small amount of stock. As to the stock increase, it is not possible to tell from these two statements whether the company sold shares or declared a stock dividend. In either case, the increase in retained earnings during 2005 indicates that net income was larger than the reductions from cash (and perhaps stock) dividends. In 2006, cash dividends were paid.

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