Preparing An Income Statement For A Merchandising And Manufa

Preparing An Income Statement For A Merchandising And Manufacturing Co

Preparing an Income Statement for a Merchandising and Manufacturing Company In this exercise, you will prepare an income statement and compute the unit cost for a merchandising company. Refer to Week 2_Exercise 2.2.xlsx to view the complete assignment. Submission Requirements: Complete your work in the MS Excel worksheet that you downloaded. Rename the worksheet Week 2_Exercise 2.2_YourInitials and submit it on Questa to your instructor. Horizontal and Vertical Analysis Financial Statements In this exercise, you will prepare a horizontal analysis of an income statement and a vertical analysis of a given balance sheet. Refer to Week 2_Exercise 2.1.xlsx to view the complete assignment. Tab 1 of the MS Excel worksheet contains details of Problem 1 and tab 2 contains details of Problem 2. Include your solution to each problem in its respective worksheet. For Problem 1, also answer the following question: Why did 2012 net income increase by a higher percentage than net sales revenue? Submission Requirements: Complete the assigned problems in the worksheet that you downloaded. Rename the worksheet Week 2_Exercise 2.1_YourInitials and submit it as an attachment on Questa to your instructor. Type your answer to the question in Problem 1 in the Answer/response: textbox and submit it to your instructor. Managerial Accounting, Financial Accounting, and Decision Making In this lab, you will perform the following tasks: 1. Calculate income and unit cost for a service company. 2. Apply ethical standards to decision making. 3. Explain the difference between financial and managerial accounting. Refer to Week 2_Lab 2.2.xlsx to view the complete assignment. Submission Requirements: Complete task 1 in an MS Excel worksheet. Name the worksheet Week 2_Lab 2.2_Task 1_YourInitials and submit it as an attachment on Questa to your instructor. Complete tasks 2 and 3 in an MS Word document and submit it on Questa to your instructor. Word Count: Task 2, Questions 1 and 2: 45-60 words Task 3, Question 1: words Font: Arial, 12, double-spaced. Using Ratios to Decide on Two Stock Investments In this lab, you will compute various ratios to decide on two stock investments. Refer to Week 2_Lab 2.1.xlsx to view the complete assignment. Submission Requirements: Compute the ratios in the Excel worksheet that you downloaded. Rename the worksheet Week 2_Lab 2.1_YourInitials and submit it on Questa as an attachment to your instructor. Problem 1 Snyder Brush Company sells standard hair brushes. The following information summarizes Snyder's operating activities for 2012: Selling and administrative expenses $49,680 Purchases 78,000 Sales revenue 138,000 Merchandise inventory, January 1 ,500 Merchandise inventory, December 31 ,360 Requirements: 1. Prepare an income statement for 2012. Compute the ratio of operating expense to total revenue and operating income to total revenue. 2. Snyder sold 6,000 brushes 2012. Compute the unit cost for one brush. Task 1 The Windshield People repair chips in car windshields in the company's home county. Rocky Chip, the owner, incurred the following operating costs for the month of February 2012: Salaries and wages $9,000 Windshield repair materials 4,900 Depreciation on truck 250 Depreciation on building and equipment 800 Supplies expense 600 Gasoline and utilities 2,130 The Windshield People earned $26,000 in revenues for the month of February by repairing 500 windshields. All costs shown are considered to be directly related to repair service. Requirements: 1. Prepare an income statement for the month of February. Compute the ratio of total operating expense to total revenue and operating income to total revenue. 2. Compute the per unit cost of repairing one windshield. 