1. Chapter 15 Financial Statement Analysis Demonstration Problems © 2016 Pearson Education, Ltd. 15-1

2. Data for Sun Rise, Inc. follow: Demonstration of E15-15 SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 20162015 Net Sales Revenue$500,000$430,000 Expenses: Cost of Goods Sold225,000210,000 Selling and Administrative Expenses107,00098,000 Other Expenses15,00011,000 Total Expenses347,000319,000 Net Income$153,000$111,000 Requirements 1.Prepare a horizontal analysis of the comparative income statement of Sun Rise, Inc. Round percentage changes to one decimal place. 2.Why did 2016 net income increase by a higher percentage than net sales revenue? © 2016 Pearson Education, Ltd. 15-2

3. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 Expenses: Cost of Goods Sold 225,000210,000 Selling and Administrative Expenses 107,00098,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $500,000 − $430,000 ═ $70,000 Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-3

4. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,000 Selling and Administrative Expenses 107,00098,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$70,000 ÷ $430,000﴿ × 100 ═ 16.3% Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-4

5. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 Selling and Administrative Expenses 107,00098,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $225,000 − $210,000 ═ $15,000 Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-5

6. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$15,000 ÷ $210,000﴿ × 100 ═ 7.1% Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-6

7. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $107,000 − $98,000 ═ $9,000 Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-7

8. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$9,000 ÷ $98,000﴿ × 100 ═ 9.2% Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-8

9. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ $15,000 − $11,000 ═ $3,000 Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-9

10. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,000 Net Income $153,000$111,000 Calculation: ═ ﴾$3,000 ÷ $11,000﴿ × 100 ═ 27.3% Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-10

11. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 Net Income $153,000$111,000 Calculation: ═ $347,000 − $319,000 ═ $28,000 Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-11

12. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 8.8 Net Income $153,000$111,000 Calculation: ═ ﴾$28,000 ÷ $319,000﴿ × 100 ═ 8.8% Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-12

13. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 8.8 Net Income $153,000$111,000$42,000 Calculation: ═ $153,000 − $111,000 ═ $42,000 Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-13

14. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 8.8 Net Income $153,000$111,000$42,00037.8% Calculation: ═ ﴾$42,000 ÷ $111,000﴿ × 100 ═ 37.8% Demonstration of E15-15-Req. 1 © 2016 Pearson Education, Ltd. 15-14

15. SUN RISE, INC. Comparative Income Statement Years Ended December 31, 2016 and 2015 Increase (Decrease) 20162015AmountPercentage Net Sales Revenue $500,000$430,000$70,000 16.3% Expenses: Cost of Goods Sold 225,000210,00015,000 7.1 Selling and Administrative Expenses 107,00098,0009,000 9.2 Other Expenses 15,00011,0003,000 27.3 Total Expenses 347,000319,00028,000 8.8 Net Income $153,000$111,000$42,00037.8% Net income increased by a higher percentage than total net sales revenue during 2015 because revenues increased at a higher rate than total expenses. Demonstration of E15-15-Req. 2 © 2016 Pearson Education, Ltd. 15-15

16. Comet, Inc. net revenue and net income for the following five-year period, using 2013 as the base year, follow: Demonstration of E15-16 Requirements 1.Compute trend analysis for net revenue and net income. Round to the nearest full percent. 2.Which grew faster during the period, net revenue or net income? 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Net Income $70,000$64,000$55,000$40,000$50,000 © 2016 Pearson Education, Ltd. 15-16

17. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$800,000 ÷ $800,000﴿ × 100 ═ 100% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-17

18. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$730,000 ÷ $800,000﴿ × 100 ═ 91% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-18

19. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$842,000 ÷ $800,000﴿ × 100 ═ 105% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-19

20. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$860,000 ÷ $800,000﴿ × 100 ═ 108% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-20

21. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$870,000 ÷ $800,000﴿ × 100 ═ 109% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-21

22. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$50,000 ÷ $50,000﴿ × 100 ═ 100% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 100% Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-22

23. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$40,000 ÷ $50,000﴿ × 100 ═ 80% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 80%100% Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-23

24. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$55,000 ÷ $50,000﴿ × 100 ═ 110% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 110%80%100% Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-24

25. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$64,000 ÷ $50,000﴿ × 100 ═ 128% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 128%110%80%100% Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-25

