Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(c) Briefly discuss Lague's Cash flow position. (5 marks) QUESTION 1 (47 marks) Wallace-Lague Corporation's comparative balance sheet for the year ended December 31, 2020

image text in transcribedimage text in transcribedimage text in transcribed

(c) Briefly discuss Lague's Cash flow position. (5 marks) QUESTION 1 (47 marks) Wallace-Lague Corporation's comparative balance sheet for the year ended December 31, 2020 and 2019 in millions of dollars appear below: Balance Sheet as at December 31 ($' million) Assets: 2020 2019 $ 33 $ 27 Cash and cash equivalent.... Accounts receivable....... 52 61 41 40 Inventory........... Plant and equipment..... Less accumulated depreciation... 531 460 330 291 Total assets....... $ 327 $ 297 $44 $48 21 22 17 21 Liabilities and stockholders' equity: Accounts payable..... Wages payable........ Income taxes payable..... Bonds payable due Dec 2028.... Deferred taxes payable due April 2023.. Common stock, $0.50 par, outstanding.. Retained earnings........... Total liabilities and stockholders' equity...... 65 60 16 18 71 70 93 58 $327 $297 312 Income Statement for the year ended December 31, 2020 ($' million) Sales revenue $515 Cost of goods sold Gross margin 203 Selling and administrative expense (inclusive of depreciation expense) 134 Net operating income 69 Income taxes 21 Net income $48 During the year, $1 million worth of stock dividends were paid out to the common shareholders and there is no preferred stock. There was no disposal of assets during the year. Required: (a) Prepare the Statement of Cash flows for Wallace-Lague Corporation for the year ended December 31, 2020 using the Indirect Method. (15 marks) (b) What is Lague's Free Cash Flow? (3 marks) (d) Compute the following ratios for the year 2020 (i) Acid test (Quick ratio) (2 marks) (ii) Accounts receivable turnover (days) (2 marks) (iii) Inventory turnover (days) (2 marks) (2 marks) (iv) Earnings per share of common stock (v) Debt ratio (%) (2 marks) (vi) Return on common stockholders' equity (%) (2 marks) (vii) Reinvestment ratio (%) (2 marks) (vii) Dividend payout ratio (%) (2 marks) (ix) Operation index ratio (%) (2 marks) (x) Cash flow to revenue ratio (%) (2 marks) (e) Explain why liquidity and solvency ratios are important factors in analyzing a company like Wallace-Lague Corporation. (4 marks)

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

Philosophy Of Auditing

Authors: Robert K. Mautz

19th Edition

0865390029, 978-0865390027

More Books

Students also viewed these Accounting questions