Required:

1. Prepare a comparative Balance Sheet for 20-PY and 20-CY and an Income Statement. (2 items x 25 points)

MAC TRADING COMPANY

COMPARATIVE BALANCE SHEET
For the year ended December 20CY
20CY 20PY
Current Asset
Cash ₱283,000 ₱150,000
Marketable Securities ₱1,000,000 ₱850,000
Accounts Receivable, net ₱1,000,000 ₱500,000
Inventories ₱500,000 ₱750,000
Total Current Asset ₱2,783,000 ₱2,250,000

Non-Current Asset
Land ₱500,000 ₱500,000
Building, net ₱500,000 ₱550,000
Machinery and Equipment, net ₱1,500,000 ₱1,700,000
Other Assets ₱90,000 ₱100,000
Goodwill ₱400,000 ₱400,000
Total Non-Current Asset ₱2,990,000 ₱3,250,000
Total Asset ₱5,773,000 ₱5,500,000

Current Liabilities
Notes Payable, Trade ₱150,000 ₱100,000
Accounts Payable, net ₱790,000 ₱610,000
Expenses Payable ₱60,000 ₱40,000
Total Current Liabilities ₱1,000,000 ₱750,000

Non-Current Liabilities
Long-term Notes ₱2,250,000 ₱2,500,000
Total Liabilities ₱3,250,000 ₱3,250,000

Stockholder’s Equity
15% Preferred Stock, ₱100 par ₱500,000 ₱500,000
Common Stock, ₱10 par ₱1,500,000 ₱1,500,000
Retained Earnings ₱523,000 ₱250,000
Total Stockholder’s Equity ₱2,523,000 ₱2,250,000

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY ₱5,773,000 ₱5,500,000

 MAC TRADING COMPANY
INCOME STATEMENT
For the year ended December 20CY
Sales ₱5,250,000
Sales Returns and Allowances ₱250,000
Net Sales ₱5,000,000
Cost of Goods Sold ₱3,000,000
Gross Profit ₱2,000,000
Selling Expenses ₱400,000
Administrative Expenses (Including depreciation expense 250,000) ₱600,000
Income from Operations ₱1,000,000
Interest on Long-term Notes ₱250,000
Income before Income Taxes ₱750,000
Income Tax Expense x 30% ₱225,000
Net Income ₱525,000

Cost of Goods Sold

Computation
Inventory, Dec. 31, 20-PY
Add: Purchases ₱750,000
Less: Inventory, Dec. 31, 20-CY ₱2,750,000
Cost of Goods Sold ₱500,000
₱3,000,000

2. Perform a horizontal analysis for the comparative balance sheet showing the peso and percentage changes of each item. (44 points: 1 point for each correct peso and
percentage changes)
 MAC TRADING COMPANY
Condensed Balance Sheet
For the year December 31 20CY and 20PY
Current Asset 20CY 20PY Amount %
Cash ₱283,000 ₱150,000 ₱133,000 89%
Marketable Securities ₱1,000,000 ₱850,000 ₱150,000 18%
Accounts Receivable, net ₱1,000,000 ₱500,000 ₱500,000 100%
Inventories ₱500,000 ₱750,000 (₱250,000) (33%)
Total Current Asset ₱2,783,000 ₱2,250,000 ₱533,000 24%

Non-Current Asset
Land ₱500,000 ₱500,000 0 0
Building, net ₱500,000 ₱550,000 (₱50,000) (9%)
Machinery and Equipment, net ₱1,500,000 ₱1,700,000 (₱200,000) (12%)
Other Assets ₱90,000 ₱100,000 (₱10,000) (10%)
Goodwill ₱400,000 ₱400,000 0 0
Total Non-Current Asset ₱2,990,000 ₱3,250,000 (₱260,000) (8%)
Total Asset ₱5,773,000 ₱5,500,000 ₱273,000 5%

Current Liabilities
Notes Payable, Trade ₱150,000 ₱100,000 ₱50,000 50%
Accounts Payable, net ₱790,000 ₱610,000 ₱180,000 30%
Expenses Payable ₱60,000 ₱40,000 ₱20,000 50%
Total Current Liabilities ₱1,000,000 ₱750,000 ₱250,000 33%

Non-Current Liabilities
Long-term Notes ₱2,250,000 ₱2,500,000 (₱250,000) (10%)
Total Liabilities ₱3,250,000 ₱3,250,000 0 0

Stockholder’s Equity
15% Preferred Stock, ₱100 par ₱500,000 ₱500,000 0 0
Common Stock, ₱10 par ₱1,500,000 ₱1,500,000 0 0

Retained Earnings ₱523,000 ₱250,000 ₱273,000 109%

Total Stockholder’s Equity ₱2,523,000 ₱2,250,000 ₱273,000 12%
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY ₱5,773,000 ₱5,500,000 ₱273,000 5%
3. Perform a vertical analysis showing the ratio of each item of the income statement to Sales and each item of the comparative balance sheet to Total Assets, Total Liabilities,
and Stockholders’ Equity. (61 points: 1 point for each correct percentage)

MAC TRADING COMPANY

Condensed Income Statement
For the year ended December 31 20CY
20CY %
Sales ₱5,250,000 105%
Sales Returns and Allowances ₱250,000 5%
Net Sales ₱5,000,000 100%
Cost of Goods Sold ₱3,000,000 60%
Gross Profit ₱2,000,000 40%
Selling Expenses ₱400,000 8%
Administrative Expenses (+ Depreciation of ₱250,000) ₱600,000 12%
Income from Operations ₱1,000,000 20%
Interest on Long-term Notes ₱250,000 5%
Income before Income Taxes ₱750,000 15%
Income Tax Expense x 30% ₱225,000 4.5%
Net Income ₱525,000 10.5%

