Chapter_17_Answers - CHAPTER 17 FINANCIAL STATEMENT...

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Unformatted text preview: CHAPTER 17 FINANCIAL STATEMENT ANALYSIS EXERCISES Ex. 17–1 a. ROGAN TECHNOLOGIES CO. Comparative Income Statement For the Years Ended December 31, 2010 and 2009 2010 2009 Amount Percent Amount Percent Sales........................................... $500,000 100.0% $440,000 100.0% Cost of goods sold.................... 325,000 65 .0 242,000 55 .0 Gross profit................................ $175,000 35 .0 % $198,000 45 .0 % Selling expenses........................ $ 70,000 14.0% $ 79,200 18.0% Administrative operating expenses............................... 75,000 15 .0 70,400 16 .0 Total expenses........................... $145,000 29 .0 % $149,600 34 .0 % Income from operations............ $ 30,000 6.0% $ 48,400 11.0% Income tax expense................... 25,000 5 .0 26,400 6 .0 Net income................................. $ 5,000 1 .0 % $ 22,000 5 .0 % b. The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 10 percentage points (65.0% – 55.0%), while selling expenses de- creased by 4 percentage points (14% – 18%), administrative expenses decreased by 1% (15% – 16%), and Income Tax Expense decreased by 1 percentage point (5% – 6%). Thus, net income as a percent of sales dropped by 4% (4% + 1% + 1% – 10%). 1 Ex. 17–2 a. SPEEDWAY MOTORSPORTS, INC. Comparative Income Statement (in thousands of dollars) For the Years Ended December 31, 2006 and 2005 2006 2005 Revenues: Admissions...................................... $175,208 30.9% $177,352 32.6% Event-related revenue..................... 183,404 32.3 168,359 30.9 NASCAR broadcasting revenue..... 162,715 28.7 140,956 25.9 Other operating revenue................. 46,038 8 .1 57,401 10 .6 Total revenue............................. $567,365 100 .0 % $544,068 100 .0 % Expenses and other: Direct expense of events................ $ 95,990 16.9% $ 97,042 17.8% NASCAR purse and sanction fees. 105,826 18.7 96,306 17.7 Other direct expenses..................... 113,141 19.9 102,535 18.8 General and administrative............. 78,070 13 .8 73,281 13 .5 Total expenses and other.......... $393,027 69 .3 % $369,164 67 .8 % Income from continuing operations.... $174,338 30 .7 % $ 174,904 32 .2 % b. While overall revenue increased some between the two years, the overall mix of revenue sources did change somewhat. The NASCAR broadcasting revenue in- creased as a percent of total revenue by almost three percentage points, while the percent of admissions revenue to total revenue decreased by almost two per- centage points. All three of the major expense categories (Direct expense of events, NASCAR purse and sanction fees, and Other direct expenses) as a per- cent of total revenue increased by approximately 1 percentage point. Overall, the income from continuing operations decreased 1.4 percentage points of total rev- enue between the two years, which is a slightly unfavorable trend. However, the income from continuing operations as a percent of sales exceeds 25% in the...
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This note was uploaded on 03/26/2012 for the course ACCOUNTING 1A,1B,1C taught by Professor Spinozzi during the Summer '10 term at DeAnza College.

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Chapter_17_Answers - CHAPTER 17 FINANCIAL STATEMENT...

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