CCC13 The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2018 for the years 2018 and 2017, and the income statements for the years ended October 31, 2017 and 2018, are presented below. I uploaded file for the rest of question
Continuing Cookie Chronicle 1 Continuing Cookie Chronicle (Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 12.) CCC13 The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2018 for the years 2018 and 2017, and the income statements for the years ended October 31, 2017 and 2018, are presented below. COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31 Assets Cash 2018 2017 $ 22,324 $ 5,550 Accounts receivable 3,250 2,710 Inventory 7,897 7,450 Prepaid expenses 5,800 6,050 Equipment 102,000 75,500 Accumulated depreciation (25,200) (9,100) $116,071 $88,160 $ 1,150 $ 2,450 9,251 7,200 27,000 27,000 7,250 1,280 188 0 Note payablecurrent portion 4,000 0 Note payablelong-term portion 6,000 0 15,000 14,000 25,180 25,180 250 250 20,802 10,800 $116,071 $88,160 Total assets Liabilities and Stockholders' Equity Accounts payable Income taxes payable Dividends payable Salaries and wages payable Interest payable Preferred stock, no par, $6 cumulative 3,000 and 2,800 shares issued, respectively Common stock, $1 par25,180 shares issued Additional paid in capitaltreasury stock Retained earnings Total liabilities and stockholders' equity COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 2018 Sales 2017 $485,625 $462,500 Cost of goods sold 222,694 208,125 Gross profit 262,931 254,375 147,979 146,350 Depreciation expense 17,600 9,100 Other operating expenses 48,186 42,925 Total operating expenses 213,765 198,375 49,166 56,000 413 0 2,500 0 2,913 0 46,253 56,000 9,251 14,000 $ 37,002 $ 42,000 Operating expenses Salaries and wages expense Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Net income Additional information: Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semi-annual payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance. Instructions (a) Calculate the following ratios for 2017 and 2018. 1. 2. 3. 4. 5. 6. Current ratio Debt to total assets Gross profit rate Profit margin Return on assets (Total assets at November 1, 2016, were $33,180.) Return on common stockholders' equity (Total common stockholders' equity at November 1, 2016, was $23,180. Dividends on preferred stock were $16,800 in 2017 and $18,000 in 2018). (b) Prepare a horizontal analysis of the income statement for Cookie & Coffee Creations Inc. using 2017 as a base year. (c) Prepare a vertical analysis of the income statement for Cookie & Coffee Creations Inc. for 2018 and 2017. (d) Comment on your findings from parts (a) to (c). (e) What impact would borrowing an additional $20,000 to buy more equipment have on each of the ratios in (a) above, assuming that no changes are expected on the income statement and balance sheet? Comment on your findings. (f) What would justify a decision by Cookie & Coffee Creations Inc. to buy the additional equipment? What alternatives are there instead of bank financing
