The income statement and comparative balance sheets for Cruise Supply Store are
ID: 2430077 • Letter: T
Question
The income statement and comparative balance sheets for Cruise Supply Store are attached. The
following additional information is available.
CRUISE SUPPLY STORE
ADDITIONAL INFORMATION FOR FINANCIAL STATEMENT ANALYSIS
(a) The market price of the company's common stock on December 31, 20X4 is $49.
(b) Weighted average common shares outstanding for 20X4 were 10,000.
(c) All sales were credit sales.
REQUIRED: (1) Prepare a vertical analysis on the income statement for the year ending
December 31, 20X4. Round all percentages to two decimal places (four
decimal places in all).
(2) Prepare a horizontal analysis on the balance sheet from year 20X3 to 20X4.
Round all percentages to two decimal places (four decimal places in all).
(3) Compute the following ratios for the company for 20X4. Round those ratios
that are percentages to two decimal places (four decimal places in all) and all
other amounts to two decimal places.
(a) Current Ratio.
(b) Inventory Turnover.
(c) Accounts Receivable Turnover.
(d) Times Interest Earned Ratio.
(e) Return on Average Total Assets.
(f) Return on Average Common Stockholders' Equity.
(g) Earnings Per Share of Common Stock.
(h) Price/Earnings Ratio.
CRUISE SUPPLY STORE
INCOME STATEMENT
FOR YEAR ENDING DECEMBER 31, 20X4
Net Sales $ 462,000
Cost of Goods Sold 229,000
Gross Profit 233,000
Operating Expenses 136,000
Income From Operations 97,000
Interest Expense 11,000
Income Before Income Taxes 86,000
Income Tax Expense 30,000
Net Income $ 56,000
CRUISE SUPPLY STORE
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31, 20X3 AND 20X4
Dec. 31, 20X4 Dec. 31, 20X3
ASSETS
Cash $ 96,000 $ 97,000
Accounts Receivable (Net) 112,000 116,000
Inventories 172,000 162,000
Prepaid Expenses 16,000 7,000
Property,
Plant, and Equipment (Net) 189,000 178,000
TOTAL ASSETS $ 585,000 $ 560,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable $ 50,000 $ 60,000
Income Taxes Payable 36,000 25,000
Short Term Notes Payable 120,000 136,000
Bonds Payable 119,000 119,000
Common Stock 160,000 120,000
Additional Paid In Capital 50,000 30,000
Retained Earnings 50,000 70,000
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $ 585,000 $ 560,000
Explanation / Answer
1)Vertical analysis of income statement
Net Sales $ 462,000 100%
Cost of Goods Sold (229,000/462000)*100 49.57%
Gross Profit (233,000/462000)*100 50.43%
Operating Expenses (136,000/462000)*100 29.44%
Income From Operations (97,000/462000)*100 21%
Interest Expense (11,000/462000)*100 2.38%
Income Before Income Taxes (86,000/462000)*100 18.61%
Income Tax Expense (30,000/462000)*100 6.49%
Net Income ( 56,000/462000)*100 12.12%
Horizontal analysis of balance sheet
2)
particulars
20X3
20X4
Increase/decrease
%
Assets:
Cash
Accounts receivable
Inventories
Prepaid expenses
Property, plant & equipment
Total assets
Liabilities and stockholder’s equity:
Accounts payable
Income tax payable
Short-term notes payable
Bond payable
Common stock
Additional paid in capital
Retained earnings
Total Liabilities and stockholder’s equity
96,000
112,000
172,000
16000
189,000
97,000
116,000
162,000
7000
178,000
1,000
4000
(10,000)
(9000)
(11000)
1.04%
3.57%
(5.81%)
(56.25%)
(5.82%)
585,000
50,000
36,000
120,000
119,000
160,000
50,000
50,000
560,000
60,000
25,000
136,000
119,000
120,000
30,000
70,000
(25000)
10,000
(11,000)
16,000
---
(40,000)
(20,000)
20,000
(4.27%)
20%
(30.55%)
13.33%
----
(25%)
(40%)
40%
585,000
560,000
(25000)
(4.27%)
#note: %change= (increase or decrease/amount in base year)*100
3) Ratios for 20X4
a) Current ratio= current asset/ current liabilities
=382,000/221,000 =1.72:1
Current asset= Cash + Accounts receivable + Inventories+ Prepaid expenses
Current asset= 382,000
Current liabilities = Accounts payable+ Income tax payable + Short-term notes payable
=221,000
b) Inventory turnover ratio
= Net Sales/ average Inventories
=462000/167000* =2.76 times
*(162000+172000)/2
c) Accounts receivable turnover
= Net Sales/ average accounts receivable
= 462000/114000*=3.98
*(112000+116000)/2
(d) Times Interest Earned Ratio.
= Income before Income Taxes/ Interest Expense
=86,000/11000 =7.81
(e) Return on Average Total Assets
=net income/ average total asset*
= (56000/572500)*100 =9.78%
Average total asset*=total asset in 20X4+20X3 divided by 2
(f) Return on Average Common Stockholders' Equity
= net income/ average common shareholders’ equity*
= 56,000/140000 =.40
Average common shareholders’ equity* =(16000+12000)/2
(g) Earnings Per Share of Common Stock.
=net income/ no of common stock =56000/10000* =56
h) Price/Earnings Ratio
=marketvaluepershare / eps =49/56 =.875
Net Sales $ 462,000 100%
Cost of Goods Sold (229,000/462000)*100 49.57%
Gross Profit (233,000/462000)*100 50.43%
Operating Expenses (136,000/462000)*100 29.44%
Income From Operations (97,000/462000)*100 21%
Interest Expense (11,000/462000)*100 2.38%
Income Before Income Taxes (86,000/462000)*100 18.61%
Income Tax Expense (30,000/462000)*100 6.49%
Net Income ( 56,000/462000)*100 12.12%
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