Answers to number 4 and 5

The Business This practice set is designed in two parts. The first part provides a review of the financial statements of a corporation selling sunglasses. Sally's Sunglasses, a corporation, whose primary operation is the sale of sunglasses to on-line customers and retailers in the market. Each student will prepare a financial analysis and Statement of Cash Flow for the company. In the second part, Sally's Sunglasses decides to start producing the sunglasses and selling them directly to customers. All cases of academic dishonesty will be reported to the Office of Student Life. Part One Instructions The financial information for the past two years (2020 and 2019) is provided. Sally's Sunglasses collection policy is 30 days and the benchmark for the inventory is 35 days. Using a spreadsheet application, such as Microsoft Excel, and the information from the previous years, provide the following: 1. Prepare a statement of Cash Flows for the current year using the indirect method. 2. Using horizontal analysis, prepare a Comparative Balance Sheet. 3. Using vertical analysis, prepare an Income Statement. 4. Using the textbook, calculate the ratios set out below: a. Current Ratio 2020 and 2019 b. Quick ratio 2020 and 2019 C. Accounts Receivable Turnover 2020 d. Number of Days Sales in Receivables 2020 (Company policy states 30 days in receivables) e. Inventory Turnover 2020 f. Number of Days Sales in Inventory 2020 (Company policy states 50 days to turn over inventory) 8. Ratio of Liabilities to Stockholders' Equity 2020 h. Rate earned on Total Assets 2020 1. Rate earned on Stockholders' Equity 2020 1. Earnings Per Share 2020 and 2019 The financial statements provided in this practice set can be downloaded from Blackboard. An example of a Statement of Cash Flow has been provided at the end of the Practice Set. Download the files and copy and paste them into an Excel spreadsheet (Income Statement and Balance Sheet) and add a column and calculate the ratios for the vertical and horizontal analysis. 5. Acting as an accounting advisor to the firm, prepare a memo in which you analyze the financial statements you prepared in step two and step three and along with the ratios that you have calculated prepare an analysis of the company's financial position. Identify two strengths and two weaknesses in the company. Make two recommendations to improve the company's 2lPage financial position. Be specific in each of the recommendations and use the ratios to support your analysis. The length should be no more than two paragraphs long. Prepare the memo in a word document so that you can copy and paste the information into the correct area in Blackboard. Make sure that proper English is used along with complete sentences. 6. Prepare the following documents before answering the questions on Blackboard. a. Statement of Cash Flows b. Balance Sheet with horizontal analysis C. Income Statement with vertical analysis d. Worksheet showing your ratios done in Excel e. Prepare the memo in Word analyzing the company's strengths and weaknesses with two recommendations. Once the memo is prepared then you will only need to copy and paste it into the box where indicated in Blackboard. Students must use the memo template that is attached at the end of the practice set. 7. Blackboard Instructions a. Memo analyzing the company's strengths and weaknesses with two recommendations. In Blackboard you will write a memo using ratios to analyze the strengths and weaknesses of the company. Make sure there are no spelling, grammatical, or punctuation errors. Or you can copy and paste the prepared Memo. b. Add information concerning numbers here and enter Blackboard as specified below 1. When the answer is in units enter the number as is such as 280 II. When the answer is for ratios (ue. Current ratio) and has a decimal take the decimal out two decimal spaces such as 280.89 ill. When ratios are in days/times take out to two decimal places and write days or times after the number such as 280.96 days or times iv. When the answer is in dollars ALWAYS include a dollar sign and cents even if the cents is zero add.00 such as $280.00 or $3,800.00 Please follow all instructions. If the answers are formatted incorrectly the answer will be counted wrong Sally's Sunglasses Inc. Comparative Balance Sheet December 31, 2020 and 2019 2020 2019 Assets Current Assets: Cash Accounts Receivable, Net Inventory (sunglasses) Prepaid Insurance Prepaid Rent Total Current Assets S $ $ S $ $ 90,000 130,000 135,000 25,000 $ $ $ $ $ $ 70,000 90,000 80,000 20,000 12,000 272,000 380,000 Property, Plant, and Equipment: Equipment Less: Accumulated Depreciation - Equipment Total Property, plant, and Equipment Total Assets S S $ $ 300,000 -75,000 225,000 605,000 $ $ S $ 250,000 -50,000 200,000 472,000 2020 2019 Lobilities and Stockholders' Equity Current Liabilities: Accounts Payable Notes Payable Salaries Payable Federal Income Taxes Payable Total Current Liabilities $ $ $ $ $ 75,000 20,000 40,000 10,000 145,000 $ $ $ $ S 40,000 60,000 30,000 25,000 155,000 Long Term Liabilities Note Payable Total Liabilities $ $ 60,000 205,000 $ $ 37,000 192,000 130,000 ulus Stockholders' Equity: Common Stock, SS Par Paid In Capital in Excess of Par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $ $ S $ 175,000 25,000 200,000 400,000 605,000 $ $ $ $ $ 150,000 280,000 472,000 Sally's Sunglasses Inc. Comparative Statement of Income For the Years Ended December 31, 2020 and 2019 2020 2019 $ 850,000 $ 475,000 $375,000 $ 790,000 $ 450,000 $ 340,000 us Sales Cost of Goods Sold Gross Margin Operating Expenses: Salaries and Wages Expense Rent Expense Depreciation Expense Total Operating Expenses Income from Operations Loss on Sale of Equipment Interest Expense Increase (Decrease) in Operating Income Income before Taxes Federal Income Taxes Net Income 120,000 $ 30,000 S 32,000 $ 182,000 $ 193,000 $ 2.000 $ 4,000 $ -6,000 $ $ $ $ S $ s $ 200,000 40,000 10,000 250,000 90,000 5.000 -5,000 $ 187,000 S 56,100 $ 130,900 $ $ $ 85,000 25,500 59,500 Sally's Sunglasses Inc. Comparative Statement of Retained Earnings For the Years Ended December 31, 2020 and 2019 2020 2019 Retained Earnings, Beginning $ 150,000 $ 130,000 of Year Net Income $ 130,900 $ 59,500 Less: Dividends $ 80,900 $ 39,500 Retained Earnings, End of Year $ 200,000 $ 150,000 1. Equipment with a cost of $50,000 on which accumulated depreciation has been recorded for $7,000 was sold for $41,000 cash. Additional equipment was purchased using a long-term note payable and cash. 2. Stock was issued for cash. 3. Dividends were paid in cash