Cookie Creations 13

The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2020 for the years 2020 and 2019, and the income statements for the years ended October 31, 2019 and 2020, are presented below.

COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31 Assets 2020 2019 Cash $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 ) Total assets $116,071 $88,160 Liabilities and Stockholders Equity Accounts payable $1,150 $2,450 Income taxes payable 9,251 7,200 Dividends payable 27,000 27,000 Salaries and wages payable 7,250 1,280 Interest payable 188 0 Note payablecurrent portion 4,000 0 Note payablelong-term portion 6,000 0 Preferred stock, no par, $6 cumulative 3,000 and 2,800 shares issued, respectively 15,000 14,000 Common stock, $1 par25,180 shares issued 25,180 25,180 Additional paid in capitaltreasury stock 250 250 Retained earnings 20,802 10,800 Total liabilities and stockholders equity $116,071 $88,160

COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 2020 2019 Sales $485,625 $462,500 Cost of goods sold 222,694 208,125 Gross profit 262,931 254,375 Operating expenses Salaries and wages expense 147,979 146,350 Depreciation expense 17,600 9,100 Other operating expenses 48,186 42,925 Total operating expenses 213,765 198,375 Income from operations 49,166 56,000 Other expenses Interest expense 413 0 Loss on disposal of plant assets 2,500 0 Total other expenses 2,913 0 Income before income tax 46,253 56,000 Income tax expense 9,251 14,000 Net income $37,002 $42,000

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.

Calculate the following ratios for 2019 and 2020. (Round current ratio to 2 decimal places, e.g. 12.61, debt to assets and gross profit rate to 0 decimal places, e.g. 12 and all other answers to 1 decimal place, e.g. 12.6%.)

2020 2019 1. Current ratio :1 :1 2. Debt to assets % % 3. Gross profit rate % % 4. Profit margin % % 5. Return on assets (Total assets at November 1, 2018, were $33,180.) % % 6. Return on common stockholders equity (Total common stockholders equity at November 1, 2018, was $23,180. Dividends on preferred stock were $16,800 in 2019 and $18,000 in 2020). % %

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Prepare a horizontal analysis of the income statement for Cookie & Coffee Creations Inc. using 2019 as a base year. (If amount and percentage are a decrease show the numbers as negative, e.g. -55,000, -12.25% or (55,000), (12.25%). Round percentages to 0 decimal places, e.g. 12%.)

COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 2020 2019 Difference Horizontal Analysis Sales $485,625 $462,500 $ % Cost of goods sold 222,694 208,125 % Gross profit 262,931 254,375 % Operating expenses Salaries and wages expense 147,979 146,350 % Depreciation expense 17,600 9,100 % Other operating expenses 48,186 42,925 % Total operating expenses 213,765 198,375 % Income from operations 49,166 56,000 % Other expenses Interest expense 413 0 Loss on disposal of plant assets 2,500 0 Total other expenses 2,913 0 Income before income tax 46,253 56,000 % Income tax expense 9,251 14,000 % Net income $37,002 $42,000 %

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Prepare a vertical analysis of the income statement for Cookie & Coffee Creations Inc. for 2020 and 2019. (Round percentages to 2 decimal places, e.g. 12.25%. Do not leave any answer field blank. Enter 0 for amounts.)

COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 2020 Percentage 2019 Vertical Analysis Sales $485,625 % $462,500 % Cost of goods sold 222,694 % 208,125 % Gross profit 262,931 % 254,375 % Operating expenses Salaries and wages expense 147,979 % 146,350 % Depreciation expense 17,600 % 9,100 % Other operating expenses 48,186 % 42,925 % Total operating expenses 213,765 % 198,375 % Income from operations 49,166 % 56,000 % Other expenses Interest expense 413 % 0 % Loss on disposal of plant assets 2,500 % 0 % Total other expenses 2,913 % 0 % Income before income tax 46,253 % 56,000 % Income tax expense 9,251 % 14,000 % Net income $37,002 % $42,000 %

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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?

1. Current ratio Decrease Increase No Change 2. Debt to assets 3. Gross profit rate 4. Profit margin

5. Return on assets 6. Return on common stockholders equity