3. The manager of The Windshield People must keep unit operating cost below $50 per windshield in order to get his bonus. Did he meet the goal? 4. What kind of system could The Windshield People use to integrate all its data? Task 2 Natalia Wallace is the new controller for Smart Software, Inc., which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company's five-year history. Cauvet explains that financial analysts have predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies: a. Persuade suppliers to postpone billing $13,000 in invoices until January 1. b. Record as sales $115,000 in certain software awaiting sale that is held in a public warehouse. c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales. d. Reduce the estimated bad debt expense from 5% of sales revenue to 3%, given the company's continued strong performance. e. Postpone routine monthly maintenance expenditures from December to January. Requirements: 1. Which of these suggested strategies are inconsistent with IMA standards? 2. What should Wallace do if Cauvet insists that she follow all of these suggestions? Task 3 In words, discuss the differences between managerial and financial accounting. Problem 1 Assume that you are purchasing an investment and have decided to invest in a company in the digital phone business. You have narrowed the choice to Digitalized, Corp., and Zone Network, Inc., and have assembled the following data: Selected income statement data for the current year: Digitalized Zone Network Net sales (all on credit) $423,035 $493,115 Cost of goods sold 206,,000 Interest expense --- 19,000 Net income 54,,000 Selected balance sheet and market price data at the end of the current year: Digitalized Zone Network Current assets: Cash $23,000 $21,000 Short-term investments 38,,000 Current receivables, net 38,,000 Inventories 64,,000 Prepaid expenses 21,,000 Total current assets $184,000 $192,000 Total assets $266,000 $326,000 Total current liabilities 102,,000 Total liabilities 102,,000 Common stock, $1 par (12,000 shares) 12,000 $2 par (16,000 shares) 32,000 Total stockholder's equity $164,000 $195,000 Market price per share of common stock $76.50 $94.99 Dividends paid per common share $0.50 $0.40 Selected balance sheet data at the beginning of the current year: Digitalized Zone Network Balance sheet: Current receivables, net $44,000 $53,000 Inventories 80,,000 Total assets 262,,000 Common stock, $1 par (12,000 shares) 12,000 $2 par (16,000 shares) 32,000 Your strategy is to invest in companies that have low price/earnings ratios but appear to be in good shape financially. Assume that you have analyzed all other factors and that your decision depends on the results of ratio analysis. Requirement: 1. Compute the following ratios for both companies for the current year, and decide which company's stock better fits your investment strategy. a. Acid-test ratio b. Inventory turnover c. Days' sales in receivables d. Debt ratio e. Earnings per share of common stock f. Price/earnings ratio g. Dividend payout Problem 1 Data for Mariner Designs, Inc., follow: MARINER DESIGNS, INC. Comparative Income Statement Years Ended December 31, 2012 and Net sales revenue: $431,000 $372,350 Expenses: Cost of goods sold $200,000 $187,550 Selling and general expenses 99,,050 Other expense 8,,850 Total expenses $307,350 $285,450 Net income $123,650 $86,900 Requirements: 1. Prepare a horizontal analysis of the comparative income statement of Mariner Designs, Inc. Round percentage changes to one decimal place. 2. Why did 2012 net income increase by a higher percentage than net sales revenue? Problem 2 Beta Graphics, Inc., has the following data: BETA GRAPHICS, INC. Comparative Balance Sheet December 31, 2012 and Assets Total current assets $42,750 $59,000 Property, plant, and equipment, net 208,,000 Other assets 33,,500 Total assets $285,000 $309,500 Liabilities Total current liabilities $49,020 $50,100 Long-term debt 109,,300 Total liabilities $158,175 $152,400 Stockholders' Equity Total stockholders’ equity 126,,100 Total liabilities and stockholders’ equity $285,000 $309,500 Requirement: 1. Perform a vertical analysis of Beta's balance sheet for each year.

