Bob Cleary, the controller of Mountain-Pacific Railroad, has prepared the financial statements for 2011 and 2012, shown below and on the next page. The market prices of the company's stock as of January 1, 2011, December 31, 2011, and December 31, 2012, were $50, $45, and $70 per share, respectively. Assume an income tax rate of 34 percent and assume that interest expense was incurred only on long-term debt (including the current maturities of long-term debt).

REQUIRED:

a. Prepare common-size balance sheet and income statement for 2011 and 2012 and analyze the results.

b. Which income statement account experienced the largest shift from 2011 to 2012? Did this shift appear to have any impact on the balance sheet? Explain.

c. What benefits do common-size financial statements provide over standard financialstatements?

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2012 Income Statement 2011 Revenue: S1,955,000 4,150,000 Net cash sales S2,775,000 1,410,000 Net credit sales Total revenue Cost of goods sold: Beginning inventory Net purchases Cost of goods available for sale Less: Ending inventory Cost of goods sold Gross profit Selling and administrative S6,105,000 $4,185,000 S 300,000 2,475,000 S 210,000 4,005,000 S4,215,000 200,000 S2,775,000 210,000 4,015,000 52,090,000 2,565,000 S1.620,000 expenses: Depreciation expense General selling expenses General administrative S 75,000 575,000 S 90,000 600,000 480,000 1,130,000 420,000 1,110,000 5 510,000 65,000 expenses Net operating income Interest expense Net income from continuing operations before taxes Income taxes Net income before 5 960,000 50,000 S 445,000 151,000 $ 910,000 310,000 S 600,000 S 294,000 unusual items Unusual loss-net of tax benefit of S60,000 Net income 115,000 S 485,000 S 294,000 Statement of Retained Earnings 2012 2011 S 326,000 294,000 (10,000) S 610,000 S 610,000 485,000 Beginning retained earnings balance Plus: Net income Less: Dividends (595,000) S 500,000 Ending retained earnings balance