Richard Company has just prepared the following comparative annual financial statements for 2012:

Required (round percentages and ratios to two decimal places):
1. For 2012, compute the tests of
(a) Profitability,
(b) Liquidity,
(c) Solvency, and
(d) Market.
Assume that the quoted price of the stock was $23 for 2012. Dividends declared and paid during 2012 were $6,750.
2. Respond to the following for 2012:
a. Compute the percentage changes in sales, income before extraordinary items, net income, cash, inventory, and debt.
b. What appears to be the pretax interest rate on the note payable?
3. Identify at least two problems facing the company that are suggested by your responses to requirements (1) and(2).

Transcribed Image Text:

RICHARD COMPANY Comparative Income Statement For the Years Ended December 31, 2012, and 2011 2011 2012 $110,000 52,000 $99,000 Sales revenue (one-half on credit) Cost of goods sold 48,000 $ 58,000 Gross profit Expenses (including $4,000 interest expense each year) $51,000 37,000 40,000 $ 18,000 Pretax income $14,000 Income tax on operations (30%) 5,400 4,200 $ 12,600 $ 9,800 Income before extraordinary items Extraordinary loss Less income tax saved $2,000 600 1,400 $3,000 Extraordinary gain Applicable income tax 2,100 900 $ 11,200 $11,900 Net income RICHARD COMPANY Comparative Balance Sheet At December 31, 2012, and 2011 2012 2011 Assets Cash $ 49,500 37,000 S 18,000 32,000 Accounts receivable (net; terms 1/10, n/30) 25,000 95,000 Inventory Operational assets (net) 38,000 105,000 $206,500 Total assets $193,000 Liabilities $ 35,000 $ 42,000 1,000 40,000 Accounts payable Income taxes payable Note payable, long-term Stockholders' equity Capital stock (par $10) Retained earnings 500 40,000 90,000 90,000 33,500 27,500 Total liabilities and stockholders' equity $206,500 $193,000