Author Question: Analyze the common size income statements below for 3T Company: 2015 2014 Net sales 100 100 ... (Read 78 times)

corkyiscool3328 · **on:** Jul 6, 2018

Analyze the common size income statements below for 3T Company:

2015 2014
Net sales 100 100
COGS 89 87
Gross margin 11 13
Selling, general and administrative 7 9
Restructuring, asset impairments and other charges 0 9
Income

/(loss) from operations 4 (5)
Interest expense (1) (2)
Income/(loss) before taxes 3 (7)
Provision for/(benefit from) income taxes 1 0
Income/(loss) after taxes 2 (7)
Discontinued operations, net 6 1
Net income (loss) 8 (6)

What will be an ideal response?

Question 2

Which of the following represent good internal control procedures concerning cash receipts?
a. Cash should be deposited only at the end of the month.
b. Cash receipts should be posted to the Accounts Receivable account at the end of the month.
c. Designate a specific employee to open mail, handle cash, and record the cash.
d. Endorse checks immediately upon receipt with the stamp, For Deposit Only.

lauravaras · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

Gross profit margin has declined two percent from 2014 to 2015 . Either selling prices have declined and/or cost of goods sold has increased. If there are fixed costs within the cost of goods sold category then a decline in volume of sales may be responsible for the drop in gross profit margin.

Operating profit margin has increased from a loss to a profit, despite the decrease in gross profit margin. It appears 3T Company has compensated for the drop in gross profit by cutting costs in selling, general and administrative expenses. Reducing waste in these areas would constitute a beneficial cut; however, if these areas have been cut only for the purpose of increasing earnings, this could be highly detrimental to the long-term success of the firm. Cuts in advertising may result in lower sales. If layoffs have been used to reduce operating expenses, lower morale in the work force may result in lower quality and lower sales. The main reason for the increase in operating profit has been the lack of restructuring and asset impairment costs in 2015 compared to 2014 . Restructuring could explain how the firm was able to lower selling, general and administrative expenses.

Net profit has increased as a result of the increased operating profit. Interest expense has declined slightly which implies lower debt or lower interest rates. Income tax expense has risen which is expected since the firm is no longer generating losses. In addition, net profit is higher than it otherwise would be as a result of gains from discontinued operations, a one-time event.

Answer to Question 2

d