Need accounting help with A common-size income statement

Apple a Day, Inc. and Health Edibles, Inc. are food catering businesses that operate in the same metropolitan area. Their customers include Fortune 500 companies, regional firms, and individuals. The two firms reported similar profit margins for the current year. Also, both firms base bonuses for managers on the achievement of a target profit margin and return on equity. Each firm has submitted a loan request to you, a loan officer for City National Bank. They have provided you with the following information:

Apple a Day

Healthy Edibles

Net Sales



Cost of goods sold



Gross margin



Operating expenses



Operating income



Gain on sale of real estate



Interest expense



Income before income taxes



Income tax expense



Net income



Average stockholders’ equity



Write a paper that completes the following tasks:

  1. Perform a vertical analysis and prepare a common-size income statement for each firm. Compute profit margin and return on equity. (Round your answers to one decimal place.)
  2. Discuss these results, the bonus plan for management, and loan considerations. Identify the company that is a better loan risk and explain why.

Your paper should meet the following requirements:

  • Be 3-5 pages in length, not counting the required title and reference pages. Your paper should include an introduction, a body with at least two fully developed paragraphs, and a conclusion.
  • APA style.

Textbook (Managerial Accounting 13 edition, Warren, Reeve, Duchac).


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