Question

Lydex Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	940,000	$	1,200,000
Marketable securities		0		300,000
Accounts receivable, net		2,620,000		1,720,000
Inventory		3,580,000		2,300,000
Prepaid expenses		250,000		190,000
Total current assets		7,390,000		5,710,000
Plant and equipment, net		9,480,000		9,030,000
Total assets	$	16,870,000	$	14,740,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	3,880,000	$	2,940,000
Note payable, 10%		3,660,000		3,060,000
Total liabilities		7,540,000		6,000,000
Stockholders' equity:
Common stock, $75 par value		7,500,000		7,500,000
Retained earnings		1,830,000		1,240,000
Total stockholders' equity		9,330,000		8,740,000
Total liabilities and stockholders' equity	$	16,870,000	$	14,740,000

Lydex Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	15,840,000	$	13,380,000
Cost of goods sold		12,672,000		10,035,000
Gross margin		3,168,000		3,345,000
Selling and administrative expenses		1,473,429		1,596,000
Net operating income		1,694,571		1,749,000
Interest expense		366,000		306,000
Net income before taxes		1,328,571		1,443,000
Income taxes (30%)		398,571		432,900
Net income		930,000		1,010,100
Common dividends		340,000		505,050
Net income retained		590,000		505,050
Beginning retained earnings		1,240,000		734,950
Ending retained earnings	$	1,830,000	$	1,240,000

Current ratio	2.4
Acid-test ratio	1.2
Average collection period	40	days
Average sale period	60	days
Return on assets	9.1	%
Debt-to-equity ratio	0.69
Times interest earned ratio	5.7
Price-earnings ratio	10

Required:
1.	Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)

Lydex Company
Common-Size Balance Sheets
	This Year		Last Year
Assets
Current assets:
Cash	0.0	%	0.0	%
Marketable securities	0.0		0.0
Accounts receivable, net	0.0		0.0
Inventory	0.0		0.0
Prepaid expenses	0.0		0.0
Total current assets	0.0		0.0
Plant and equipment, net	0.0		0.0
Total assets	0.0	%	0.0	%
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	0.0	%	0.0	%
Note payable, 10%	0.0		0.0
Total liabilities	0.0		0.0
Stockholders’ equity:
Common stock, $75 par value	0.0		0.0
Retained earnings	0.0		0.0
Total stockholders’ equity	0.0		0.0
Total liabilities and equity	0.0	%	0.0	%

2b.	Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.

Lydex Company
Common-Size Income Statements
	This Year		Last Year
Sales	0	%	0	%
Cost of goods sold	0		0
Gross margin	0		0
Selling and administrative expenses	0		0
Net operating income	0		0
Interest expense	0		0
Net income before taxes	0		0
Income taxes (30%)	0		0
Net income	0	%	0	%

Answer 1

1
Lydex Company
Common-Size Balance Sheets
	This Year	Last Year
Assets
Current assets:
Cash	5.6%	8.1%
Marketable securities	0.0%	2.0%
Accounts receivable, net	15.5%	11.7%
Inventory	21.2%	15.6%
Prepaid expenses	1.5%	1.3%
Total current assets	43.8%	38.7%
Plant and equipment, net	56.2%	61.3%
Total assets	100.0%	100.0%
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	23.0%	19.9%
Note payable, 10%	21.7%	20.8%
Total liabilities	44.7%	40.7%
Stockholders’ equity:
Common stock, $75 par value	44.5%	50.9%
Retained earnings	10.8%	8.4%
Total stockholders’ equity	55.3%	59.3%
Total liabilities and equity	100.0%	100.0%
2
Lydex Company
Common-Size Income Statements
	This Year	Last Year
Sales	100.0%	100.0%
Cost of goods sold	80.0%	75.0%
Gross margin	20.0%	25.0%
Selling and administrative expenses	9.3%	11.9%
Net operating income	10.7%	13.1%
Interest expense	2.3%	2.3%
Net income before taxes	8.4%	10.8%
Income taxes (30%)	2.5%	3.2%
Net income	5.9%	7.5%