MAC TRADING COMPANY

Comparative Balance Sheet
For the year ended December 31 20CY and 20PY
20CY 20PY
Amount % Amount %
Current Asset
Cash ₱283,000 4.90% ₱150,000 2.73%
Marketable Securities ₱1,000,000 17.32% ₱850,000 15.45%
Accounts Receivable, net ₱1,000,000 17.32% ₱500,000 9.09%
Inventories ₱500,000 8.66% ₱750,000 13.64%
Total Current Asset ₱2,783,000 48.21% ₱2,250,000 40.91%

Non-Current Asset
Land ₱500,000 8.66% ₱500,000 9.09%
 Building, net ₱500,000 8.66% ₱550,000 10%
Machinery and Equipment, net ₱1,500,000 25.98% ₱1,700,000 30.91%
Other Assets ₱90,000 1.56% ₱100,000 1.82%
Goodwill ₱400,000 6.93% ₱400,000 7.27%
Total Non-Current Asset ₱2,990,000 51.79% ₱3,250,000 59.09%
Total Assets ₱5,773,000 100% ₱5,500,000 100%

Current Liabilities
Notes Payable, net ₱790,000 13.68% ₱610,000 11.09%
Expenses Payable ₱60,000 1.04% ₱40,000 0.73%
Total Current Liabilities ₱1,000,000 17.32% ₱750,000 13.64%

Non-Current Liabilities
Long-term Notes ₱2,250,000 38.97% ₱2,500,000 45.45%
Total Liabilities ₱3,250,000 56.30% ₱3,250,000 59.09%

Stockholder’s Equity
15% Preferred Stock, ₱100 par ₱500,000 8.66% ₱500,000 9.09%
Common Stock, ₱10 par ₱1,500,000 25.98% ₱1,500,000 27.27%
Retained Earnings ₱523,000 9.06% ₱250,000 4.55%
Total Stockholder’s Equity ₱2,523,000 43.70% ₱2,250,000 40.91%

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY ₱5,773,000 100% ₱5,500,000 100%

4. Perform a ratio analysis using the items from the comparative balance sheet and income statements to evaluate the firm's activity, liquidity, solvency, and profitability for the
current year. (125 points: 25 items x 5 points)

LIQUIDITY RATIOS

Current Ratio
Current Assets ₱2,783,000
Divide by: Current Liabilities ₱1,000,000
Current Ratio 2.78
 Acid – Test ratio
Quick Assets (Cash + Marketable Sec. + AR) ₱2,283,000
Divide by: Current Liabilities ₱1,000,000
Acid Test Ratio 2.28

Cash Ratio
Cash plus Marketable Securities ₱1,283,000
Divide by: Current Liabilities ₱1,000,000
Cash Ratio 1.28

SOLVENCY RATIOS

Debt Ratio
Total Liabilities ₱3,250,000
Divide by: Total Assets ₱5,773,000
Debt Ratio 0.56

Debt to Equity Ratio

Total Liabilities ₱3,250,000
Divide by: Total Shareholder’s Equity ₱2,523,000
Debt to Equity Ratio 1.29

Times Interest Earned of Interest Coverage Ratio

Earnings before Interest and Taxes ₱1,225,000
Divide by: Interest Expense ₱250,000
Time Interest Earned Ratio 4.90 times

Profit ₱750,000
Add:
Income Tax Expense ₱225,000
Interest Expense ₱250,000
Earnings before Interest and Taxes ₱1,225,000
EFFICIENCY RATIOS

Receivable Turnover
Net Credit Sales ₱5,000,000
Average Accounts Receivable (20CY + 20PY)/2 ₱750,000
Receivable Turnover 6.67 times

Average Collection Period

Business Days during the year 300
Divide by: Receivable Turnover 6.67
Average Collection Period 45.00

Days in Inventory
Business days during the year 300
Divide by: Inventory Turnover 4.80
Days in Inventory 76.04 days

Inventory Turnover
Cost of Goods Sold ₱3,000,000
Divide by: Average Merchandise Inventory (20CY + 20PY)/2 ₱625,000
Inventory Turnover 4.80

Net Working Capital Turnover Ratio

Net Sales ₱5,000,000
Divide by: Net Working Capital (Current Asset minus Current Liab) ₱1,783,000
Net Working Capital Turnover Ratio 2.80

PROFITABILITY RATIO

Profit Margin Ratio

Profit after Taxes ₱525,000
Divide by: Net Sales ₱5,000,000
Profit Margin Ratio 0.11
Multiple by: 100%
Profit Margin in Percentage 10.50%

Return on Capital or Return on Equity

Profit after Taxes ₱525,000
Divide by: Average Total Equity ₱2,000,000
Return on Common Equity 0.26
Multiple by: 100%
Return on Common Equity in Percentage 26.25%
Return on Common Equity
₱450,000
Net Income Less Preferred Dividend
(500,000*15%)
Divide by: Average Common Equity (20CY + 20PY)/2 ₱1,500,000
Return on Common Equity 0.30
Multiple by: 100%
Return on Common Equity in Percentage 30%

Gross Margin Ratio

Gross Margin ₱2,000,000
Net Sales ₱5,000,000
Gross Margin Ratio 0.40

Return on Assets
Profit after Tax ₱525,000
Divide by: Average Total Assets (20CY + 20PY)/2 ₱5,636,500
Return on Assets 0.09
Multiple by: 100%
Return on Assets Percentage 9%