Financial Accounting: An Integrated Statements Approach, 2nd Edition

Prepare a comparative balance sheet for 2007 and 2006, stating each asset as a percent of total

assets and each liability and stockholders’ equity item as a percent of the total liabilities and

stockholders’ equity. Round to two decimal places.

Income statement data for Scribe Paper Company for the year ended December 31, 2007 and

2006, are as follows:

2007 2006

Sales $66,300 $85,000

Cost of goods sold 32,000 40,000

Gross profit $34,300 $45,000

Selling expenses $24,000 $25,000

Administrative expenses 7,500 6,000

Total operating expenses $31,500 $31,000

Income before income tax $ 2,800 $14,000

Income tax expense 1,000 6,000

Net income $ 1,800 $ 8,000

a. Prepare a comparative income statement with horizontal analysis, indicating the increase

(decrease) for 2007 when compared with 2006. Round to two decimal places.

b. What conclusions can be drawn from the horizontal analysis?

The following selected data were taken from the financial statements of Atlantic Resources, Inc.,

for December 31, 2008, 2007, and 2006:

December 31, December 31, December 31,

2008 2007 2006

Total assets $4,000,000 $2,400,000 $1,800,000

Common stock 800,000 800,000 800,000

Retained earnings 2,230,000 1,230,000 600,000

The 2008 net income was $1,000,000, and the 2007 net income was $630,000.

a. Determine the rate earned on total assets and the rate earned on stockholders’ equity for

the years 2007 and 2008. Round to one decimal place.

b. Relate the rate earned on stockholders’ equity to the rate earned on total assets using the

leverage ratio for fiscal year 2008. Round to a single decimal place.

c. What conclusions can be drawn from these data as to the company’s profitability?

Ann Taylor Stores Corp.sells professional women’s apparel through company-owned

retail stores. Recent financial information for Ann Taylor is provided below (all numbers in

millions).

662 Chapter 14 Financial Statement Analysis

Exercise 14-5

Horizontal analysis of the

income statement

Goal 1

a. Net income decrease,

77.5%

Exercise 14-6

Profitability ratios

Goal 2

a. Rate earned on total

assets, 2008, 31.3%

Exercise 14-7

Profitability ratios

Goal 2

a. 2004 rate earned on total

assets, 4.9%

Fiscal Year Ended

Jan. 29, 2005 Jan. 31, 2004

Net income $63.3 $100.7

Jan. 29, 2005 Jan. 31, 2004 Feb. 1, 2003

Total assets $1,327.3 $1,256.4 $1,008.5

Total stockholders’ equity 926.7 818.9 714.4