ACC 312 Study Guide - Midterm Guide: Financial Statement
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Analytical Procedures
You have been assigned to the 2015 audit of Perkins Corp. Youmet with the controller of the company who provided you with the2015 operatung results shown below. Your supervisor has asked youto perform the preliminary analytic review. The supervisor hasasked you to use the audited data from the prior four year (shownbelow) as part of your reveiw. The supervisor has also provided youwith a few ratios that she would like you to look at.
Required:
A. Prepare a horizontal AND a vertical analysis using the 5 yearsof financial data provided. (HINT: Another term for horizantalanalysis is "trend" analysis. Vertical analysis is also referred toas "common size" analysis.) You do not need to prepare thisanalysis for the two balance sheet account shown.
B. Determine the ratios that were requested by your supervisor foreach year (below).
C. MOST IMPORTANT: Identidy five account, ratios, or trends thatmight concern you as the auditor of the 2015 statements. Remember,you're looking for unusual relationships or significantchanges that might identify an area that will need moretesting.
| Operating Results | |||||
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Revenues | 1,750,000 | 1,872,500 | 2,033,575 | 1,883,361 | 2,034,029 |
| Cost of goods sold | (1,050,00) | (1,217,125) | (1,362,431) | (1,205,351) | (1,261,098) |
| Gross Profit | 700,000 | 655,375 | 641,144 | 678,010 | 772,931 |
| Salaries expense | 350,000 | 360,500 | 367,710 | 360,356 | 374,770 |
| Advertising expense | 91,000 | 87,500 | 35,000 | 40,250 | 122,500 |
| Facilities expense | 85,000 | 86,700 | 88,868 | 87,090 | 91,445 |
| Payroll tax expense | 38,500 | 37,853 | 42,287 | 42,882 | 29,982 |
| R & M expense | 28,000 | 29,120 | 30,139 | 31,345 | 21,001 |
| Depreciation expense | 14,500 | 14,500 | 13,775 | 13,637 | 10,910 |
| Interest expense | 8,300 | 8,317 | 8,135 | 8,053 | 7,973 |
| Legal fees expense | 3,500 | 4,200 | 3,800 | 5,600 | 14,562 |
| (618,800) | (628,590) | (589,713) | (589,214) | (673,142) | |
| Operation Income | 81,200 | 26,786 | 51,431 | 88,796 | 99,789 |
| Selected accounts from balance sheet | |||||
| Average pp&e | 145,000 | 131,818 | 172,188 | 123,975 | 181,830 |
| Average Debt | 166,000 | 161,118 | 135,581 | 129,895 | 130,704 |
Selected ratios: (do for each year)
A) Depreciation as a % of PP&E
B) R&M as a % of PP&E
C) Interest as a % of Debt
D) Payroll taxes as a % of Salaries
Evaluate the financial performance of Coca-Cola; (KO) and Pepsi (PEP) for the year ended December 31, 2016. Follow the instructions below to access each companyâs information and perform a financial analysis based on the financial measures we have learned in this course.
Select Http://www.yahoo.com/ and then select Finance. In the Search section at the top of the screen select KO for Coca-Cola and PEP for Pepsi
Select âFinancialsâ and select Income Statement when accessing the Income Statement
Select âFinancialsâ and select Balance Sheet when accessing the Balance Sheet
Do the following for KO and PEP for the year ended 12/31/16 only
Perform a vertical analysis of the Income Statement for KO and PEP for the year ended 12/31/16.
Include in your vertical analysis all of following as a % of total revenue:
Cost of Revenue as a % of Total Revenue
Gross Profit as a % of Total Revenue
Selling, gen and administrative expenses as a % of Total Revenue
Operating Income as a % of Total Revenue
Net Income as a % of Total Revenue
Current Ratio
Accounts Receivable turnover. Assume the total revenue on the income statement represents all sales on account for the year
Average collection period
Merchandise Inventory turnover. Assume the Cost of Revenue on the Income Statement is the same as the Cost of Goods Sold
Debt to Asset Ratio
Return on Assets Ratio
Asset Turnover
In preparing the vertical analysis and other financial analysis above; define each measure and identify the strengths and weaknesses of KO and PEP as related to each other. Below is an example of you should set it up.
| Working Capital | KO | PEP |
| Current Assets | $ 34,010,000 | $ 27,089,000 |
| - Current Liabilities | $ 26,532,000 | $ 21,135,000 |
| Net Working Capital = | $ 7,478,000 | $ 5,954,000 |
Strength or Weakness
Working Capital measures the ability of a company to meet its short-term obligations with current assets. Pepsi is and Coke are performing at about the same level. Cokes working capital is a little higher because they have higher current assets and current liabilities.
Requirements for Each Group
1.The vertical analysis prepared in 4 A above.
2.All of your computations for the financial analysis. (4 B through 4 H)
3.Identification of strengths and weaknesses. (Include a definition of each financial measure, a description of which company is doing better in each financial measure including the vertical analysis and explain why)
4.All group members must submit the Report Project Team Assessment
5.If the requirements above are not met, points will be deducted from Parts of the group projects.
Enter all requirements on the Group Project Problem 4 Tab.
Submit one set of answers per group for all four problems. Make sure to include each group members name at the top of each spreadsheet.
Each group member should download the Group Team Assessment and evaluate themselves and everyone else in their group. This evaluation should be submitted anonymously.
