ACC 400

WEEK 5: ACC/400

M. Portugal

The condensed financial statements of Leeward Corporation for 2006 and 2005 are presented below.

Leeward Corporation

Leeward Corporation

Balance Sheet

Income Statement

December 31, 2006
For the Year Ended December 31, 2006

Assets

Revenues

$2,500,000

Current assets

Expenses

Cash and temporary

Cost of goods sold
1,080,000

investments
$ 50,000
Selling and administrative

Accounts receivable

70,000
expenses
495,000

Inventories

120,000
Interest expense
30,000

Total current assets
240,000

Total expenses
1,605,000

Property, plant, and

Income before income taxes

895,000

equipment (net)
780,000

Income tax expense

268,500

Total assets

$1,020,000

Net income
$ 626,500

Liabilities and Stockholders’ Equity

Current liabilities

$ 100,000

Long-term liabilities

300,000

Common stockholders’ equity
620,000

Total liabilities and

stockholders’ equity
$1,020,000

Leeward Corporation
Leeward Corporation

Balance Sheet
Income Statement

December 31, 2005
For the Year Ended December 31, 2005

Assets

Revenues

$2,500,000

Current assets
Expenses

Cash and temporary

Cost of goods sold
1,750,000

investments
$ 40,000
Selling and administrative

Accounts receivable
90,000
expenses
500,000

Inventories
150,000
Interest expense
30,000

Total current assets
280,000

Total expenses
2,280,000

Property, plant, and
Income before income taxes
220,000

equipment (net)
800,000
Income tax expense
66,000

Total assets

$1,080,000

Net income
$ 154,000

Liabilities and Stockholders’ Equity

Current liabilities
$ 140,000

Long-term liabilities
320,000

Common stockholders’ equity
620,000

Total liabilities and

stockholders’ equity

$1,080,000

Instructions

1. Compute the following listed ratios for 2006.

(a)
Current ratio =
.

(b)
Debt to total assets =
.

(d)
Profit margin ratio =
.

(e)
Return on common stockholders’ equity =
.

(f)
Return on assets =
.

2. Perform horizontal analysis on both the balance sheet and income statement.

Leeward Corporation
Balance Sheet

Horizontal Analysis

Accounts receivable

Inventories

$620,000

$1,020,000

$1,080,000

			2006				2005		Change						Percent
	Assets
	Cash and temporary investments		$50,000		$40,000
	$70,000		$90,000
	$120,000		$150,000
	Total current assets		$240,000		$280,000
	Property, plant and equipment		$780,000		$800,000
	Total assets				$1,020,000				$1,080,000
	Liabilities & Stockholder’s Equity
	Current liabilities		$100,000		$140,000
	Long-term liabilities		$300,000		$320,000
	Common stockholder’s equity				$620,000
	Total liabilities and stockholder’s equity

Leeward Corporation
Income Statement
Horizontal Analysis

2006

2005

Change

Percent

Revenues

$2,500,000

$2,500,000

Expenses

$1,080,000

$30,000

Income before income taxes

	Cost of goods sold		$1,750,000
	Selling & administrative expense		$495,000		$500,000
	Interest expense				$30,000
	Total Expenses		$1,605,000		$2,280,000
	$895,000		$220,000
	Income tax expense		$268,500		$66,000
	Net Income		$626,500		$154,000

3. Perform vertical analysis on both the balance sheet and income statement for 2005 and 2006.

Leeward Corporation
Balance Sheet

Vertical Analysis

2006

2005

Percent

Amount

Percent

Assets

Cash and temporary investments

$50,000

$40,000

Accounts receivable

$70,000

$90,000

Inventories

$120,000

$150,000

Total current assets

$240,000

$280,000

Property, plant and equipment

$780,000

$800,000

Total assets

$1,020,000

$1,080,000

Liabilities & Stockholder’s Equity

Current liabilities

$100,000

$140,000

Long-term liabilities

$300,000

$320,000

Common stockholder’s equity

$620,000

$620,000

Total liabilities and stockholder’s equity

$1,020,000

$1,080,000

			Amount

Leeward Corporation
Income Statement
Vertical Analysis

2006

2005

Amount

Percent

Amount

Percent

Revenues

$2,500,000

$2,500,000

Expenses

Cost of goods sold

$1,080,000

$1,750,000

Selling & administrative expense

$495,000

$500,000

Interest expense

$30,000

$30,000

Total Expenses

$1,605,000

$2,280,000

Income before income taxes

$895,000

$220,000

Income tax expense

$268,500

$66,000

Net Income

$626,500

$154,000

4. Assess the financial performance of Leeward, using your analysis in #2 and #3 above. How have things changed from 2005 to 2006?

5. If the company wanted to perform industry comparison analysis, what references would you recommend it use?