Presented here are a statement of income and retained earnings and comparative balance sheets for Gallagher, Inc., which operates a national chain of sporting goods stores.

                        Gallagher, Inc.
Statement of Income and Retained Earnings
    For the Year Ended December 31, 2014
       (all amounts in thousands of dollars)

Net sales .........................................................................................................$48,000
Cost of goods sold ...........................................................................................36,000
Gross profit .....................................................................................................$12,000
Selling, general, and administrative expense .................................................6,000
Operating income ............................................................................................$ 6,000
Interest expense .....................................................................................................280
Income before tax .............................................................................................$ 5,720
Income tax expense .............................................................................................2,280
Net income .........................................................................................................$ 3,440
Preferred dividends .................................................................................................100
Income available to common ...........................................................................$ 3,340
Common dividends ..................................................................................................500
To retained earnings ...........................................................................................$ 2,840
Retained earnings, 1/1 .........................................................................................12,000
Retained earnings, 12/31 ...................................................................................$14,840

Required
1. Prepare a statement of cash flows for Gallagher, Inc., for the year ended December 31, 2014, using the indirect method in the Operating Activities section of the statement.
2. Gallagher€™s management is concerned with its short-term liquidity and its solvency over the long run. To help management evaluate these, compute the following ratios, rounding all answers to the nearest one-tenth of a percent:
a. Current ratio
b. Acid-test ratio
c. Cash flow from operations to current liabilities ratio
d. Accounts receivable turnover ratio
e. Number of days€™ sales in receivables
f. Inventory turnover ratio
g. Number of days€™ sales in inventory
h. Debt-to-equity ratio
i. Debt service coverage ratio
j. Cash flow from operations to capital expenditures ratio
3. Comment on Gallagher€™s liquidity and its solvency. What additional information do you need to fully evaluate the company?

Transcribed Image Text:

Gallagher, Inc. Comparative Balance Sheets December 31, 2014 and 2013 (all amounts in thousands of dollars) December 31 2013 2014 $ 2,700 Cash 2$ 840 12,500 8,000 Accounts receivable 9,000 Inventory Prepaid insurance 5,500 100 400 Total current assets $21,440 $17,600 $ 4,000 $ 4,000 Land Buildings and equipment 12,000 9,000 (3,000) Accumulated depreciation (3,700) Total long-term assets $12,300 $33,740 $10,000 Total assets $27,600 $ 5,000 $ 7,300 4,600 Accounts payable Taxes payable Notes payable Current portion of bonds 4,200 2,400 1,600 200 200 Total current liabilities $14,500 $11,000 Bonds payable 1,600 1,400 Total liabilities $15,900 $ 1,000 $12,600 $ 1,000 Preferred stock, $5 par Common stock, $1 par Retained earnings 2,000 2,000 14,840 12,000 Total stockholders' equity $17,840 $15,000 Total liabilities and stockholders' equity $33,740 $27,600