6,400 Golden Company had the following financial statements for Year 4 and Year 5: (Solution on Page 9) INCOME STATEMENT Year 4 Results Year 5 Results Sales $60,000 $70,000 Cost of Goods Sold 27.000 31.000 Gross Profit 33.000 39,000 Operating Expenses Wages Expense $9,000 $10,000 Depreciation Experise 7.000 Rent Expenso 4,200 5,000 Insurance Expenso 3.000 3,000 Advertising Expense 1,400 24.000 1.000 26.000 Income From Operations 9,000 13,000 Other Revenue Rent Revenue 1.200 1,400 Other Expenses Loss on Sale of Assets 500 300 Interest Expense 3.500 2.100 2.400 Income Before Income Taxes 6,700 12.000 Income Tax Expense 1.675 3.000 Net Income $5,025 $9,000 3.000 Year 5 Results $6,000 +9,000 - 2.000 $13,000 RETAINED EARNINGS STATEMENT Year 4 Results Beginning Balance of Retained Earnings 2,100 Net Income +5,025 Dividends Declared - 1.125 Ending Balance of Retained Earnings $6,000 BALANCE SHEET 12/31/Year 4 Cash $1,000 Accounts Receivable 9,000 Merchandise Inventory 15,000 Prepaid Rent 1,000 Equipment 40,000 Accumulated Depreciation -8.000 Total Assets $58,000 Accounts Payable 8.000 Interest Payable 2,000 Long Term Notes Payable 20,000 Common Stock. SIO par 10,000 Paid in Capital in Excess of Par 12,000 Retained Earnings 6.000 Total Liabilities & Stock Equity $58,000 12/31/Year $5,000 4,400 16,000 1,600 60,000 -13.000 $74,000 6,000 1,000 25,000 12.000 17,000 13.000 $74.000 Additional Information for Year : a. Purchased $17,000 of oquipment for cash, b. Sold 200 shares of common stock for $7.000 in cash. c. Sold equipment which cost $5,000 for $2,700. The equipment had a book value of $3,000. d. Purchased $8,000 of equipment and issued a long term note payable as payment c. Paid off $3,000 of long term notes payable on the due date Look in your handouts for Chapter 4 at the comparative financial statements for Golden Company on chapter 4 - page 5. Using those financial statements calculate the following ratios (and PLEASE SHOW YOUR WORK!!) Round final answers to 3 decimals such as 3.265 or 16.8% which would be the same as .168. PLEASE SHOW YOUR WORK in the following format: Year 5 Debt Ratio = Total Liabilities $1.000 = 0.400 Total Assets $2,500 Year 6 $2.000 = 0.556 $3,600 a. 6. C. d. e. f. Current Ratio for year 5 and for year 6 Debt to Equity Ratio for year 5 and for year 6 Asset Turnover Ratio for year 6 only. Accounts Receivable Turnover Ratio for year 6 only. Inventory Turnover Ratio for year 6 only. Assuming Example Company is a retail furniture store, pick ONE of the five ratios calculated above and explain why it is a concern to you. Recommend one thing the company could have done in year 5 which would have made their Debt to Equity Ratio in number 5 above go down. Please use dollar amounts in your recommended action and show what the action would have done to the ratio in year 5 and in year 6. For example, you could say: "The company could have sold $20,000 of the Available for Sale Securities for $25,000 and then used the $25,000 to pay off some of their accounts payable. The old ratio for year 5 was $$$$ / $$$$ = 40.2%. The new ratio would be SSS / $$$ = 36.4%." Then explain how that decision in year 5 might also impact the ratio for year 6, such as the reduction in the accounts payable for year 5 should have also lowered the accounts payable balance in year 6 which would also lower the Debt to Equity ratio. Please show actual numbers where the $S $ signs are 6,400 Golden Company had the following financial statements for Year 4 and Year 5: (Solution on Page 9) INCOME STATEMENT Year 4 Results Year 5 Results Sales $60,000 $70,000 Cost of Goods Sold 27.000 31.000 Gross Profit 33.000 39,000 Operating Expenses Wages Expense $9,000 $10,000 Depreciation Experise 7.000 Rent Expenso 4,200 5,000 Insurance Expenso 3.000 3,000 Advertising Expense 1,400 24.000 1.000 26.000 Income From Operations 9,000 13,000 Other Revenue Rent Revenue 1.200 1,400 Other Expenses Loss on Sale of Assets 500 300 Interest Expense 3.500 2.100 2.400 Income Before Income Taxes 6,700 12.000 Income Tax Expense 1.675 3.000 Net Income $5,025 $9,000 3.000 Year 5 Results $6,000 +9,000 - 2.000 $13,000 RETAINED EARNINGS STATEMENT Year 4 Results Beginning Balance of Retained Earnings 2,100 Net Income +5,025 Dividends Declared - 1.125 Ending Balance of Retained Earnings $6,000 BALANCE SHEET 12/31/Year 4 Cash $1,000 Accounts Receivable 9,000 Merchandise Inventory 15,000 Prepaid Rent 1,000 Equipment 40,000 Accumulated Depreciation -8.000 Total Assets $58,000 Accounts Payable 8.000 Interest Payable 2,000 Long Term Notes Payable 20,000 Common Stock. SIO par 10,000 Paid in Capital in Excess of Par 12,000 Retained Earnings 6.000 Total Liabilities & Stock Equity $58,000 12/31/Year $5,000 4,400 16,000 1,600 60,000 -13.000 $74,000 6,000 1,000 25,000 12.000 17,000 13.000 $74.000 Additional Information for Year : a. Purchased $17,000 of oquipment for cash, b. Sold 200 shares of common stock for $7.000 in cash. c. Sold equipment which cost $5,000 for $2,700. The equipment had a book value of $3,000. d. Purchased $8,000 of equipment and issued a long term note payable as payment c. Paid off $3,000 of long term notes payable on the due date Look in your handouts for Chapter 4 at the comparative financial statements for Golden Company on chapter 4 - page 5. Using those financial statements calculate the following ratios (and PLEASE SHOW YOUR WORK!!) Round final answers to 3 decimals such as 3.265 or 16.8% which would be the same as .168. PLEASE SHOW YOUR WORK in the following format: Year 5 Debt Ratio = Total Liabilities $1.000 = 0.400 Total Assets $2,500 Year 6 $2.000 = 0.556 $3,600 a. 6. C. d. e. f. Current Ratio for year 5 and for year 6 Debt to Equity Ratio for year 5 and for year 6 Asset Turnover Ratio for year 6 only. Accounts Receivable Turnover Ratio for year 6 only. Inventory Turnover Ratio for year 6 only. Assuming Example Company is a retail furniture store, pick ONE of the five ratios calculated above and explain why it is a concern to you. Recommend one thing the company could have done in year 5 which would have made their Debt to Equity Ratio in number 5 above go down. Please use dollar amounts in your recommended action and show what the action would have done to the ratio in year 5 and in year 6. For example, you could say: "The company could have sold $20,000 of the Available for Sale Securities for $25,000 and then used the $25,000 to pay off some of their accounts payable. The old ratio for year 5 was $$$$ / $$$$ = 40.2%. The new ratio would be SSS / $$$ = 36.4%." Then explain how that decision in year 5 might also impact the ratio for year 6, such as the reduction in the accounts payable for year 5 should have also lowered the accounts payable balance in year 6 which would also lower the Debt to Equity ratio. Please show actual numbers where the $S $ signs are