Question

when preparing the common-size balance sheet what would you enter for both years for the following accounts? use the blank balance sheet on the next page and only complete the calculations for the two accounts. a. accounts receivable b. long-term note payable b. the cfo asks you to create a common-size income statement. sales revenue for 2023 was $150,000 and for 2022 was $140,000. if net income was $25,000 in 2023 and cogs was $11,500, what would you enter for cogs for 2023 on the common-size income statement?

Answer 1

To prepare a common-size balance sheet, accounts are listed as a percentage of total assets, and for the common-size income statement, line items are as a percentage of sales. COGS for 2023 on a common-size income statement would be 7.67%. The example's firm accounting profit is $50,000.

Step-by-step explanation:

When preparing a common-size balance sheet, accounts are expressed as a percentage of total assets for the balance sheet, and each line item on the income statement is expressed as a percentage of sales revenue. However, without the total asset figures, we cannot calculate the percentages for Accounts Receivable and Long-term Note Payable. For the common-size income statement, we would take each item and divide it by sales revenue to express it as a percentage. Therefore, for 2023, the Cost of Goods Sold (COGS) would be calculated as follows: $11,500 / $150,000 = 7.67%. This percentage is what you would enter for COGS for 2023 on the common-size income statement.

In the provided self-check example, the accounting profit would be calculated by subtracting total expenses (labor, capital, materials) from the total revenues. Hence, the firm's accounting profit is: $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000 as stated in the example in Chapter 7.