Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Accounting for Exercise 3-18 Using common size statements and ratios to make com

ID: 2568095 • Letter: A

Question

Accounting for Exercise 3-18 Using common size statements and ratios to make comparisons At the end of 2018 the following information is available for Billings and Phoneix companies: Billings Phoneix Sales Cost of goods sold Operating expenses Total assets Stockholders' equity $3,000,000 1,800,000 960,000 3,750,000 1,000,000 $3,000 2,100 780 3,750 1,200 Required a. Prepare common size income statements for each company. b. One company is a high-end retailer, and the other operates a discount store. Which is the dis counter? Support your selection by referring to the common size statements.

Explanation / Answer

a.Common size income statement Particulars Billings Phoneix Amount$ % on sales Amount$ % on sales Sales    30,00,000.00 100%    3,000.00 100% Less: Cost of goods sold -18,00,000.00 60.00% -2,100.00 70.00% Gross Margin    12,00,000.00 40.00%        900.00 30.00% Less:Operating expenses     -9,60,000.00 32.00%      -780.00 26.00% Profit before taxes       2,40,000.00 8.00%        120.00 4.00% b-Identification of discounter 1.High-end retailer refers to high-quality item or more customised item as per customer preferences and expensive too 2.Discounter sales the products at discount 3.Accordingly       i-Discounter sales are more than high-end retailer     ii-Retailer's %of cost of goods sold on total sales is more than discounter as he spends a lot on producing quality product    iii-And discounter needs to spend more operating expenses than retailer All the above conditions are met by Billings Billings is discounter Please give thumbs up if you like the solution

Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Drop an Email at
drjack9650@gmail.com
Chat Now And Get Quote