ACC 400
WEEK 5: ACC/400
M. Portugal
The condensed financial statements of Leeward Corporation for 2006 and 2005 are presented below.
Leeward Corporation Leeward Corporation
Balance Sheet Income Statement
December 31, 2006 For the Year Ended December 31, 2006
Assets Revenues $2,500,000
Current assets Expenses
Cash and temporary Cost of goods sold 1,080,000
investments $ 50,000 Selling and administrative
Accounts receivable 70,000 expenses 495,000
Inventories 120,000 Interest expense 30,000
Total current assets 240,000 Total expenses 1,605,000
Property, plant, and Income before income taxes 895,000
equipment (net) 780,000 Income tax expense 268,500
Total assets $1,020,000 Net income $ 626,500
Liabilities and Stockholders' Equity
Current liabilities $ 100,000
Long-term liabilities 300,000
Common stockholders' equity 620,000
Total liabilities and
stockholders' equity $1,020,000
Leeward Corporation Leeward Corporation
Balance Sheet Income Statement
December 31, 2005 For the Year Ended December 31, 2005
Assets Revenues $2,500,000
Current assets Expenses
Cash and temporary Cost of goods sold 1,750,000
investments $ 40,000 Selling and administrative
Accounts receivable 90,000 expenses 500,000
Inventories 150,000 Interest expense 30,000
Total current assets 280,000 Total expenses 2,280,000
Property, plant, and Income before income taxes 220,000
equipment (net) 800,000 Income tax expense 66,000
Total assets $1,080,000 Net income $ 154,000
Liabilities and Stockholders' Equity
Current liabilities $ 140,000
Long-term liabilities 320,000
Common stockholders' equity 620,000
Total liabilities and
stockholders' equity $1,080,000
Instructions
1. Compute the following listed ratios for 2006.
(a) Current ratio = .
(b) Debt to total assets = .
(d) Profit margin ratio = .
(e) Return on common stockholders' equity = .
(f) Return on assets = .
2. Perform horizontal analysis on both the balance sheet and income statement.
Leeward Corporation
Balance Sheet
Horizontal Analysis
|
|
2006 |
2005 |
Change |
Percent |
|
Assets |
|
|
|
|
|
Cash and temporary investments |
$50,000 |
$40,000 |
|
|
|
Accounts receivable |
$70,000 |
$90,000 |
|
|
|
Inventories |
$120,000 |
$150,000 |
|
|
|
Total current assets |
$240,000 |
$280,000 |
|
|
|
Property, plant and equipment |
$780,000 |
$800,000 |
|
|
|
Total assets |
$1,020,000 |
$1,080,000 |
|
|
|
|
|
|
|
|
|
Liabilities & Stockholder’s Equity |
|
|
|
|
|
Current liabilities |
$100,000 |
$140,000 |
|
|
|
Long-term liabilities |
$300,000 |
$320,000 |
|
|
|
Common stockholder’s equity |
$620,000 |
$620,000 |
|
|
|
Total liabilities and stockholder’s equity |
$1,020,000 |
$1,080,000 |
|
|
|
|
|
|
|
|
Leeward Corporation
Income Statement
Horizontal Analysis
|
|
2006 |
2005 |
Change |
Percent |
|
Revenues |
$2,500,000 |
$2,500,000 |
|
|
|
Expenses |
|
|
|
|
|
Cost of goods sold |
$1,080,000 |
$1,750,000 |
|
|
|
Selling & administrative expense |
$495,000 |
$500,000 |
|
|
|
Interest expense |
$30,000 |
$30,000 |
|
|
|
Total Expenses |
$1,605,000 |
$2,280,000 |
|
|
|
Income before income taxes |
$895,000 |
$220,000 |
|
|
|
Income tax expense |
$268,500 |
$66,000 |
|
|
|
Net Income |
$626,500 |
$154,000 |
|
|
|
|
|
|
|
|
3. Perform vertical analysis on both the balance sheet and income statement for 2005 and 2006.
Leeward Corporation
Balance Sheet
Vertical Analysis
|
|
2006 |
2005 |
||
|
|
Amount |
Percent |
Amount |
Percent |
|
Assets |
|
|
|
|
|
Cash and temporary investments |
$50,000 |
|
$40,000 |
|
|
Accounts receivable |
$70,000 |
|
$90,000 |
|
|
Inventories |
$120,000 |
|
$150,000 |
|
|
Total current assets |
$240,000 |
|
$280,000 |
|
|
Property, plant and equipment |
$780,000 |
|
$800,000 |
|
|
Total assets |
$1,020,000 |
|
$1,080,000 |
|
|
|
|
|
|
|
|
Liabilities & Stockholder’s Equity |
|
|
|
|
|
Current liabilities |
$100,000 |
|
$140,000 |
|
|
Long-term liabilities |
$300,000 |
|
$320,000 |
|
|
Common stockholder’s equity |
$620,000 |
|
$620,000 |
|
|
Total liabilities and stockholder’s equity |
$1,020,000 |
|
$1,080,000 |
|
|
|
|
|
|
|
Leeward Corporation
Income Statement
Vertical Analysis
|
|
2006 |
2005 |
||
|
|
Amount |
Percent |
Amount |
Percent |
|
Revenues |
$2,500,000 |
|
$2,500,000 |
|
|
Expenses |
|
|
|
|
|
Cost of goods sold |
$1,080,000 |
|
$1,750,000 |
|
|
Selling & administrative expense |
$495,000 |
|
$500,000 |
|
|
Interest expense |
$30,000 |
|
$30,000 |
|
|
Total Expenses |
$1,605,000 |
|
$2,280,000 |
|
|
Income before income taxes |
$895,000 |
|
$220,000 |
|
|
Income tax expense |
$268,500 |
|
$66,000 |
|
|
Net Income |
$626,500 |
|
$154,000 |
|
|
|
|
|
|
|
4. Assess the financial performance of Leeward, using your analysis in #2 and #3 above. How have things changed from 2005 to 2006?
5. If the company wanted to perform industry comparison analysis, what references would you recommend it use?