Presented below are the consolidated balance sheets and income statements for :
ID: 2476410 • Letter: P
Question
Presented below are the consolidated balance sheets and income statements for :
In thousands
Year 2
Year 1
Cash
$ 24,600
$ 19,600
Accounts receivable
27,500
29,400
Inventory
33,400
28,400
Marketable securities
25,900
17,400
Equipment, net
145,000
155,000
Total assets
$256,400
$249,800
Accounts payable
$ 21,000
$ 27,000
Income taxes payable
10,000
19,300
Common stock
117,000
109,500
Retained earnings
108,400
94,000
Total liabilities & shareholders' equity
$256,400
$249,800
Sales
$240,000
$224,000
Cost of goods sold
84,000
96,000
Depreciation expense
29,400
25,600
Other operating expenses
48,000
45,000
Income taxes expense
30,000
23,000
Net income
$ 48,600
$ 34,400
Prepare common-size income statements for Best Buy for Year 1 and Year 2. Explain the change in return on sales for Best Buy from Year 1 to Year 2.
How can common-size statements make financial statement analysis easier than examining dollar-value statements?
In thousands
Year 2
Year 1
Cash
$ 24,600
$ 19,600
Accounts receivable
27,500
29,400
Inventory
33,400
28,400
Marketable securities
25,900
17,400
Equipment, net
145,000
155,000
Total assets
$256,400
$249,800
Accounts payable
$ 21,000
$ 27,000
Income taxes payable
10,000
19,300
Common stock
117,000
109,500
Retained earnings
108,400
94,000
Total liabilities & shareholders' equity
$256,400
$249,800
Sales
$240,000
$224,000
Cost of goods sold
84,000
96,000
Depreciation expense
29,400
25,600
Other operating expenses
48,000
45,000
Income taxes expense
30,000
23,000
Net income
$ 48,600
$ 34,400
Explanation / Answer
Common Size Income Statement Amt $'000 Year 2 Year 1 Details Amt % of Sales Amt % of Sales Sales 240,000 100.00% 224,000 100.00% Cost of goods sold 84,000 35.00% 96,000 42.86% Depreciation expense 29,400 12.25% 25,600 11.43% Other operating expenses 48,000 20.00% 45,000 20.09% Income taxes expense 30,000 12.50% 23,000 10.27% Net income 48,600 20.25% 34,400 15.36% Return on sales in Year 2 has increased by approx 5% over year 1 . This mainly due to improvement ib COGS as % of sales over Year1. Common Sized statements make analysis of financial statements easier as financial statements of $ values of different size of companies may be difficult to analyse. When the finiacials statement components are expressed as % of sales , it become easier to compare even though the $ values may vary considerably.
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