Paper For Above instruction

Preparing comprehensive financial statements and conducting ratio analyses are essential aspects of managerial and financial accounting that assist stakeholders in making informed decisions. This essay explores the process of preparing income statements for merchandising and manufacturing companies, performing horizontal and vertical analyses, calculating pertinent ratios for investment decisions, and understanding the distinctions between managerial and financial accounting.

Income Statement Preparation for a Merchandising and Manufacturing Company

The foundation of financial analysis begins with preparing accurate income statements. For merchandising companies, the income statement primarily includes net sales, cost of goods sold (COGS), gross profit, operating expenses, and net income. Manufacturing firms additionally factor in production costs, inventory changes, and sometimes additional expenses like depreciation related to manufacturing assets. The process begins with aggregating all revenue streams and subtracting COGS to determine gross profit. Operating expenses, including selling, general, and administrative costs, are then deducted to calculate operating income, ultimately arriving at net income.

For instance, using the provided data in Worksheet Week 2_Exercise 2.2.xlsx, calculations involve determining unit costs by dividing total costs by units produced or sold, and preparing income statements by organizing revenues and expenses efficiently. The purpose of this exercise is to understand how different components affect profitability, which is crucial for managerial decision-making.

Horizontal and Vertical Analysis of Financial Statements

Horizontal analysis involves comparing financial data over multiple periods, calculating percentage changes from year to year. This analysis helps identify trends, growth rates, and areas requiring further investigation. In contrast, vertical analysis expresses each item in a financial statement as a percentage of a base figure, such as total assets for balance sheets or total sales for income statements. This approach allows for relative comparison across companies of different sizes and assessment of structural financial changes.

Applying these methods using the data in Week 2_Exercise 2.1.xlsx reveals insights such as why net income in 2012 increased at a higher percentage relative to sales revenue. Such analysis can highlight operational efficiencies or shifts in cost structures.

Ratio Analysis for Investment Decisions

Ratio analysis involves calculating key financial ratios that measure liquidity, profitability, and leverage. For example, the acid-test ratio assesses liquidity by excluding inventories, while inventory turnover indicates how effectively inventory is managed. Days’ sales in receivables evaluate collection efficiency, and debt ratio measures financial leverage and risk. Earnings per share (EPS), price-to-earnings (P/E) ratio, and dividend payout ratio provide insight into company valuation and dividend policy.

In the comparative analysis of companies like Digitalized and Zone Network, these ratios inform investors about the firms’ financial health and market valuation, guiding investment decisions aligned with low P/E ratios and solid financial prospects.

Analyzing Changes in Net Income

For example, the comparison of Mariner Designs’ income statements from 2012 and the previous year demonstrates that net income's higher percentage increase than sales can result from cost management, margin improvements, or operational efficiencies. Horizontal analysis quantifies these changes, which are vital for assessing company performance.

Financial Statement Analysis and Ethical Considerations

In practices such as delaying invoices or altering expense estimates, the importance of adhering to ethical standards, as outlined by the Institute of Management Accountants (IMA), is emphasized. Strategies that manipulate earnings unethically undermine financial transparency and can lead to legal repercussions. Therefore, accountants like Wallace must recognize ethical boundaries and advocate for transparent reporting, especially when management requests potentially deceptive practices.

Differences Between Managerial and Financial Accounting

Managerial accounting focuses on providing internal managers with detailed financial and non-financial data to facilitate planning, controlling, and decision-making. It is characterized by timeliness, relevance, and flexibility, often generated on an as-needed basis. Financial accounting, on the other hand, emphasizes accuracy, standardization, and audits, producing historical financial statements for external stakeholders like investors and regulators. Both disciplines are integral to business operations but serve distinct informational needs.

Investment Ratio Analysis

Investors utilize ratio analysis to evaluate potential investments. For instance, low P/E ratios combined with strong balance sheets, profitability, and manageable leverage suggest undervalued yet financially stable companies. Calculations for Digitalized and Zone Network demonstrate the importance of ratios like EPS, debt ratio, and current assets management, guiding strategic investment choices aligned with an individual’s risk appetite and return expectations.

Conclusion

Effective financial analysis, grounded in proper income statement preparation, trend assessment, ratio computation, and ethical standards, equips managers and investors with vital insights. Recognizing the differences between managerial and financial accounting enhances an understanding of internal versus external reporting needs. As demonstrated through various calculations and analyses, robust financial data underpin sound decision-making in both corporate management and investment portfolios.

References

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