Question

(Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.

GILMOUR COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2018 AND 2017
December 31
	2018	2017
Assets
Cash	\( 180,000	\) 275,000
Accounts receivable (net)	220,000	155,000
Short-term investments	270,000	150,000
Inventories	1,060,000	980,000
Prepaid expenses	25,000	25,000
Plant & equipment	2,585,000	1,950,000
Accumulated depreciation	(1,000,000)	(750,000)
	\(3,340,000	(2,785,000)
Liabilities and Stockholders’ Equity
Accounts payable	\) 50,000	\( 75,000
Accrued expenses	170,000	200,000
Bonds payable	450,000	190,000
Common stock	2,100,000	1,770,000
Retained earnings	570,000	550,000
	\)3,340,000	(2,785,000)

Instructions

(Round to two decimal places.)

1. Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.

Short answer

The total change in the value of assets and liabilities is $555,000.

Step-by-step solution

Meaning of Vertical Analysis

Vertical analysis is the proportional study of a financial statement, in which each line item is reported as the rate of another itemon the financial statement. This means that on the income statement, each line item is reported as the gross transaction rate, while on the balance sheet, each line item is expressed as the total asset rate.

Preparing a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.

GILMOUR COMPANY Comparative Balance Sheet December 31, 2018, and 2017
December 31 Increase or (Decrease)
	2018	2017	$ change	% change
Assets
Cash	$ 180,000	$ 275,000	$ (95,000)	(34.55)
Accounts receivable (net)	220,000	155,000	65,000	41.94
Short-term investments	270,000	150,000	120,000	80.00
Inventories	1,060,000	980,000	80,000	8.16
Prepaid expenses	25,000	25,000	0	0
Plant and equipment	2,585,000	1,950,000	635,000	32.56
Accumulated depreciation	(1,000,000)	(750,000)	(250,000)	33.33
Total	$ 3,340,000	$2,785,000	$ 555,000	19.93%
Liabilities and Stockholders’ Equity
Accounts payable	$ 50,000	$ 75,000	$ (25,000)	(33.33)
Accrued expenses	170,000	200,000	(30,000)	(15.00)
Bonds payable	450,000	190,000	260,000	136.84
Common stock	2,100,000	1,770,000	330,000	18.64
Retained earnings	570,000	550,000	20,000	3.64
Total	$3,340,000	$2,785,000	$555,000	19.93%

Working Notes:-

All the percentage change values should be determined by using the formula as follows:-

$\mathrm{Percentage}\mathrm{change}\mathrm{value}=\frac{\mathrm{Difference}\mathrm{in}\mathrm{amount}\mathrm{over}\mathrm{year}}{\mathrm{Base}\mathrm{year}}$

To find the change value in cash is as follows

$\begin{array}{rcl}\mathrm{Percentage}\mathrm{change}\mathrm{value}& =& \frac{\mathrm{Cash}\mathrm{in}2017-\mathrm{Cash}\mathrm{in}2018}{\mathrm{Base}\mathrm{year}}\\ & =& \frac{180,000-275,000}{275,000}\\ & =& 34.55\%\end{array}$