04 Jun Question Horizontal and Vertical Analysis Sanborn Corpo
Question
Horizontal and Vertical Analysis Sanborn Corporation’s condensed comparative income statements for 20×8 and 20×7 appear below. The corporation’s condensed comparative balance sheets for 20×8 and 20×7 appear on the next page. Sanborn Corporation Comparative
Income Statements For the Years Ended December 31, 20×8 and 20×7 (in thousands of dollars) 20×8 20×7 Net sales $3,276,800 $3,146,400 Cost of goods sold 2,088,800 2,008,400 Gross margin $1,188,000 $1,138,000 Operating expenses Selling expenses $ 476,800 $ 518,000
Administrative expenses 447,200 423,200 Total operating expenses $ 924,000 $ 941,200 Income from operations $ 264,000 $ 196,800 Interest expense 65,600 39,200 Income before income taxes $ 198,400 $ 157,600 Income taxes expense 62,400 56,800 Net income $ 136,000
$ 100,800 Earnings per share $3.40 $2.52 Sanborn Corporation Comparative Balance Sheets December 31, 20×8 and 20×7 20×8 20×7 Assets Cash $ 81,200 $ 40,800 Accounts receivable (net) 235,600 229,200 Inventory 574,800 594,800 Property, plant, and equipment (net)
750,000 720,000 Total assets $1,641,600 $1,584,800 Liabilities and Stockholders’ Equity Accounts payable $ 267,600 $ 477,200 Notes payable (short-term) 200,000 400,000 Bonds payable 400,000 — Common stock, $10 par value 400,000 400,000 Retained earnings 374,000
307,600 Total liabilities and stockholders’ equity $1,641,600 $1,584,800 1. Prepare schedules showing the amount and percentage changes from 20×7 to 20×8 for the comparative income statements and the balance sheets. You may use the forms below. (40 points)
Sanborn Corporation Comparative Income Statements For the Years Ended December 31, 20×8 and 20×7 (in thousands of dollars) 20×8 20×7 Increase or Decrease Amount Percentage Net sales $3,276,800 $3,146,400 Cost of goods sold 2,088,800 2,008,400 Gross margin
$1,188,000 $1,138,000 Operating expenses Selling expenses $ 476,800 $ 518,000 Administrative expenses 447,200 423,200 Total operating expenses $ 924,000 $ 941,200 Income from operations $ 264,000 $ 196,800 Interest expense 65,600 39,200 Income before income
taxes $ 198,400 $ 157,600 Income taxes expense 62,400 56,800 Net income $ 136,000 $ 100,800 Earnings per share $3.40 $2.52 Sanborn Corporation Comparative Balance Sheets December 31, 20×8 and 20×7 20×8 20×7 Increase or Decrease Amount Percentage Assets Cash
$ 81,200 $ 40,800 Accounts receivable (net) 235,600 229,200 Inventory 574,800 594,800 Property, plant, and equipment (net) 750,000 720,000 Total assets $1,641,600 $1,584,800 Liabilities and Stockholders’ Equity Accounts payable $ 267,600 $ 477,200 Notes payable
(short-term) 200,000 400,000 Bonds payable 400,000 — Common stock, $10 par value 400,000 400,000 Retained earnings 374,000 307,600 Total liabilities and stockholders’ equity $1,641,600 $1,584,800 2. Using the forms below, prepare common-size income statements
and balance sheets for 20×7 and 20×8 (40 points) Sanborn Corporation Common-Size Income Statements For the Years Ended December 31, 20×8 and 20×7 20×8 20×7 Net sales Cost of goods sold Gross margin Operating expenses Selling expenses Administrative expenses
Total operating expenses Income from operations Interest expense Income before income taxes Income taxes expense Net income Sanborn Corporation Common-Size Balance Sheets December 31, 20×8 and 20×7 20×8 20×7 Assets Cash Accounts receivable (net) Inventory
Property, plant, and equipment (net) Total assets Liabilities and Stockholders’ Equity Accounts payable Notes payable (short-term) Bonds payable Common stock, $10 par value Retained earnings Total liabilities and stockholders’ equity 3. Comment on the results in requirements 1 and 2 by indentifying favorable and unfavorable changes in the components and composition of the statements. (30 points)
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