Horizontal and Vertical Analysis
Sanborn Corporation’s condensed comparative income statements for 20x8 and 20x7 appear below. The corporation’s condensed comparative balance sheets for 20x8 and 20x7 appear on the next page.
Sanborn Corporation
Comparative Income Statements
For the Years Ended December 31, 20x8 and 20x7
(in thousands of dollars)
20x8 20x7
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, 20x8 and 20x7
20x8 20x7
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 20x7 to 20x8 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, 20x8 and 20x7
(in thousands of dollars)
20x8 20x7 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
Sanborn Corporation
Comparative Balance Sheets
December 31, 20x8 and 20x7
20x8 20x7 Increase or Decrease
Amount Percentage
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
2. Using the forms below, prepare common-size income statements and balance sheets for 20x7 and 20x8 (40 points)
Sanborn Corporation
Common-Size Income Statements
For the Years Ended December 31, 20x8 and 20x7
20x8 20x7
Net sales
Cost of goods sold
Gross margin
Operating expenses
Selling expenses
Administrative expenses
Total operating expenses
Income from operations
Interest expense
Income before income taxes
Income taxes expense
Net income
Sanborn Corporation
Common-Size Balance Sheets
December 31, 20x8 and 20x7
20x8 20x7
Assets
Cash
Accounts receivable (net)
Inventory
Property, plant, and equipment (net)
Total assets
Liabilities and Stockholders' Equity
Accounts payable
Notes payable (short-term)
Bonds payable
Common stock, $10 par value
Retained earnings
Total liabilities and stockholders' equity
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)
Sanborn Corporation’s condensed comparative income statements for 20x8 and 20x7 appear below. The corporation’s condensed comparative balance sheets for 20x8 and 20x7 appear on the next page.
Sanborn Corporation
Comparative Income Statements
For the Years Ended December 31, 20x8 and 20x7
(in thousands of dollars)
20x8 20x7
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, 20x8 and 20x7
20x8 20x7
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 20x7 to 20x8 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, 20x8 and 20x7
(in thousands of dollars)
20x8 20x7 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
Sanborn Corporation
Comparative Balance Sheets
December 31, 20x8 and 20x7
20x8 20x7 Increase or Decrease
Amount Percentage
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
2. Using the forms below, prepare common-size income statements and balance sheets for 20x7 and 20x8 (40 points)
Sanborn Corporation
Common-Size Income Statements
For the Years Ended December 31, 20x8 and 20x7
20x8 20x7
Net sales
Cost of goods sold
Gross margin
Operating expenses
Selling expenses
Administrative expenses
Total operating expenses
Income from operations
Interest expense
Income before income taxes
Income taxes expense
Net income
Sanborn Corporation
Common-Size Balance Sheets
December 31, 20x8 and 20x7
20x8 20x7
Assets
Cash
Accounts receivable (net)
Inventory
Property, plant, and equipment (net)
Total assets
Liabilities and Stockholders' Equity
Accounts payable
Notes payable (short-term)
Bonds payable
Common stock, $10 par value
Retained earnings
Total liabilities and stockholders' equity
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)
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