SECTION C (24 marks) Attempt any TWO question from the following Ques CIGiven be

Question

SECTION C (24 marks) Attempt any TWO question from the following Ques CIGiven below is the comparative statement for Dean and Gerald who happen to be a competitor. Dean Company Gerald Company 2016 2015 2016 2015 Net sales Cost of goods sold Operating expenses Interest expense Income tax expense Current assets Plant assets (net) Current liabilities Long-term liabilities Common stock 350,000 1,200,000 648,000 266,000 10,000 175,000 72,000 5,000 22,000 130,000 $100,000 400,000 60,000 50,000 54,000 270,000 58,000 72,000 200,000 700,000 $650,000 1,000,000 750,000 250,000 275,000 200,000150,000 950,000 700,000 340,000 Retained earnings80,000 40,000 3000 275,000 Instruction: (4 marks) i. Prepare vertical analysis of the 2016 ii. Compute the return of assets for both the companies and comment on the relative (4 marks) profitability of the company

Explanation / Answer

Solution:-

1.

2.

Dean company appears to be more profitable. It has higher relative gorss profit, income from operation, income before taxes and net income.

Dean return on assets of 14.34 % (76,000 / 530,000) is higher than Gerald's return of assets of 13.06 % (222,000 / 1,700,000).

Please Rate or comment if you have any doubt regarding this solution.

Vertical analysis of income statement for 2016
Dean company Gerald company Dollars Percent Dollars Percent Net sales 350,000 100.00% 1,200,000 100.00% Cost of goods sold 175,000 50.00% 648,000 54.00% Gross profit 175,000 50.00% 552,000 46.00% Operating expenses 72,000 20.57% 266,000 22.17% Income from operation 103,000 29.43% 286,000 23.83% Interest expenses 5,000 1.43% 10,000 0.83% Income before income tax 98,000 28.00% 276,000 23.00% Income tax expense 22,000 6.29% 54,000 4.50% Net income 76,000 21.71% 222,000 18.50%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.