Question

Simon Company's year-end balance sheets follow.

At December 31	Current Yr				1 Yr Ago			2 Yrs Ago
Assets
Cash		$	31,253		$	35,468		$	35,156
Accounts receivable, net			87,943			60,828			46,401
Merchandise inventory			109,466			80,380			49,407
Prepaid expenses			10,065			9,031			3,867
Plant assets, net			275,562			257,646			223,869
Total assets		$	514,289		$	443,353		$	358,700
Liabilities and Equity
Accounts payable		$	129,339		$	74,177		$	46,875
Long-term notes payable secured by mortgages on plant assets			95,719			105,030			78,480
Common stock, $10 par value			163,500			163,500			163,500
Retained earnings			125,731			100,646			69,845
Total liabilities and equity		$	514,289		$	443,353		$	358,700

1. Express the balance sheets in common-size percents. (Do not round intermediate calculations and round your final percentage answers to 1 decimal place.)
2. Assuming annual sales have not changed in the last three years, is the change in accounts receivable as a percentage of total assets favorable or unfavorable?
3. Assuming annual sales have not changed in the last three years, is the change in merchandise inventory as a percentage of total assets favorable or unfavorable?

Answer 1

Simon Company Common Size Comparative Balance Sheet December 31
	Current year	1 Year ago	2 Year ago
Assets:
Cash	6.1%	8%	9.8%
Accounts receivable, net	17.1%	13.7%	12.9%
Merchandise inventory	21.3%	18.2%	13.8%
Prepaid expenses	1.9%	2%	1.1%
Plant assets, Net	53.6%	58.1%	62.4%
Total assets	100%	100%	100%
Liabilities and Equity:
Accounts payable	25.2%	16.7%	13%
Long term notes payable secured by mortgages on plant assets	18.6%	23.7%	21.9%
Common stock, $10 par value	31.8%	36.9%	45.6%
Retained earnings	24.4%	22.7%	19.5%
Total liabilities and Equity	100%	100%	100%

As per the above analysis:

2. Change in accounts receivable as a percentage of total assets is  Unfavorable

3. Change in merchandise inventory as a percentage of total assets is Unfavorable