Page 188 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 10: Analysis of Financial Statements

Prepare a trend analysis (in terms of percentage of gross margin) for these two customer Notes
relate costs.
9. What different conclusions might the management draw about the behavior of the two
costs in question 8?
10. Which is the better analysis horizontal or vertical and why? Which is better between vertical
or horizontal ratio and why?
11. The comparative balance sheet of Oak and Tile Flooring Co. for June 30, 2008 and 2007, is
as follows:
June 30, 2008 June 30, 2007
Cash $24,700 $23,500
Accounts receivable (net) 101,600 92,300
Inventories 146,300 142,100
Investments 0 0
Land 145,000 0
Equipment 215,000 175,500
Accumulated depreciation (48,600) (41,300)
$594,000 $442,100
Liabilities and Stockholders Equity
Accounts payable (merchandise creditors) $100,900 $95,200
Accrued expenses (operating expenses) 15,000 13,200
Dividends payable 12,500 10,000
Common stock, $1 par 56,000 50,000
Paid-in capital in excess of par-common stock 220,000 100,000
Retained earnings 189,600 173,700
$594,000 $442,100
The following additional information was taken from the records of Oak and Tile Flooring
Co:
(a) Equipment and land were acquired for cash.
(b) There were no disposals of equipment during the year.
(c) The investments were sold for $45,000 cash.
(d) The common stock was issued for cash.

(e) There was a $65,900 credit to retain earnings for net income.
(f) There was a $50,000 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flow, using the indirect method of presenting cash fl ows from
operating activates.
12. Where is a contract with a customer reported on the balance sheet and why?

Answers: Self Assessment

1. horizontal 2. Ratio analysis
3. vertical analysis 4. fi nancial ratios
5. ratios 6. vertical

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