Horizontal and Vertical Analysis

Horizontal and Vertical Analysis.

Assignment 08

BU330 Accounting for Managers

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

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

and so on..

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)

Horizontal and Vertical Analysis

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