45 1 28% 10:04 am Questions for Review and Discussions 1. Prepare Tinancial statements ABC Merchandising Statement Of Financial Position AS OT December 31, ZUly ASSet Current Asset Lasn yU,UUU snort-term investments ZUS,UUU Accounts Receivable 2 10,UUU Merchandise Inventory 545,UUU I otal Current Assets 1,USU,UUU Property, Plants and Equipmen 2,JSU,UUU I otal Assets 3,200,UUU Liabilities ana owner's Equity Current Liabilities Accounts Payable 565,UUU Non-Current Liabilities Loan Payable 185,UUU I otal Liabilities 1,35U,UUU owner's Equity 1,ySU,UUU I otal Liabilities and owner's Equity. 3,200,UUU ABL Merchandising Income Statem For the Year thaed December 31, zuly Net Sales. 3,965,UUU LOST OT Good SOIas 2 1 15,UUU Gross Profit 1,85U,UUU Selling Of Administrative Expenses L,450,UUU uperating Income 4UU,UUU interest Expenses ys,UUU income Before Income Taxes 305,UUU income lax Expense 65,UUU Net income 240,UUU ABL Merchandising Statement Of Changes in owner's Equity For the Year Ended December 31, 2019 ABC, Capital Beginning 1,ySU,UUU Aaa: Net income 24U,UUU4G 28% # 10:04 am ABL Merchandising statement Of Changes in Owner's Equity For the Year Ended December 31, Zu19 ABC, Capital Beginning 1,ySU,UUU Aaa: Net Income 240,UUU I otal: 2, YU,UUU Less: Drawings ABC, Capital Ena 4,1YU,UUU ABL Merchandising Statement Of Cash Flows For the Year tnaea December 31, 2019 Lasn Flows from Uperating Activites Kecient Collections from Costumers 34,UUU Payments uperating Expenses Net Cash from Uperating Activities 25,UUU Lasn Flow Trom Investing ACTIVITIES KecleRL Proceeds from the sale of Equipment 8,UUU Proceeds from the sale Of Furniture 4,UUU Payments For Purchase Of Furniture (26,UUV) Net Lasn Trom Investing Activities (14, UUU) Lasn HOW Trom Financing ACTIVITIES KeCleRI Proceeds from Bank Load 21,0UU Payments Payments Trom Bank Loan Net Casn Trom Financing Activities y,UUU Net Increase/ Decrease in Lasn 18,UUU Lasn Balance- January 1 80,UUU Lasn Balance- December 3145 28% 10:04 am Net Cash Trom Financing Activities y,UUU Net increase/ Decrease in Lasn 18,UUU Lasn Balance- January 1 80,UUU Lasn Balance- December 31 Z. Define the measurement levels Of liquidity, solvency , stability and profitability ratios. The most common liquidity ratio is the current ratio, which is the ratio of current assets to current liabilities. This ratio indicates a company's ability to pay its short-term bills. Solvency ratios indicate financial stability because they measure a company's debt relative to its assets and equity. A company with too much debt may not have the flexibility to manage its cash flow if interest rates rise or if business conditions deteriorate. Stability is the long-term counterpart of liquidity. Stability analysis investigates how much debt can be supported by the company and whether debt and equity are balanced. The most common stability ratios are the Debt-to-Equity ratio and gearing (also called leverage). Profitability ratios indicate management's ability to convert sales dollars into profits and cash flow. The common ratios are gross margin, operating margin and net income margin. The gross margin is the ratio of gross profits to sales. The gross profit is equal to sales minus cost of goods sold. 3. Perform vertocal and norizontal analysis of