Problem 13-1A (Part Level Submission) Pharoah Company Cullumber Company 2017 201
ID: 2408193 • Letter: P
Question
Problem 13-1A (Part Level Submission)
Pharoah Company
Cullumber Company
2017
2016
2017
2016
(a)
Condensed Income Statement
For the Year Ended December 31, 2017
Pharoah Company
Cullumber Company
Dollars
Percent
Dollars
Percent
$1,922,000
%
$561,000
%
1,084,000
%
291,000
%
838,000
%
270,000
%
256,000
%
85,000
%
582,000
%
185,000
%
6,800
%
2,500
%
575,200
%
182,500
%
68,600
%
32,000
%
$506,600
%
$150,500
%
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(b1)
Pharoah Company
Cullumber Company
%
%
%
%
Problem 13-1A (Part Level Submission)
Here are comparative statement data for Pharoah Company and Cullumber Company, two competitors. All balance sheet data are as of December 31, 2017, and December 31, 2016.Pharoah Company
Cullumber Company
2017
2016
2017
2016
Net sales $1,922,000 $561,000 Cost of goods sold 1,084,000 291,000 Operating expenses 256,000 85,000 Interest expense 6,800 2,500 Income tax expense 68,600 32,000 Current assets 704,106 $674,806 180,006 $ 171,649 Plant assets (net) 1,137,888 1,080,000 301,812 271,754 Current liabilities 143,262 163,760 76,352 65,407 Long-term liabilities 246,218 194,400 63,979 54,000 Common stock, $10 par 1,080,000 1,080,000 259,200 259,200 Retained earnings 372,514 316,645 82,287 64,796Explanation / Answer
Vertical analysis of the 2017 income statement data for Pharoah Company and Cullumber Company
Condensed Income Statement
For the Year Ended December 31, 2017
Pharoah Company
Cullumber Company
Dollars
Percent
Dollars
Percent
Net sales
1,922,000
100%
561,000
100%
Cost of goods sold
1,084,000
56.4%
291,000
51.9%
Gross profit
838,000
43.6%
270,000
48.1%
Operating expenses
256,000
13.3%
85,000
15.2%
Income from operations
582,000
30.3%
185,000
33%
Other expenses and losses
Interest expense
6,800
0.4%
2,500
0.4%
Income before income taxes
575,200
29.9%
182,500
32.5%
Income tax expense
68,600
3.6%
32,000
5.7%
Net income
506,600
26.4%
150,500
26.8%
Return on assets and the return on common stockholders’ equity
Pharoah Company
Cullumber Company
Return on assets
28.2%
32.5%
Return on common stockholders’ equity
35.6%
45.2 %
Return on assets - Pharoah Company
= [ Net Income / Average Total Assets ] x 100
= [ 506,600 / (1841994 + 1754806 ) / 2 ] x 100
= 28.2%
Return on assets - Cullumber Company
= [ Net Income / Average Total Assets ] x 100
= [150,500 / (481818 + 443403 ) / 2 ] x 100
= 32.5%
Return on common stockholders’ equity - Pharoah Company
= [ Net Income / Average Common stockholders Equity ] x 100
= [506,600 / (1452514 + 1396645) / 2 ] x 100
= 35.6%
Return on common stockholders’ equity - Cullumber Company
= [ Net Income / Average Common stockholders Equity ] x 100
= [ 150500 / (341487 + 323996 ) / 2 ] x 100
= 45.2 %
Condensed Income Statement
For the Year Ended December 31, 2017
Pharoah Company
Cullumber Company
Dollars
Percent
Dollars
Percent
Net sales
1,922,000
100%
561,000
100%
Cost of goods sold
1,084,000
56.4%
291,000
51.9%
Gross profit
838,000
43.6%
270,000
48.1%
Operating expenses
256,000
13.3%
85,000
15.2%
Income from operations
582,000
30.3%
185,000
33%
Other expenses and losses
Interest expense
6,800
0.4%
2,500
0.4%
Income before income taxes
575,200
29.9%
182,500
32.5%
Income tax expense
68,600
3.6%
32,000
5.7%
Net income
506,600
26.4%
150,500
26.8%