Problems

Note: Refer to the Chapter 6 Homework Spreadsheets below to solve problems 6-1 through 6-3.

Extreme Edge, Inc.

Income Statements

For the Years Ended December 31, 2017, 2016 and 2015

($ in thousands)

2017 2016 2015

Sales revenue	$1,340	$1,200	$1,000
Less: Cost of goods sold	685	660	600
Gross profit	655	540	400
Operating expenses:
Depreciation expense	200	120	100
Amortization expense	5	5	5
Other operating expenses	368 573	345 470	255 360
Income from operations	82	70	40
Interest (financing) expense	32	10	10
Pretax income	50	60	30
Income tax expense (40%)	20	24	12
Net income	$ 30	$ 36	$ 18
Earnings per share	$0.60	$0.72	$0.45

Extreme Edge, Inc.

Balance Sheets

December 31, 2017, 2016 and 2015

($ in thousands)

2017 2016 2015

Assets
Cash	$ 65	$ 90	$ 30
Accounts receivable, net	150	80	90
Inventory	298	228	170
Total current assets	513	398	290
Property, Plant and Equipment:
Equipment (at cost)	800	600	500
Less: accumulated depreciation	(420)	(220)	(100)
Equipment, net of accumulated depreciation	380	380	400
Intangible Assets:
Customer database (at cost)	25	25	25
Less: accumulated amortization	(15)	(10)	(5)
Customer database, net of accumulated amortization	10	15	20
Total Assets	$903	$793	$710
Liabilities
Accounts payable	$ 44	$145	$160
Accrued liabilities	6	20	32
Total current liabilities	50	165	192
Long-term Liabilities:
Notes payable	300	100	100
Total Liabilities	350	265	292
Shareholders' Equity
Common stock, $1 par	50	50	40
Additional paid-in-capital on common stock	430	430	360
Total contributed capital	480	480	400
Retained earnings	73	48	18
Total Shareholders' Equity	553	528	418
Total Liabilities and Shareholders' Equity	$903	$793	$710

Problem 6-2

Required: Refer to the Chapter 6 Homework Spreadsheets above. Compute the 2017 horizontal common-size income financial statements for Extreme Edge.

Extreme Edge, Inc.

Horizontal Common-Size Income Statements

For the Years Ended December 31, 2017, 2016 and 2015

2017 2016 2015

Sales revenue		120.0%	100.0%
Less: Cost of goods sold		110.0%	100.0%
Gross profit		135.0%	100.0%
Operating expenses:
Depreciation expense		120.0%	100.0%
Amortization expense		100.0%	100.0%
Other operating expenses		135.3%	100.0%
Income from operations		175.0%	100.0%
Interest (financing) expense		100.0%	100.0%
Pretax income		200.0%	100.0%
Income tax expense (40%)		200.0%	100.0%
Net income		200.0%	100.0%

Extreme Edge, Inc.

Horizontal Common-Size Balance Sheets

December 31, 2017, 2016 and 2015

2017 2016 2015

Assets
Cash		300.0%	100.0%
Accounts receivable, net		88.9%	100.0%
Inventory		134.1%	100.0%
Total current assets		137.2%	100.0%
Property, Plant and Equipment:
Equipment (at cost)		120.0%	100.0%
Less: accumulated depreciation		220.0%	100.0%
Equipment, net of accumulated depreciation		95.0%	100.0%
Intangible Assets:
Customer database (at cost)		100.0%	100.0%
Less: accumulated amortization		200.0%	100.0%
Customer database, net of accumulated amortization		75.0%	100.0%
Total Assets		111.7%	100.0%
Liabilities
Accounts payable		90.6%	100.0%
Accrued liabilities		62.5%	100.0%
Total current liabilities		85.9%	100.0%
Long-term Liabilities:
Notes payable		100.0%	100.0%
Total Liabilities		90.8%	100.0%
Shareholders' Equity
Common stock, $1 par		125.0%	100.0%
Additional paid-in-capital on common stock		119.4%	100.0%
Total contributed capital		120.0%	100.0%
Retained earnings		266.7%	100.0%
Total Shareholders' Equity		126.3%	100.0%
Total Liabilities and Shareholders' Equity		111.7%	100.0%