Comparative Financial Statements for Bent Stew Enterprises Are Shown Below

question 66

Multiple Choice

Comparative financial statements for Bent Stew Enterprises are shown below: $\begin{array}{lrrr}&\text { December } 31\\&2018&2017\\\text { Assets }\\\text { Current assets: }\\\text { Cash } & \$ 3,000 & \$ 800 \\\text { Accounts receivable } & 8,500 & 6,000 \\\text { Inventory } & 12,000 & 8,200 \\\text { Prepaid expenses } & 1,400 & 900 \\\text { Total current assets } & 24,900 & 15,900 \\\quad \text { Property, plant, and equipment, net } & 103,600 & 123,300 \\\text { Intangible assets, net } & \mathbf{6 4 , 0 0 0} & \underline{47,000} \\\text { Total assets } & \$ 192,500 & \$ 186,200 \\\text { Liabilities and Stockholders' Equity }\\\text { Current liabilities: }\\\text { Accounts payable } & \$ 11,000 & \$ 12,000 \\\text { Other current liabilities } & 11,800 & 3,200 \\\text { Total current liabilities } & 22,800 & 15,200 \\\text { Long-term debt } & \underline{120,000} & 128,000 \\\text { Total liabilities }& \underline{142,800}& \underline{143,200}\\\text { Stockholders' equity: }\\\text { Common stock } & 15,000 & 15,000 \\\text { Additional paid-in capital } & 20,000 & 20,000 \\\text { Retained earnings } & 14,700 & 8,000 \\\text { Total stockholders' equity }&{49,700}&43,000 \\\text { Total liabilities and stockholders' equity } &\$192,500&\$186,200\\&\text { Year Ended December } 31\\&2018&2017\\\text { Sales } & \$ 250,000 & \$ 230,000 \\\text { Cost of goods sold } & 164,000 & 142,300 \\\text { Gross margin } & 86,000 & 87,700 \\\text { Operating expenses } & 64,000 & 54,000 \\\text { Operating income } & 22,000 & 33,700 \\\text { Interest expense } & \underline{7,500} & 5,900 \\\text { Earnings before income taxes } & 14,500 & 27,800 \\\text { Income taxes } & 7,800 & 7,140 \\\text { Net earnings }&\$6,700&\$20,680\end{array}$ Using vertical analysis, how would you best describe the change in the company's operating expenses from 2017 to 2018?

• A)Operating expenses increased from 1.63% of net earnings to 9.55% of net earnings from 2017 to 2018.
• B)Operating expenses increased by $10,000 from 2017 to 2018.
• C)Operating expenses increased from 23.5% to 25.6% of sales from 2017 to 2018.
• D)Operating expenses increased by 18.5% from 2017 to 2018.

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Definitions:

Negotiation

The process of discussing things with others to reach an agreement, compromise, or settlement.

Order

An authoritative command, direction, or instruction, typically issued by a court or by someone in a position of power.

Bearer

A term referring to an individual in possession of a negotiable instrument (such as a check or bond) that is payable to whoever holds it.

Assigns

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