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Page 2 of 5 Graded problem Chapter 14- Financial Accounting Comparative financial statements for ABC, a merchandising company for the calendar year ended 12/31/18 are below. The Company did not issue any new common stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12% the income tax rate was 40% and the dividend per share of common stock was $.40. The market value of the company's common stock at the end of the year was $18. All of the Company's sales are on account. Required: Using the information above and below as needed, calculate, or comment as appropriate, regarding the following ratios for the CURRENT YEAR: 1. Working Capital 2. Current Ratio 3. Acid-Test (Quick) Ratio 4. Briefly comment (one or two sentences) about the collective information provided by the ratios 1-3. 5. Accounts Receivable Turnover 6. Average Collection Period (Days Sales Outstanding in Receivables) 7. Briefly comment (one or two sentences) about the information in 5 & 6. If credit terms are 2/10;n 30, would you be concerned? Why or why not? r. Briefly comment on your results in d. and Comparative Balance Sheet dollars in thousands) Last Year 1.560 Accounts receivable, net Inventory Prepaid expenses 1.280 12.300 9,700 1,800 8,200 2,100 Total current assets 25,080 20,960 Property and equipment: 6,000 19,200 6,000 19,000 Buildings and equipment, net Total property and equipment 25,200 25,000 Total assets 50,280 $ 45,960 Liabilities and Stockholders' Equity Current Mabilities: Accounts payable 9,500 600 Accrued liabilities Notes payable, short term 8,300 700 300 300 10,400 9,300 Total current liabilities Long-term liabilities: Bonds payable Total liabilities 5,000 15,400 5,000 14,300 Stockholders' equity: Common stock Additional paid-in capital Retained earnings 800 4,200 29,880 800 4,200 26,660 Total stockholders' equity 34,880 31,660 Total liabilities and stockholders' equity $ 50,280 45,960 r. Briefly comment on your results in d. and e. Last Year ABC COMPANY Comparative Income Statement (dollars in thousands) This Year 79,000 52,000 27,000 Sales 74,000 Cost of goods sold Gross margin 48,000 26,000 Selling and administrative expenses: Selling expenses Administrative expenses Total selling and administrative expenses 8,500 12,000 8,000 11,000 19,000 20,500 Net operating income Interest expense Net income before taxes Income taxes Net income 6,500 600 5,900 2,360 3,540 7,000 600 6,400 2,560 3,840 $ $ Additional Information Dividends to common stockholders 320 320 -Test (Quick Ratio d. Selling Expenses Horizontal comment one or two sentences) about the collective information provided by the ratios e. Selling Expenses - for curr Receivable Turnover your ollection Perk 8. Inventory Turnover rent (one or Duld you by 9. Average Sales Period (Days Sales in Inventory) 10. Briefly comment (one or two sentences) about the information in B 89. If the industry average for # 8 is 3, would you be concerned? Why or why not? 11. Times Interest Earned 12. Simply explain the purpose of the Times Interest Earned Calculation 13. Gross Margin 14. Return on Assets 15. Return on Equity 16. If the owners could alternatively earn 15% in outside investments, would they choose to invest this money within the company or in their outside investments? Why? 17. Calculate the Earnings Per Share 18. Calculate the Price Earnings Ratio Page 2 OREGO3 22019 UPS Regu 19. Briefly explain the difference between a horizontal analysis and vertical analysis. 20. Using the information below, comment on the following items: a. Accounts Receivable-Horizontal analysis in dollars and % b. Accounts Receivable- for current year and prior year, vertical analysis % C. Briefly comment on your results in a. and b. d. Selling Expenses-Horizontal analysis in dollars and % e. Selling Expenses - for current year and prior year, vertical analysis % f. Briefly comment on your results in d. and e
