1.

Presented below are the Comparative Statements of Financial Position and Comparative Income

Statement of On The Dot Trading. Perform a horizontal analysis showing the increase or decrease for the year
2017 in comparison to the year 2016.

On the Dot Trading

Statement of Financial Position
As of December 31
Increase
ASSETS 2017 2016 (Decrease) Percent
Amount
Current Assets
Cash 158,000 84,000 74,000 88.1
Short-term Investments 130,000 192,000 (62,000) (32.3)
Accounts Receivable (net) 240,000 200,000 40,000 20
Merchandise Inventory 500,000 530,000 (30,000) (5.7)
Total Current Assets 1,028,000 1,006,000 22,000 2.2
Property, Plant &Equipment 2,340,000 2,350,000 (10,000) (0.4)
TOTAL ASSETS 3,368,000// 3,356,000// 12,000// 0//

LIABILITIES and OWNER’S

EQUITY
Current Liabilities 530,000 584,000 (54,000) (0.1)
Non-Current Liabilities 800,000 840,000 (40,000) (4.8)
TOTAL LIABILITIES 1,330,000 1,424,000 (94,000) (6.6)
OWNER’S EQUITY 2,038,000 1,932,000 106,000 0.1
TOTAL LIABILITIES & 3,368,000// 3,356,000// 12,000// 0//
OWNER’S EQUITY

On The Dot Trading

Income Statement
For the Years Ended December 31
(in millions)
Increase
2017 2016 (Decrease) Percent
Amount
Net Sales 4,972 4,150 822 19.8
Cost of Goods Sold 3,046 2,444 602 24.6
Gross Profit 1,926 1,706 220 12.9
Selling & Administrative Expenses 1,556 1,500 56 3.7
Operating Income 370 206 164 79.6
Interest Expense 88 92 (4) (4.3)
Income Before Income Taxes 282 114 168 147.4
Income Tax Expense 94 42 52 123.8
Net Income 188// 72// 116 161.1

Analysis

1. Current Assets increased by 2.2%. The increase is a result of a 20% increase in Accounts Receivable and a
5.7% decrease in Merchandise Inventory. This increase in Accounts Receivable entails management to
check their credit and collection policy for prompt collection of accounts especially that increase in Net
Sales was only 19.8% and cash increase by 88.1%.

2. Property, Plant and Equipment showed 0.4% decrease.  This may be due to the less purchases made by the
company to invest in plant assets.  It is possible for the owner to invest property and equipment in the
business.  However, Owner’s Equity showed a increase of 0.1%.

3. Current Liabilities and Owner’s Equity remained the same with the decrease in Total Liabilities and
increase in Owner’s Equity.  This can be explained by the 4.8% decrease in the company’s Non-Current
Liabilities which means that the company made fewer borrowings during the year. 
4. Net Sales increased by 19.8% during the year.  However, despite the increase in Sales, Net Income
increased by 161.1%.  Looking at the other components of the Income Statement, Cost of Goods Sold
increased by 24.6%.  Even with this increase in Cost of Goods Sold, Gross Margin registered a 12.9%
increase.  Selling and Administrative Expenses showed a 3.7% increase.  Despite this, income from
operations recorded an 79.6% increase.  The company’s decrease in Interest Expense of 4.3% resulted in a
increase in Income Before Taxes.  Analyzing the components of the Income Statement, we were able to
explain the increase in Net Income and increase in Net Sales.