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Some of the accounts appearing in the year-end financial statements of Hot Lunch, Inc.
appear below. This list includes all of the company’s current assets and current (^) Prepare a schedule of the company’s current assets and current liabilities. Select the
4- 2
Horizontal Analysis
Focuses on changes in financial statement items from
period to period
Helpful for discovering trends in financial statement
relationships
Calculates dollar amount and % amount of change with
respect to the base year
$ change = comparison year amount - base year amount
% change = comparison year amount - base year amount
base year amount
4- 4 KELLOGG’S NET SALES KELLOGG’S NET SALES The purpose of horizontal analysis is to determine the increase or decrease that has taken place, expressed as either an amount or a percentage. The recent net sales figures of Kellogg Company are shown above. Given that 1990 is the base year, we can measure all percentage increases or decreases from this base period amount as shown below. The purpose of horizontal analysis is to determine the increase or decrease that has taken place, expressed as either an amount or a percentage. The recent net sales figures of Kellogg Company are shown above. Given that 1990 is the base year, we can measure all percentage increases or decreases from this base period amount as shown below.
4- 5 HORIZONTAL ANALYSIS OF KELLOGG’S NET SALES HORIZONTAL ANALYSIS OF KELLOGG’S NET SALES We can determine that net sales for Kellogg Company increased approximately 11.7% [($5,786.6 - $5,181.4) ÷ $5,181.4] from 1990 to 1991. We can also determine that net sales increased over 26.7% [($6,562.8 - $5,181.4) ÷ $5,181.4] from 1990 to 1994. The percentage of the base period for each of the 5 years, assuming 1990 as the base period, is shown below. We can determine that net sales for Kellogg Company increased approximately 11.7% [($5,786.6 - $5,181.4) ÷ $5,181.4] from 1990 to 1991. We can also determine that net sales increased over 26.7% [($6,562.8 - $5,181.4) ÷ $5,181.4] from 1990 to 1994. The percentage of the base period for each of the 5 years, assuming 1990 as the base period, is shown below.
4- 7 HORIZONTAL ANALYSIS OF A BALANCE SHEET HORIZONTAL ANALYSIS OF A BALANCE SHEET The 2-year condensed balance sheet of Quality Department Store Inc. for 1996 and 1995 showing dollar and percentage changes is displayed on the right. In the asset section, plant assets (net) increased $167,500 or 26.5%. In the liabilities section, current liabilities increased $41,500 or 13.7%. In the stockholders’ equity section, retained earnings increased $202,600 or 38.6%. It appears the company expanded its asset base during 1996 and financed the expansion by retaining income in the firm. The 2-year condensed balance sheet of Quality Department Store Inc. for 1996 and 1995 showing dollar and percentage changes is displayed on the right. In the asset section, plant assets (net) increased $167,500 or 26.5%. In the liabilities section, current liabilities increased $41,500 or 13.7%. In the stockholders’ equity section, retained earnings increased $202,600 or 38.6%. It appears the company expanded its asset base during 1996 and financed the expansion by retaining income in the firm.
4- 8 HORIZONTAL ANALYSIS OF AN INCOME STATEMENT HORIZONTAL ANALYSIS OF AN INCOME STATEMENT The 2-year comparative income statement of Quality Department Store Inc. for 1996 and 1995 is shown in condensed form on the right. Horizontal analysis of the comparative income statement shows the following changes: 1 Net sales increased $260,000, or 14.2% ($260,000 ÷ $1,837,000). 2 Cost of goods sold increased $141,000, or 12.4% ($141,000 ÷ $1,140,000). 3 Total operating expenses increased $37,000, or 11.6% ($37,000 ÷ $320,000). The 2-year comparative income statement of Quality Department Store Inc. for 1996 and 1995 is shown in condensed form on the right. Horizontal analysis of the comparative income statement shows the following changes: 1 Net sales increased $260,000, or 14.2% ($260,000 ÷ $1,837,000). 2 Cost of goods sold increased $141,000, or 12.4% ($141,000 ÷ $1,140,000). 3 Total operating expenses increased $37,000, or 11.6% ($37,000 ÷ $320,000).
4- 10 CLOVER CORPORATION Comparative Balance Sheets December 31, 2003 2002 Dollar Change Percent Change* Assets Current assets: Cash and equivalents $ 12,000 $ 23,500?? Accounts receivable, net 60,000 40, Inventory 80,000 100, Prepaid expenses 3,000 1, Total current assets $ 155,000 $ 164, Property and equipment: Land 40,000 40, Buildings and equipment, net 120,000 85, Total property and equipment $ 160,000 $ 125, Total assets $ 315,000 $ 289,
- Percent rounded to one decimal point.
4- 11 CLOVER CORPORATION Comparative Balance Sheets December 31, 2003 2002 Dollar Change Percent Change* Assets Current assets: Cash and equivalents $ 12,000 $ 23,500 $ (11,500)? Accounts receivable, net 60,000 40, Inventory 80,000 100, Prepaid expenses 3,000 1, Total current assets $ 155,000 $ 164, Property and equipment: Land 40,000 40, Buildings and equipment, net 120,000 85, Total property and equipment $ 160,000 $ 125, Total assets $ 315,000 $ 289,
- Percent rounded to one decimal point. $12,000 – $23,500 = $(11,500) $12,000 – $23,500 = $(11,500)
4- 13 CLOVER CORPORATION Comparative Balance Sheets December 31, 2003 2002 Dollar Change Percent Change* Assets Current assets: Cash and equivalents $ 12,000 $ 23,500 $ (11,500) -48.9% Accounts receivable, net 60,000 40,000 20,000 50.0% Inventory 80,000 100,000 (20,000) -20.0% Prepaid expenses 3,000 1,200 1,800 150.0% Total current assets $ 155,000 $ 164,700 (9,700) -5.9% Property and equipment: Land 40,000 40,000 - 0.0% Buildings and equipment, net 120,000 85,000 35,000 41.2% Total property and equipment $ 160,000 $ 125,000 35,000 28.0% Total assets $ 315,000 $ 289,700 $ 25,300 8.7%
- Percent rounded to one decimal point.
4- 14 Trend analysis is used to reveal patterns in data covering successive periods. Trend analysis is used to reveal patterns in data covering successive periods. Trend Percent Analysis Period Amount Base Period Amount
= × 100%
Trend Analysis
Trend Analysis
4- 16 Prepare Balance Sheet and Income Statement
Adjusted T/B
- 4-
- Sales $2,300, liabilities.
- Accumulated depreciation: equipment 190,
- Notes payable (due in 120 days) 80,
- Retained earnings 225,
- Cash 57,
- Capital stock 200,
- Marketable securities 166,
- Accounts payable 111,
- Mortgage payable (due in 20 days) 500,
- Salaries payable 6,
- Dividends 18,
- Income taxes payable 15,
- Accounts receivable 228,
- Inventory 182,
- Unearned revenue 12,
- Unexpired insurance 6,
- For the Month Ended September 30, 20X Day Spring Woodworking Worksheet
- Cash 3. Dr. Cr.
- Accounts receivable 4.
- Prepaid rent
- Supplies 1.
- Equipment 32.
- Accumulated Depreciation 1.
- Accounts payable 3.
- Salary payable
- Gail Pfeiffer, capital 36.
- Gail Pfeiffer, withdrawls 2.
- Service revenue 7.
- Depreciation expense
- Salary expense 2.
- Rent expense
- Utilities expense
- Supplies expense 1.
- Totals 49.700 49.
