2. (TCO 1) The financial statements present a company to thepublic in financial terms. (1) Which financial statement requiresinput from the Income Statement and Statement of Retained Earnings(10 points) and (2) explain what information this financialstatement provides.

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The financial statements present a company to the public infinancial terms. (1) Which financial statement identifies how muchcash the company generated and spent during the year and (2)identify the three major parts of this statement.

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PROBLEM 15-15 Comprehensive Ratio Analysis (L015-2, L015-3, L015-4, L015-5, L015-6] You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety hel- mets. Your boss has asked you to perform a comprehensive analysis of the company's financial statements, including comparing Lydex's performance to its major competitors. The company's financial statements for the last two years are as follows: Lydex Company Comparative Balance Sheet This Year Last Year $ 960,000 0 2,700,000 3,900,000 240,000 7,800,000 9,300,000 $17,100,000 $ 1,260,000 300,000 1,800,000 2,400,000 180,000 5,940,000 8,940,000 $14,880,000 Assets Current assets: Cash .... Marketable securities ......... Accounts receivable, net ........ Inventory .......... Prepaid expenses.......... Total current assets. ........ Plant and equipment, net ..... Total assets ............. Liabilities and Stockholders' Equity Liabilities: Current liabilities. Note payable, 10% ................. Total liabilities .... .......... Stockholders' equity: Common stock, $78 par value ......... Retained earnings .................. Total stockholders' equity .............. Total liabilities and stockholders' equity.... $ 3,900,000 3,600,000 7,500,000 $2,760,000 3,000,000 5,760,000 7,800,000 1,800,000 9,600,000 $17,100,000 7,800,000 1,320,000 9,120,000 $14,880,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) ........... $15,750,000 $12,480,000 Cost of goods sold ...... 12,600,000 9,900,000 Gross margin ....................... 3,150,000 2,580,000 Selling and administrative expenses ...... 1,590,000 1,560,000 Net operating income.................. 1,560,000 1,020,000 Interest expense ...................... 360,000 300,000 Net income before taxes ............. 1,200,000 720,000 Income taxes (30%) .......... 360.000 216,000 Net income ....... 840,000 504,000 Common dividends .... 360,000 252,000 Net income retained. 480,000 252,000 Beginning retained earnings ............ 1,320,000 1,068,000 Ending retained earnings .......... $ 1,800,000 $ 1,320,000 PROBLEM 15-16 Common-Size Financial Statements [L015-1] Refer to the financial statement data for Lydex Company given in Problem 15-15. Required: For both this year and last year: 1. Present the balance sheet in common-size format. 2. Present the income statement in common-size format down through net income. 3. Comment on the results of your analysis.

Suggest one (1) consequence of improperly classifying an accounttype (e.g., if an expense is classified as an asset or an asset isclassified as an expense). Describe the effect on at least two (2)of the four (4) major financial statements: Profit & Loss(Income) Statement, Statement of Retained Earnings, Balance Sheet,and Statement of Cash Flow.

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2. (TCO 1) The financial statements present a company to thepublic in financial terms. (1) Which financial statement requiresinput from the Income Statement and Statement of Retained Earnings(10 points) and (2) explain what information this financialstatement provides.

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