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Question 4. (6 Marks) Selected information from the comparative financial statements of the Simon and Marvin Company for the years aridad December 31, 2019 and 2018 appear below: 2019 2018 Cash $ 20,000 $ 20,000 Accounts receivable (net) 630,000 220,000 Inventory 450,000 490,000 Prepaid insurance 20,000 25,000 Total Current Assets 1,120,000 755,000 Non-Current Assets 80.000 45,000 Total assets 1.200,000 800,000 Short term bank loans Other Current liabilities Total Current liabilities Long-term debt Total Liabilities Stockholder's Equity Total Liabilities and Stockholder's Equity 250,000 50.000 300,000 600.000 900,000 300,000 1.200.000 100,000 90,000 200,000 300,000 500,000 300,000 800,000 Net credit sales Cost of goods sold Interest expense Income tax expense Net income 2,200,000 1,800,000 50,000 60,000 220,000 700,000 530,000 25,000 29,000 85,000 Required: 1. (1 Mark) Compute the following ratios for 2019. Show your calculations. 2. (2 Marks) Explain if the ratio is favorable or unfavorable. 3. (2 Marks) Compare the ratios to the industry and comment which ratio is better the company of the industry? Question 4. (5 Marks) Selected information from the comparative financial statements of the Simon and Marvin Company for the years ended December 31, 2019 and 2018 appear below: 2019 2018 Cash $ 20,000 $ 20,000 Accounts receivable (net) 630,000 220,000 Inventory 450,000 490,000 Prepaid insurance 20,000 25,000 Total Current Assets 1,120,000 755,000 Non-Current Assets 80.000 45,000 Total assets 1.200,000 800,000 Short term bank loans Other Current liabilities Total Current liabilities Long-term debt Total Liabilities Stockholder's Equity Total Liabilities and Stockholder's Equity 250,000 50.000 300,000 600.000 900,000 100,000 90,000 200,000 300,000 500,000 300,000 800,000 300.000 1.200,000 Net credit sales Cost of goods sold Interest expense 2,200,000 1,800,000 50,000 60,000 220,000 700,000 530,000 25,000 Income tax expense 29,000 Net income 85,000 Required: 1. (1 Mark) Compute the following ratios for 2019. Show your calculations. 2. (2 Marks) Explain if the ratio is favorable or unfavorable. 3. (2 Marks) Compare the ratios to the industry and comment which ratio is better the company of the industry? Selected information from the comparative financial statements of the Simon and Marrvin Company for the years ended December 31, 2019 and 2018 appear below: 2019 2018 Cash $ 20,000 $ 20,000 Accounts receivable (net) 630,000 220,000 Inventory 450,000 490,000 Prepaid insurance 20,000 25,000 Total Current Assets 1,120,000 755,000 Non-Current Assets 80,000 45,000 Total assets 1,200,000 800,000 Short term bank loans Other Current liabilities Total Current liabilities Long-term debt Total Liabilities Stockholder's Equity Total Liabilities and Stockholder's Equity 250,000 50,000 300,000 600,000 900,000 300,000 1,200,000 100,000 90,000 200,000 300,000 500,000 300,000 800,000 Net credit sales Cost of goods sold Interest expense Income tax expense 2,200,000 1,800,000 50,000 60,000 220,000 700,000 530,000 25,000 29,000 85,000 Net income Required: 1. (1 Mark) Compute the following ratios for 2019. Show your calculations. 2. (2 Marks) Explain if the ratio is favorable or unfavorable. 3. (2 Marks) Compare the ratios to the industry and comment which ratio is better the company of the industry? Answer: 1. Receivables turnover for 2019 = Sales / Average receivables = 2. Inventory turnover for 2019 = Cost of goods sold = 3. Debt to total assets for 2019 = Total liabilities / total assets 4. Long term liabilities to total assets for 2019 = 5. Profit margin ratio for 2019 = Net Income / sales 6. Return on total assets - Net income / total assets 7. Total asset turnover = Sales / average total assets 8. Debt to equity - Fotal liabilities/equity Company ratio Company Favorable (Unfavorable) Industry ratio Company ratio better worse than Industry 1. Receivables turnover for 2019 2. Inventory turnover for 2019 = 3. Debt to total assets for 2019 = 4. Long term liabilities to total assets 5. Profit margin ratio for 2019 = 6. Return on total assets = 7. Total asset turnover = Company ratio Company Favorable (Unfavorable) Industry ratio Company ratio better worse than Industry 1. Receivables turnover for 2019 2. Inventory turnover for 2019 = 3. Debt to total assets for 2019 = 4. Long term liabilities to total assets 5. Profit margin ratio for 2019 = 6. Return on total assets - 7. Total asset turnover = 8. Debt to equity =