Financial statements of a single proprietorsnip. vertical Analysis ABL Merchandising Statement Of Financial POSITION AS of December 31, 2019 Assets ZULy Percent 20 18 Percent Current Assets Lasn yu,UUU 2.81 13,UUU 2.34 Snort-term investments ZUS,UUU b.4 215,UUU 6./ Accounts Receivable 2 10,UUU 6.56 1yU,UUU 5.y5 Iviercnanaise Inventory 545,UUU 1/.03 SOU,UUU 1/.4/ Total Current Assets 1, USU, UUU 32.81 1,U40,UUU 34.45 Property, Plants and Equipmen 2,150,UU0 61,18 2,165,UUU 6/.56 I otal Assets 3,200,UUU LUU 3,205,UUU Liabilities and owner's Equity Current Liabilities Accounts Payable 505,UUU 1/.60 5yS,UUU 18.56 Non-Current Liabilities Loan Payable 185,UUU 24.53 8UU,UUU I otal Liabilities 1,35U,UUU 42.ly 1,395, UUU 45.53 owner's Equity 1,ySU,UUU bu.yo 1,810,UUU 50.4/ I otal Liabilities ana Owner's Equity 3,ZU0,UUU JUU 3,205,UUU JUU. . . 4G 128% 10:04 am 5. Perform vertocal and norizontal analysis of Financial statements of a single proprietorsnip. vertical Analysis ABL Merchandising statement Of Financial Position AS Of December 31, 2019 ASSETS ZULy Percent RT07 Percent Current Assets Lasn yu,UUU 2.81 15,UUU 2.34 snort-term investments 205,UUU 6.4 215,UUU 6./ Accounts Receivable 210,UUU 6.5b 1yU,UUU 5.43 Merchandise Inventory 545,UUU 1/.03 SOU,UUU 1/.4/ I otal Current Assets 1,USU,UUU 32.81 1,040,UUU 34.45 Property, Plants and Equipmen 2,150,0UU 6/,18 2,165,UUU 6/.56 I otal Assets 3,200,UUU JUU 3,205,UUU Liabilities ana owner's Equity Current Liabilities Accounts Payable 565,UUU 1/.60 byS,UUU 18.50 Non-Current LiaDI Loan Payable /85,UUU 24.53 8UU,UUU I otal Liabilities 1,35U,UUU 1,395,UUU 43.53 owner's Equity 1,ySU,UUU bu.yb 1,810,UUV 56.4/ I otal Liabilities and Owner's Equity_3,200,UUU LUU 3,205,UUU ABL Merchandising income Statement For the Year tnaea December 31, zu19 ZUly Percent 2018 Percent Net Sales 3,905,UUU LUU 3,450,UUU LUU LOST OF Good SOIAS 4,415,UUU 53.34 1,YOU,UUU 55.U/ Gross Profit 1,85U,UUU 1,5SU,UUU 44.45 Selling Of Administrative Expenses 1,450,UU0 36.5/ 1,100,0UU 31.88 uperating income 4UU,UUU JU.US 450,UUU 13.04 interest Expenses yS,UUU 2.40 85,UUU 2.41 Income Before Income laxes SUS,UUU 1.by 38/,UUU 11.24 income I ax Expense 65,UUU 1.64 SU,UUU 1.45 Net income 240,UUU 6.US 354UUU y . 1 1 Horzontal Analysis ABC Merchandising Statement Of Financial Position AS OT December 31, zuly Assets Increase [Decrease)45 1 28% 10:04 am ABC Merchandising Statement Of Financial Position AS OT December 31, zu19 Assets 20Ly 2018 increase (vecrease) Amount Percent Current Assets Lasn yU,UUU 15,UUU 25,UUU 35.35 Snort-term investments ZUS,UUU 215,UUU ( 10,UUU) (4.65) Accounts Receivable 210,0UU 190,0UU 20,UUU 10.53 Merchandise Inventory 545,UUU 5OU,UUU (15,UUU) (2.68) I otal Current Assets 1,USU,UUU 1,UOU,UUU (10,UUU) (0.94) Property, Plants and Equipmen 4,JSU,UUU 4,165,UUU (15,UUU] (0.by) lotal Assets 3,200,UUU 3,205,UUU (5,UUUJ (0. 10) Liabilities and owner's Equity Current Liabilities Accounts Payable 565,UUU 595,UUU (30,000) (5.04) Non-Current Liabilities Loan Payable 185,UUU 8UU,UUU (15,UUU) I otal Liabilities 1,35U,UUU 1,395, UUU (45, UUU ) (3.23) owner's Equity 1,ySU,UUU 1,810,UUV 140,UUU 1. 