Managerial Accounting Homework 2

Problem 23
Name: Christiaan Kingsale
Student nr.: 155373
Date: September 3, 2018

An approach to analyzing balance sheets is base-year comparisons. This approach

allows a meaningful comparison of the balance sheets for several periods. A base
period is selected as a staring point, and all subsequent periods are compared to the
base. This approach expresses changes over two or more years as percentages of a
base year.

2013 2012 2011

Cash 120% 110% 100%
Marketable Security 62.5% 75% 100%
Account receivable 111.4% 105.7% 100%
Allowance for doubtful 133.3% (83.3%) 100%
accounts
Food inventory 116.7% 108.3% 100%
Prepaid insurance 150% 125% 100%
Total Current assets 106.9% 104.3% 100%

Explanation:
In this exercise, 2011 is the base year. So, to calculate and compare the base year with
the other years, we divide the other years (for example 2012) by the base year (2011)
and multiply it by 100%. For example, if in 2011 Cash is $100,000 and in 2012 Cash
is $110,000, then the calculations would be  $110,000/$100,000 *100%= 110%
Which means that Cash in 2012 increased by 10%. If I use the same example for the
year 2013, the calculations would be  $120,000/$100,000 *100%= 120%. Which
means that Cash in 2013 increased by 20%. So, the formula for these calculations is:
Newest year/Base year *100%.

Using the explanation above, and using the year 2011 as base year we can calculate
and draw comparisons of the rest of the assets of both the year 2012 and 2013:

For the year 2012 we use the formula stated above:

Newest year/Base year *100%
Year 2012/Year 2011 *100%.

Marketable Securities:
$60,000/$80,000 *100%=75% (75%-100%= -25% or 25% decrease)

Accounts receivable:
$370,000/$350,000 *100%=105,7% (105.7%-100%= 5.7% increase)

Allowance for doubtful accounts:

$25,000/$30,000 *100%=83.3% (83.3%-100%= -16.7% or 16.7% decrease)
Food inventory:
$65,000/$60,000 *100%=108.3% (108.3%-100%=8.3% increase)

Prepaid Insurance:
$25,000/$20,000 *100%=125% (125%-100%=25% increase)

Total Current Assets:

$605,000/$580,000 *100%=104.3% (104.3%-100%=4.3% increase)

For the year 2013 we use the formula stated above:

Newest year/Base year *100%
Year 2013/Year 2011 *100%.

Marketable Securities:
$50,000/$80,000 *100%=62.5% (62.5%-100%=-37.5% or 37.5% decrease)

Accounts receivable:
$390,000/$350,000 *100%= 111.4% (111.4%-100%=11.4% increase)

Allowance for doubtful accounts:

$40,000/$30,000 *100%= 133.3% (133.3%-100%=33.3% increase)

Food Inventory:
$70,000/$60,000 *100%= 116.7% (116.7%-100%= 16.7% increase)

Prepaid Insurance:
$30,000/$20,000 *100%= 150% (150%-100%=50% increase)

Total Current Assets:

$620,000/$580,000 *100%= 106.9% 106.9%-100%= 6.9% increase)

If the answer to the formula is higher than 100% that means there was an increase, if
it’s lower than 100% that means there is a decrease. So, for example Cash from the
year 2013 compared to the base year (2011) it says 120% which means that it
increased by 120%-100%= 20%.