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This Accounting Materials are brought to you by www.everything.freelahat.com CHAPTER 13 FINANCIAL STATEMENTS ANALYSIS [Problem 1] Twig Company Comparative Balance Sheet December 31, 2006 and 2007 Increase (Decrease) ASSETS 2007 2006 Amount Percentage Cash P 3,000 P 5,000 P (2,000) (40.0) Accounts Receivable 40,000 25,000 15,000 60.0 Inventory 27,000 30,000 (3,000) (10.0) Long-term investments 15,000 0 15,000 0.0 Land, building and equipment (net) 100,000 75,000 25,000 33.3 Intangibles 10,000 10,000 0 0.0 Other assets 5,000 20,000 (15,000) (75.0) Total P 200,000 P 165,000 P 35,000 21.2 Current liabilities P 30,000 P 47,000 P (17,000) (36.2) Long-term liabilities 88,000 74,000 14,000 18.9 Total liabilities 118,000 121,000 (3,000 ) (2.5) 8% Preferred stock 10,000 9,000 1,000 11.1 Common stock 54,000 42,000 12,000 28.6 Additional paid-in-capital 5,000 5,000 0 0.0 Retained earnings 13,000 (12,000) 25,000 0.0 Total stockholders’ equity 82,000 44,000 38,000 86.4 Total liabilities and owners’ equity P 200,000 P 165,000 P 35,000 21.2 2. Twig Company
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This Accounting Materials are brought to you by www.everything.freelahat.com Common-size Balance Sheet December 31, 2006 and 2007 ASSETS Cash 1.50% 3.03% Accounts Receivable 20.00 15.15 Inventory 13.50 18.18 Long-term investments 35.00 36.36 Land, building and 7.50 0.00 equipment (net) 50.00 45.46 Intangibles 5.00 6.06 Other assets 2.50 12.12 Total 100.00 100.00 LIABILITIES and STOCKHOLDERS’ EQUITY Current liabilities 15.00 28.48 Long-term liabilities 44.00 44.85 Total liabilities 59.00 73.33 8% Preferred stock 5.00 5.46 Common stock 27.00 25.45 Additional paid-in-capital 2.50 3.03 Retained earnings 6.50 (7.27) Total stockholder's equity 41.00 26.67 Total liabilities and stockholders’ equity 100.00% 100.00% 3. Comments Based on the data as calculated, the following may be derived:
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This Accounting Materials are brought to you by www.everything.freelahat.com a. The company’s financial position is becoming stronger and more stable as its total revenues increase by 21.2% coupled with a decline in liabilities of 25% with an overall impact in stockholder’s equity of 86.4% increase. b. The increase in the overall net wealth of the company is engineered by reducing investments of working capital assets to 35.0% from 36.36% and a decrease in the contra-working capital liabilities from 28.48% to 15.0%. c. The company’s working capital strategy is to increase its accounts receivable to customers while reducing inventory and accounts payable at the same time. This strategy apparently pays off as the net income increases to the benefit of stockholders and other stakeholders.
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This note was uploaded on 08/26/2010 for the course DOA 506 taught by Professor Kim during the Spring '10 term at University of Santo Tomas.

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chapter-13 - This Accounting Materials are brought to you by

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