INSTRUCTIONS FOR UNIT #20 VERTICAL ANALYSIS BALANCE SHEET TUTORIAL - INITIAL TUTORIAL - COMPLETED

INSTRUCTIONS FOR UNIT # 20

~ This tutorial will apply the use of vertical analysis to balance sheets. The analysis will compare account balances for two companies and the percentage of each account balance to total assets or the total of liabilities and equity. As noted before, percentages facilitate analysis as they reduce data to a common denominator. They make it very easy to draw comparisons on working capital, size of long term assets, solvency position, etc. ~ The analysis starts with A = L + E as the reference, i.e. 100%. Every asset will be compared to total assets as 100%. Liability and equity accounts will be compared to the total of liabilities and equities as 100%. For example, cash is divided by total assets; accounts payable is divided by total liabilities and equities. If you were an analyst, you could make some interesting comparisons on financial position and solvency. You are required to enter data to complete the balance sheets, As you do this totals and percentages are computed. If not sure, go to the formula bar to see how the cell is programmed. In some cases, rounding may have been necessary. ~ Select the tutorial Initial. You will find the balance sheet formatted on the left. Columns are setup for two companies. At the bottom certain items of key data are copied or computed as you enter data. They represent critical measures of financial position or solvency. Some data has already been entered. ~ Enter the following data in the appropriate cells: Accounts receivable Inventory Land Bldgs.,mach., equip. Wages and salaries payable Accounts payable Notes payable (current portion ) Notes payable ( long term ) Preferred stock Paid in capital on preferred Paid in capital on common Retained earnings Lincoln Co. 20 30 30 40 8 20 2 20 10 10 10 35 Madison Co. 25 26 33 38 9 22 5 26 12 8 12 39

~ The tutorial Completed has the correct entries, calculations, percentages, and key data. Look carefully at your entries and compare them to the completed ones.