Complete the following vertical analysis of a balance sheet:
Note: Round to the nearest tenth percent
\begin{tabular}{lcc}
& Amount & Percent \\
Current assets & $15,751 & A \\
Accounts Receivable & $10,888 & B \\
Inventory & $97,125 & C \\
PPD expenses & $11,448 & D \\
Total assets & $135,212 & $100 \% \\
\cline { 2 - 2 } & & \\
\end{tabular}
Multiple Choice
$11.6 \%, 8.1 \%, 71.8 \%, 8.5 \%$
None of the answer choices are gorrect.
Answer (2)
Calculate the percentage of current assets: A = $135 , 212 $15 , 751 × 100 = 11.6%
Calculate the percentage of accounts receivable: B = $135 , 212 $10 , 888 × 100 = 8.1%
Calculate the percentage of inventory: C = $135 , 212 $97 , 125 × 100 = 71.8%
Calculate the percentage of PPD expenses: D = $135 , 212 $11 , 448 × 100 = 8.5% . The final answer is 11.6% , 8.1% , 71.8% , 8.5%
Explanation
Understanding the Problem We are given a balance sheet and asked to complete a vertical analysis by calculating the percentage of each asset relative to the total assets. We need to round each percentage to the nearest tenth.
Plan of Action To find the percentage of each asset, we will divide the amount of the asset by the total assets and then multiply by 100.
Calculating Percentage for Current Assets First, we calculate the percentage for Current Assets (A): A = $135 , 212 $15 , 751 × 100 The result of the operation is approximately 11.64911398396592. Rounding to the nearest tenth percent, we get 11.6%.
Calculating Percentage for Accounts Receivable Next, we calculate the percentage for Accounts Receivable (B): B = $135 , 212 $10 , 888 × 100 The result of the operation is approximately 8.052539715409875. Rounding to the nearest tenth percent, we get 8.1%.
Calculating Percentage for Inventory Now, we calculate the percentage for Inventory (C): C = $135 , 212 $97 , 125 × 100 The result of the operation is approximately 71.83164216193829. Rounding to the nearest tenth percent, we get 71.8%.
Calculating Percentage for PPD Expenses Finally, we calculate the percentage for PPD expenses (D): D = $135 , 212 $11 , 448 × 100 The result of the operation is approximately 8.466704138685916. Rounding to the nearest tenth percent, we get 8.5%.
Final Answer The calculated percentages are: A = 11.6% B = 8.1% C = 71.8% D = 8.5% These values match the provided multiple-choice options.
Conclusion The completed vertical analysis percentages are 11.6%, 8.1%, 71.8%, and 8.5%.
Examples
Vertical analysis is a method used in financial statement analysis to understand the proportional relationship between items in a financial statement. For example, a company might use vertical analysis to determine how much of its total assets are tied up in inventory. This can help the company identify potential areas for improvement, such as reducing inventory levels to free up cash. Understanding these relationships can help businesses make informed decisions about resource allocation and financial strategy.
The vertical analysis of the balance sheet shows that current assets are 11.6%, accounts receivable are 8.1%, inventory is 71.8%, and PPD expenses are 8.5%. These percentages help in understanding the asset distribution relative to total assets. Therefore, the selected answer is 11.6%, 8.1%, 71.8%, 8.5%.
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