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CHAPTER 12
SUMMARY
Topic Key Ideas, Formulas, and Techniques Examples
Basic Income
Statements, p. 487- Income statements provide information on a
business’s fi nancial performance and profi ts. - A basic statement lists revenues, expenses,
and the resulting profi t (or loss).
Cattarauqua Ginseng Enterprises had
sales of $176,530 last year. The cost
of the goods it sold was $62,500 and
its expenses totaled $78,595. What
was the company’s net income for
the year? (Example 12.1.1)More Detailed Income
Statements, p. 489- Depending on the nature of the business and
intended audience of the income statement,
sales, expenses, and other items may be
broken down into subcategories.
At the start of last year, Cattarauqua
Ginseng Enterprises had inventory
which cost $37,923. Over the course
of the year it made purchases of
$48,923 before taking into account
$1,850 that it received as a refund for
a returned shipment and $1,175 of
savings from cash discounts for early
payment.
At the end of the year, they had
inventory whose total cost was
$21,321. Calculate the company’s
cost of goods sold for the year.
(Example 12.1.4)Vertical Analysis of
Income Statements,
p. 491- Vertical analysis of an income statement
requires expressing each of the items as a
percent of the overall net sales. - Vertical analysis is most useful for determining
what proportion each item takes as a percent
of the total.
Complete a vertical analysis
for a given income statement.
(Example 12.1.7)Horizontal Analysis of
Income Statements,
p. 492- Horizontal analysis requires listing the current
period amounts next to the amounts for a prior
comparison period. - The difference between the two periods is
calculated both as an amount of increase
(decrease) and percent increase (decrease).
Complete a horizontal analysis
for a given income statement.
(Example 12.1.7)Basic Balance Sheets,
p. 498- The balance sheet lists the business’s assets
and liabilities as of a particular point in time. - Assets Liabilities Equity.
A corporation reports that its
assets total $20,500,000 and its
stockholders’ equity is $4,000,000.
What are the corporation’s total
liabilities? (Example 12.2.2)Depreciation and
Balance Sheet
Valuation, p. 501- Assets are not listed on the balance sheet at
their actual fair market value. - Assets are listed at depreciated cost.
A company purchased computer
workstations for $450,000 two years
ago. It is taking $90,000 depreciation
for them each year. What will the
value of this asset be on the balance
sheet? (Example 12.2.3)Vertical and Horizontal
Analysis of Balance
Sheets, p. 501- Vertical analysis of balance sheets is similar
to income statements, except that items are
expressed as a percent of total assets. - Horizontal analysis is done in the same way as
for income statements.
Complete vertical and horizontal
analyses of a given balance sheet.
(Examples 12.2.5 and 12.2.6)(Continued)