A-4.1 Conday Ltd., a small privately held firm, has been in operation for three years and produces antique repro- duction furniture for the export market. The most recent set of financial statements is shown below. Conday Ltd. Balance Sheet as at November 30, 2010 (in thousands) Current assets Accounts receivable Inventory Total current assets 820 600 1,420 100 128 Property, plant, and equipment Land Buildings Less: Accumulated depreciation Plant and equipment Less: Accumulated depreciation Total property, plant, and equipment Total assets 228 100 942 180 762 990 2.410 432 665 48 1,145 Current liabilities Bank overdraft Accounts payable Income taxes payable Total current liabilities Long-term liabilities 9% Bonds payable (Note 1) Total liabilities Shareholders' equity Common shares (700.000 shares outstanding) Retained earnings Total shareholders equity 200 1,345 700 365 1.065 Total liabilities and shareholders equity 2.410 Conday Ltd. Income Statement for the year ended November 30, 2010 (in $ thousands) Sales (all on credit) Less: Cost of goods sold Gross profit Less. Selling and distribution expenses (Note 2) 408 Administration expenses 194 Interest expenses 58 Earnings before taxes Less: Income tax expense Net income 2.600 1.620 980 660 320 195 225 Conday Ltd. Statement of Retained Earnings for the year ended November 30, 2010 (in $ thousands) Opening retained earnings, December 1 Add: Net income Less: Dividends paid Closing retained earnings, November 30 300 225 (160) 365 Notes 1. The bonds are secured by the land and buildings. 2. Selling and distribution expenses include $170,000 of bad debts expense. 3. The company has invited an investor to buy a new issue of common shares in the business at $6.40 each, making a total Investment of $200,000. Management wishes to use the funds to finance a program of further expansion Required: (a) Analyze the financial position and performance of the business and comment on any features that you consider to be significant. (b) State, with reasons, whether or not the investor should invest in the business on the terms outlined. A 4.2 The financial statements for Harridges Limited are given below for the two years ended June 30, 2010 and 2009. Harridges operates a retail and wholesale store in the centre of a small town. A-4.1 Conday Ltd., a small privately held firm, has been in operation for three years and produces antique repro- duction furniture for the export market. The most recent set of financial statements is shown below. Conday Ltd. Balance Sheet as at November 30, 2010 (in thousands) Current assets Accounts receivable Inventory Total current assets 820 600 1,420 100 128 Property, plant, and equipment Land Buildings Less: Accumulated depreciation Plant and equipment Less: Accumulated depreciation Total property, plant, and equipment Total assets 228 100 942 180 762 990 2.410 432 665 48 1,145 Current liabilities Bank overdraft Accounts payable Income taxes payable Total current liabilities Long-term liabilities 9% Bonds payable (Note 1) Total liabilities Shareholders' equity Common shares (700.000 shares outstanding) Retained earnings Total shareholders equity 200 1,345 700 365 1.065 Total liabilities and shareholders equity 2.410 Conday Ltd. Income Statement for the year ended November 30, 2010 (in $ thousands) Sales (all on credit) Less: Cost of goods sold Gross profit Less. Selling and distribution expenses (Note 2) 408 Administration expenses 194 Interest expenses 58 Earnings before taxes Less: Income tax expense Net income 2.600 1.620 980 660 320 195 225 Conday Ltd. Statement of Retained Earnings for the year ended November 30, 2010 (in $ thousands) Opening retained earnings, December 1 Add: Net income Less: Dividends paid Closing retained earnings, November 30 300 225 (160) 365 Notes 1. The bonds are secured by the land and buildings. 2. Selling and distribution expenses include $170,000 of bad debts expense. 3. The company has invited an investor to buy a new issue of common shares in the business at $6.40 each, making a total Investment of $200,000. Management wishes to use the funds to finance a program of further expansion Required: (a) Analyze the financial position and performance of the business and comment on any features that you consider to be significant. (b) State, with reasons, whether or not the investor should invest in the business on the terms outlined. A 4.2 The financial statements for Harridges Limited are given below for the two years ended June 30, 2010 and 2009. Harridges operates a retail and wholesale store in the centre of a small town