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Question & Answer: Perform vertical and/or horizontal analysis of the statements and identify two things that appear to be un…..

The balance sheet and income statement for ABC Company for the years 2015 and 2016 are as follows:

BALANCE SHEET 2015 S 460 620 1,000 $2,080 S 580 500 400 600 $2,080 2016 $ 300 Accounts receivable Inventory Total assets Accounts payable Notes payable Common stock Retained earnings Total liabilities and stockholders equity Income Statement Net sales Cost of goods sold Gross margin Expenses: 730 $1,510 S 310 100 400 700 $1,510 S 550 120 S 430 $ 840 160 S 680 S 100 $ 150 120 90 75 $ 435 $ 245 Warehousing costs 45 S 285 S 145 Total expenses Net income

Perform vertical and/or horizontal analysis of the statements and identify two things that appear to be unusual and could be possible symptoms of fraud.

BALANCE SHEET 2015 S 460 620 1,000 $2,080 S 580 500 400 600 $2,080 2016 $ 300 Accounts receivable Inventory Total assets Accounts payable Notes payable Common stock Retained earnings Total liabilities and stockholders’ equity Income Statement Net sales Cost of goods sold Gross margin Expenses: 730 $1,510 S 310 100 400 700 $1,510 S 550 120 S 430 $ 840 160 S 680 S 100 $ 150 120 90 75 $ 435 $ 245 Warehousing costs 45 S 285 S 145 Total expenses Net income

Expert Answer

 

ABC COMPANY
Balance sheet
2015 2016
Cash 460 300
% 22% 20%
Acccounts Receivable 620 480
% 30% 32%
Inventory 1000 730
% 48% 48%
Total Assets 2080 1510
100% 100%
Acounts payable 580 310
% 28% 21%
Notes payable 500 100
1080
% 24% 7%
Common stock 400 400
% 19% 26%
Retained earnings 600 700
% 29% 46%
Total liabilities and 2080 1510
Stockholders’ equity
ABC COMPANY
Income sheet
2015 2016
Sales 550 840
% 100% 100%
Cost of goods sold 120 160
% 22% 19%
Gross profit 430 680
% 78% 81%
Salaries 100 150
% 18% 18%
Warehouse costs 80 120
% 15% 14%
Advertising costs 60 90
% 11% 11%
Taxes 45 75
% 8% 9%
Total Expenses 285 435
% 52% 52%
Net income 145 245
% 26% 29%
1. The accounts receivable management has is showing a negative figure as can
      be seen from its proportion as a percentage of total assets (30% to 32%)
     with a corrsespondingdecrease in cash balance from 22% to 20%.
2.   We can conclude that cost of goods has gone down by 3% from the previous year
       which is resulting in an an incresed net profit margin , by the same proportion.
3. Warehouse costs have gone down by 1% as a percentage of sales.
4. We can conclude that the operational efficiency has gone up from last year.
ABC COMPANY
Balance sheet
2015 2016 Change
Cash 460 300 65%
Acccounts Receivable 620 480 77%
Inventory 1000 730 73%
Total Assets 2080 1510 73%
Acounts payable 580 310 53%
Notes payable 500 100 20%
Common stock 400 400 100%
Retained earnings 600 700 117%
Total liabilities and 2080 1510 73%
ABC COMPANY
Income sheet
2015 2016 Change
Sales 550 840 153%
Cost of goods sold 120 160 133%
Gross profit 430 680 158%
Salaries 100 150 150%
Warehouse costs 80 120 150%
Advertising costs 60 90 150%
Taxes 45 75 167%
Total Expenses 285 435 153%
Net income 145 245 169%
From the analysis we can conclude that :
1. The proportion of all assets has come down compared to last year
     with a corresponding decrease in liabilities, resulting in a increase in
      retained earnings by 117% over the last year.
2. From the analysis of the income statement we can say that the performance
     has improved compared with the previous year , as we have already observed
     in the vertical analysis.
     Whereas the sales has gone up by 53% , the cost of goods sold has gone up by only 33%
     which has resulted resulted in the net income going up by 69%.
3. This confirms that the company has imrpoved its performance from the last year.
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