At the end of 2013, the following information is available for Short and Wise Companies:

Required
a. Set up the spreadsheet shown here. Complete the income statements by using Excel formulas.
b. Prepare a common size income statement for each company by completing the % Sales columns.
c. One company is a high-end retailer, and the other operates a discount store. Which is the discounter? Support your selection by referring to the common size statements.
d. Compute the return on assets and return on equity for each company.
e. Which company is more profitable from the stockholders’ perspective?
f. Assume that a shortage of goods from suppliers is causing cost of goods sold to increase 10 percent for each company. Change the respective cost of goods sold balances in the Actual income statement column for each company. Note the new calculated amounts on the income statement and in the ratios. Which company’s profits and returns are more sensitive to inventory pricehikes?

Transcribed Image Text:

Short Wise Actual %Sales Actual % Sales Sales Cost of Goods Sold 1050,000 Gross Margin Operating Expenses Net Income 1,500,000 100.00% 1,500,000 900.000 375.000 450,000 Actual Return 1,800,000 Actual Return Total Assets Stockhol ders' Equity 1,800,000 540.000 540,000