The Mathematics of Money

Copyright © 2008, The McGraw-Hill Companies, Inc.

Hilbert Hotel Company

Balance Sheet as of December 31, 2006

Assets Liabilities

Current assets: Current liabilities:

Cash $835,043 Accounts payable $713,515

Accounts receivable $185,001 Salaries payable $87,530

Prepaid expenses $108,302

To tal current assets $1,128,346 Total current liabilities $801,045

Property, plant, and

equipment:

Long-term

liabilities:

Buildings $4,832,075 Mortgage notes $3,785,000

Land $725,000 Other Long-term debt $895,000

Other plant and

equipment

$3,286,323 Total long-term

liabilities

$4,680,000

To tal P, P, and E $8,843,398 Total liabilities $5,481,045

Equity

Contributed capital $750,000

Retained earnings $3,740,699

To tal equity $4,490,699

Total assets $9,971,744 Total liabilities and equity $9,971,744

To complete the horizontal analysis, we take the reformatted 2007 sheet and add a column

for the 2006 values. Then, we subtract the 2006 values in each category from the 2007

values to get the amount of change. We divide the amount of change by the 2006 value to

get the percent change.

For example, Cash was $527,500 in 2007 and $835,043 in 2006. The change is $527,500 


$835,043  
$307,543, which we list as ($307,543) in the table. To fi nd the percent, we

divide 
$307,543/$835,043 to get 
36.83%. We do the same for each line.

Note, however, that since the note due May 1 2008, was listed on the 2007 but not 2006 bal-

ance sheet it is impossible to calculate a change. If we consider the 2006 amount to be zero,

we could say that the amount change was $300,000 
 0  $300,000. However, to calculate a

percent we would have to divide $300,000/$0 which is mathematically impossible. Therefore,

we simple place “n/a” for “not applicable” in the change column for this line.

The result looks like this:

Hilbert Hotel Company

Balance Sheet as of December 31, 2007

Assets

Change

2007 2006 Amount Percent

Current assets:

Cash $527,500 $835,043 $(307,543) 
36.83%

Accounts receivable $245,904 $185,001 $60,903 32.92%

Prepaid expenses $425,000 $108,302 $316,698 292.42%

To tal current assets $1,198,404 $1,128,346 $70,058 288.51%

Property, plant, and equipment:

Buildings $4,505,075 $4,832,075 $(327,000) 
6.77%

Land $725,000 $725,000 $ - 0.00%

Other plant and equipment $2,750,000 $3,286,323 $(536,323) 
16.32%

To tal P, P, and E $7,980,075 $8,843,398 $(863,323) 
9.76%

To tal assets $9,178,479 $9,971,744 $(793,265) 
7.96%

12.2 Balance Sheets 503