13 I otal Liabilities and Owner's Equity _3,200,UUU 3,205,UUU (0.16) ABL Merchandising income Statement For the Year tnaea December 31, zuly ZUly 2018 Increase (vecrease) Amount percent Net Sales 3,905, UUU 3,450,UUU 515,UUU 14.95 LOST OT Good SOIas 4,1 15,UUU 1,YOU,UUU 415,UUU 11.34 Gross Profit 1,850,0UU 1,550,0UU 3UU,UUU 19.35 Selling Of Administrative Expenses 1,450,UUU 1, JUU,UUU 35U,UUU 31.84 uperating income 40U,UUU 45U,UUU (SU,UUU) (TT'TT) interest Expenses y5,UUU 83,UUU 14,UUU 14.40 income Before income Taxes SUS,UUU 38/,UUU (82,UUU) (GT.T7) income I ax Expense 65,UUU BU,UUU 15,UUU Net income 240,UUU 35 4UUU (9/UUU) (28./81 4. Compute, analyse, and interpret financial ratios such as current ratio, working capital ratio, gross profit ratio, net profit ratio, receivable turnover, inventory turnover, and debt to-equity ratio. Current Ratio CUTILIIL LIUNITILICS45 29% 10:05 am 4. Compute, analyse, and interpret financial ratios such as current ratio, working capital ratio, gross profit ratio, net profit ratio, receivable turnover, inventory turnover, and debt to-equity ratio. Current Ratio VUIICIIL LIUNITILICS JUJ, UVU = 1.86 ABC Merchandising's current ratio value is 1.86. The result shows that NathanMerchandising has 1.72 pesos of current assets for every peso of current liabilities. Working Capital = Current Assets - Current Liabilities = 1,050,000 - 565,000 = P485,000 ABC Merchandising's working capital is P485,000 which is the amount of assets that can be liquidated in the near future to pay off the business's more pressing obligations. Gross Profit Ratio IVCL JUICS ABC Merchandising's gross profit ratio resulted to 46.66%. It means the company may reduce the selling price of its products by 46.66% without incurring any loss. J, JUJ , UVU = 6.05% ABC Merchandising's net profit ratio resulted to 6.05%. The management should exert effort to increase sales and cut on expenses if they want to improve net income for future operations. The business has a profit percentage of 6.05% per peso of sales. Receivable Turnover LLU, UVV = 21.84 times ABC Merchandising's receivable turnover is 21.84 times. This means that the business was able to collect its average receivables 21.84 times. Inventory Turnover LUSL VI UVUUS JUIN JTJ , UVV = 3.88 tim. . . 46 29% 10:05 am Gross Profit Ratio IVCL JUICY ABC Merchandising's gross profit ratio resulted to 46.66%. It means the company may reduce the selling price of its products by 46.66% without incurring any loss. J, JUJ, UVU = 6.05% ABC Merchandising's net profit ratio resulted to 6.05%. The management should exert effort to increase sales and cut on expenses if they want to improve net income for future operations. The business has a profit percentage of 6.05% per peso of sales. Receivable Turnover FILLVUIILU FILLLIVUNIL = 21.84 times ABC Merchandising's receivable turnover is 21.84 times. This means that the business was able to collect its average receivables 21.84 times. Inventory Turnover - LUJI VI UVUUS JUIN = 3.88 times ABC Merchandising's inventory turnover is 3.88 times. The low inventory may signify a low demand on the products prompting the business to make certain moves. Debt To-Equity Ratio - I VLaI LIQUIIILICS ULUI LyUILY LIJ JU, UUV = 0.69 ABC Merchandising's debt to equity ratio resulted to 0.69 which meant that for every peso financed by the owner in the assets of the business, 0.69 pesos was financed by the creditors. =