26. Calculation: Trend Percentages ═ ﴾Any period amount ÷ Base period amount﴿ × 100 ═ ﴾$70,000 ÷ $50,000﴿ × 100 ═ 140% 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 140%128%110%80%100% Demonstration of E15-16-Req. 1 © 2016 Pearson Education, Ltd. 15-26

27. Net income grew at a faster rate (40%) than net revenue (9%). 20172016201520142013 Net Revenue $870,000$860,000$842,000$730,000$800,000 Trend Percentages 109%108%105%91%100% Net Income $70,000$64,000$55,000$40,000$50,000 Trend Percentages 140%128%110%80%100% Demonstration of E15-16-Req. 2 © 2016 Pearson Education, Ltd. 15-27

28. The following data are adapted from the financial statements of Landmark, Inc.: Demonstration of E15-24 Requirement Prepare Landmark’s condensed balance sheet as of December 31, 2016. Total Current Assets$ 800,000 Accumulated Depreciation1,500,000 Total Liabilities1,200,000 Preferred Stock0 Debt Ratio75% Current Ratio1.2 © 2016 Pearson Education, Ltd. 15-28

29. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities Plant AssetsLong-term Liabilities Less: Accumulated DepreciationTotal Liabilities Plant Assets, NetStockholders’ Equity Total Assets Total Liabilities and Stockholder’s Equity Demonstration of E15-24 © 2016 Pearson Education, Ltd. 15-29

30. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities Less: Accumulated DepreciationTotal Liabilities Plant Assets, NetStockholders’ Equity Total Assets Total Liabilities and Stockholder’s Equity Calculation: Current Liabilities═ Current Assets ÷ Current Ratio ═ $800,000 ÷ 1.2 ═ $666,667 Demonstration of E15-24 15-30

31. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, NetStockholders’ Equity Total Assets Total Liabilities and Stockholder’s Equity Demonstration of E15-24 © 2016 Pearson Education, Ltd. 15-31

32. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, NetStockholders’ Equity Total Assets Total Liabilities and Stockholder’s Equity Calculation: Long-term Liabilities═ Total Liabilities − Current Liabilities ═ $1,200,000 − $666,667 ═ $533,333 Demonstration of E15-24 15-32

33. LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, NetStockholders’ Equity Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 Calculation: Total Assets═ Total Liabilities ÷ Debt ratio ═ $1,200,000 ÷ 75% ═ $1,600,000 Demonstration of E15-24 15-33

34. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, NetStockholders’ Equity Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Demonstration of E15-24 © 2016 Pearson Education, Ltd. 15-34

35. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated DepreciationTotal Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Calculation: Plant Assets, Net═ Total Assets − Total Current Assets ═ $1,600,000 − $800,000 ═ $800,000 Demonstration of E15-24 15-35

36. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant AssetsLong-term Liabilities 533,333 Less: Accumulated Depreciation $1,500,000 Total Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Demonstration of E15-24 © 2016 Pearson Education, Ltd. 15-36

37. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant Assets $2,300,000 Long-term Liabilities 533,333 Less: Accumulated Depreciation $1,500,000 Total Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity $400,000 Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Calculation: Plant Assets═ Plant Assets + Accumulated Depreciation ═ $800,000 + $1,500,000 ═ $2,300,000 Demonstration of E15-24 15-37

38. Total Current Assets$ 800,000Preferred Stock$0 Accu. Depreciation1,500,000Debt Ratio75% Total Liabilities1,200,000Current Ratio1.2 LANDMARK, INC. Balance Sheet December 31, 2015 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant Assets $2,300,000 Long-term Liabilities 533,333 Less: Accumulated Depreciation $1,500,000 Total Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity $400,000 Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Calculation: Stockholder’s Equity═ Total Liabilities and Stockholder’s Equity − Total Liabilities ═ $1,600,000 − $1,200,000 ═ $400,000 Demonstration of E15-24 15-38

39. LANDMARK, INC. Balance Sheet December 31, 2016 AssetsLiabilities Total Current Assets $800,000 Total Current Liabilities $666,667 Plant Assets $2,300,000 Long-term Liabilities 533,333 Less: Accumulated Depreciation $1,500,000 Total Liabilities 1,200,000 Plant Assets, Net $800,000 Stockholders’ Equity $400,000 Total Assets $1,600,000 Total Liabilities and Stockholder’s Equity $1,600,000 Demonstration of E15-24 © 2016 Pearson Education, Ltd. 15-39