Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ADC Plumbing and Heating Lid. Statement of Income For the year ended December 31, 2012 (in %) Revenue 1,500,000 Cost of sales (750,000) Gross profit

image text in transcribed

image text in transcribed

ADC Plumbing and Heating Lid. Statement of Income For the year ended December 31, 2012 (in %) Revenue 1,500,000 Cost of sales (750,000) Gross profit 750,000 Expenses: Distribution costs (350,000) Lease (25,000) Depreciation (30,000) Administrative expenses (200,000) Total expenses (605,000) Finance costs (30.000) Total (635,000) Profit before taxes 115,000 Income tax expense (40,000) Profit for the year 75,000 Albert and his accountant are considering making a few decisions that will affect the financial statements. Questions 1. If Albert were to use $80,000 of his cash from the business to pay off some of his trade and other payables, how will this alter his current ratio, quick ratio, and debt-to-total-assets ratio? 2. Albert is trying to keep his inventories at a minimum with only $10,000. However, another plumbing and heating contractor is going out of business and is selling his inventories, valued at $100,000, for only $60,000. (a) Albert's son, who is not presently an owner of the business, is considering buying the inventory for cash and, in return, would gain a part ownership in the business. How would this transaction modify the company's current ratio, quick ratio, and debt-to-total-assets ratio? (b) Instead of having his son become a shareholder of the business, Albert borrows a working capital loan from the bank for $60,000 at 10% interest. How would that decision affect the ratios identified in (a), as well as the times-interest-earned ratio? (c) If Albert were to borrow the $60,000 on a long-term basis, how would this decision alter the ratios identified in (a), as well as the times-interest-earned ratio

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Essentials Quick Access To The Important Facts And Concepts Complete Overview Simply Presented Easy To Grasp

Authors: Frank C. Giove, Accounting Study Guides

1st Edition

0878918795, 978-0878918799

More Books

Students also viewed these Accounting questions

Question

11. Identify the apotheosis in Indiana Jones and the Last Crusade.

Answered: 1 week ago

Question

Stages of a Relationship?

Answered: 1 week ago