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they choos htsP wy ate oe Prie Eamnge Ratio Page 2 of s Comparative financial statements for ABC, a merchandising company for the calendar year ended 12/31/18 are below. The Company did not issue any new common stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%o, the income tax rate was 40% and the dividend per share of common stock was $.40. The market value of the company's common stock at the end of the year was $18. All of the Company's sales are on account. Graded problem Chapter 14-Financial Accounting Required: Using the information above and below as needed, calculate, or comment as appropriate, regarding the following ratios for the CURRENT YEAR: 1. Working Capital 2. Current Ratio 3. Acid-Test (Quick) Ratio 4. Briefly comment (one or two sentences) about the collective information provided by the ratios 1-3 5. Accounts Receivable Turnover 6. Average Collection Period (Days Sales Outstanding in Receivables) 7. Briefly comment (one or two sentences) about the information in 5 & 6. If credit terms are 2/10;n 30, would you be concerned? Why or why not? f.Briefly comment on your results in d. and e. ABC COMPANY Comparative Balance Sheet (dollars in thousands) Last Year This Year Assets Current assets: 1,560 1,280 Cash 12,300 9,100 8,200 2,100 Accounts receivable, net 9,700 Inventory Prepaid expenses 1,800 20,960 Total current assets 25,080 Property and equipment: 6,000 Land 6,000 19,000 Buildings and equipment, net 19,200 25,000 Total property and equipment 25,200 Total assets 45,960 50,280 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 9,500 8,300 Accrued liabilities 600 700 Notes payable, short term 300 300 Total current liabilities 10,400 9,300 Long-term liabilities: Bonds payable 5,000 5,000 Total liabilities 15,400 14,300 Stockholders' equity: Common stock 800 800 Additional paid-in capital Retained earnings 4,200 4,200 29,880 26,660 Total stockholders' equity 31,660 34,880 Total liabilities and stockholders' 50,280 45,960 equity stockh equity f. Briefly comment on your results in d. and e. ABC COMPANY Comparative Income Statement (dollars in thousands) This Year Last Year Sales 79,000 74,000 $ $ Cost of goods sold Gross margin 48,000 52,000 27,000 26,000 Selling and administrative expenses: Selling expenses 8,000 8,500 Administrative expenses 11,000 12,000 Total selling and administrative 19,000 20,500 expenses Net operating income 6,500 7,000 Interest expense 600 600 Net income before taxes 5,900 6,400 Income taxes 2,360 2,560 $ $ Net income 3,540 3,840 Additional Information Dividends to common stockholders 320 320 -Test (Quick) Ratio d. Selling Expenses-Horizontal comment (one or two sentences) about the collective information provided by the ratios e. Selling Expenses for curre Receivable Turnover n your n ollection Peric 8. Inventory Turnover ment (one or Duld you br 9. Average Sales Period (Days Sales in Inventory) 10. Briefly comment (one or two sentences) about the information in 8 &9. If the Industry average for # 8 is 3, would you be concerned? Why or why not? 11. Times Interest Earned 12. Simply explain the purpose of the Times Interest Earned Calculation 13. Gross Margin 14. Return on Assets 15. Return on Equity 16. If the owners could alternatively earn 15% in outside investments, would they choose to invest this money within the company or in their outside investments? Why? 17. Calculate the Earnings Per Share 18. Calculate the Price Earnings Ratio Page 2 19. Briefly explain the difference between a horizontal analysis and vertical analysis. 20. Using the information below, comment on the following items: a. Accounts Receiva ble- Horizontal analysis in dollars and % b. Accounts Receivable- for current year and prior year, vertical analysis % c. Briefly comment on your results in a. and b. d. Selling Expenses-Horizontal analysis in dollars and % e. Selling Expenses- for current year and prior year, vertical analysis % f. Briefly comment on your results in d. and e. 00 SE 00 S sL0120
