Given the information below, compute the Solvency Ratios for year 2018. Note the Solvency Ratios are debt-to-equity, Net debt as a Percentage Capitalization, Interest Coverage and Cash Flows to Total Liabilities.
Statements of Financial Position for the Year Ended December 31 2016 2017 2018 Assets Current assets Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Total current assets Fixed assets (net) Land Building Computer and equipment Furniture, fixtures, and equipment Kitchen equipment Total fixed assets Total assets $ 0 71,584 107,664 20,419 $ 199,667 $ 0 110,272 129,680 17,414 $ 257,366 $ 53,297 67,042 76,408 11,558 $ 208,305 $ 165,000 618,213 46,750 94,500 233,750 1,158,213 $1,357,878 $ 165,000 556,391 32,725 75,600 163,625 993,341 $1,250,707 $ 165,000 500,752 22,908 60,480 114,538 863,678 $1,071,983 Liabilities Current liabilities Bank indebtedness Deferred revenue Payables and accruals Income taxes payable Total current liabilities Long-term debt Long-term debt Total liabilities $ 100,900 186,789 154,631 17,071 $ 459,391 $ 175,000 190,949 97,325 15,706 $ 478,980 $0 202,075 122,885 35,070 $360,030 860,204 $1,319,595 710,623 $1,189,603 550,570 $ 910,600 Shareholders' equity Capital stock (10,000 shares issued) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ 10,000 28,283 38,283 $1,357,878 $ 10,000 51,105 61,105 $1,250,707 $ 10,000 151,383 161,383 $1,071,983 Statements of Income for the Year Ended December 31 2016 2017 2018 $3,579,208 $3,675,730 53,943,656 2,290,693 2,315,710 2,464,785 $1,288,515 $1,360,020 $1,478,871 Sales Cost of sales Gross profit Expenses Administrative Advertising Depreciation and amortization Computer Credit card Bad debts Equipment rental Freight Insurance Interest and bank charges Interest on long-term debt Janitorial supplies Office and restaurant supplies Professional fees Repairs and maintenance Royalty fees Taxes and licences Telephone Travel Utilities Wages and benefits $ 209,117 127,368 92,538 3,074 53,688 716 25,269 16,035 13,113 5,021 63,556 40,425 144,962 3,909 74,152 125,272 1,682 9,338 10,319 92,058 95,000 $1,206,612 $ 214,608 127,083 164,871 5,464 55,136 0 12,271 16,210 10,022 4,248 53,770 48,373 132,242 4,186 75,952 128,651 1,682 9,919 8,031 115,562 95,000 $1,283,281 $ 293,408 131,906 129,664 6,944 59,155 2,011 1,456 17,253 12,300 3,421 43,299 33,565 133,784 4,299 48,455 138,028 1,682 10,248 6,475 135,738 95,000 $1,308,091 3,450 1,788 4,569 Other income Earnings before income taxes Provision for income taxes 85,354 17,071 78,528 15,706 175,349 35,070 68,283 62,822 140,279 O Net income Retained earnings, beginning Net income Dividend Retained earnings, end 68,283 40,000 28,283 28,283 62,822 40,000 51,105 51,105 140,279 40,000 $ $ $ 151,383 Historical Financial Results - Toronto Operations The menu of dishes was created by a celebrity chef, who regularly visits the restaurant. The chef is paid a royalty fee of 3.5% of gross revenue The original cost of the current assets are as follows: Fixed assets (net) Land $165,000 Building 650,750 Computer and equipment 55,000 Furniture, fixtures, and equipment 105,000 Kitchen equipment 275,000 The capital assets are depreciated in the same manner as their capital cost allowance (CCA). The following CCA rates are used: building, 10%; computer equipment, 30%; furniture, fixtures, and equipment, 20%; and kitchen equipment, 30%. Deferred revenue represents the value of gift cards sold, but not yet redeemed. The company initially obtained a $1 million loan, which was repaid with blended payments over a five-year period, with interest of 7%. Alex has been paying himself an annual dividend of $40,000. He would like this dividend to continue into the future. In addition, Alex draws an annual salary of $95,000, which reflects the fair market value of the services he provides Future Financial Results - Mississauga Operations The Mississauga location is expected to generate the same revenues, and net income, as the Toronto operation. Statements of Financial Position for the Year Ended December 31 2016 2017 2018 Assets Current assets Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Total current assets Fixed assets (net) Land Building Computer and equipment Furniture, fixtures, and equipment Kitchen equipment Total fixed assets Total assets $ 0 71,584 107,664 20,419 $ 199,667 $ 0 110,272 129,680 17,414 $ 257,366 $ 53,297 67,042 76,408 11,558 $ 208,305 $ 165,000 618,213 46,750 94,500 233,750 1,158,213 $1,357,878 $ 165,000 556,391 32,725 75,600 163,625 993,341 $1,250,707 $ 165,000 500,752 22,908 60,480 114,538 863,678 $1,071,983 Liabilities Current liabilities Bank indebtedness Deferred revenue Payables and accruals Income taxes payable Total current liabilities Long-term debt Long-term debt Total liabilities $ 100,900 186,789 154,631 17,071 $ 459,391 $ 175,000 190,949 97,325 15,706 $ 478,980 $0 202,075 122,885 35,070 $360,030 860,204 $1,319,595 710,623 $1,189,603 550,570 $ 910,600 Shareholders' equity Capital stock (10,000 shares issued) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ 10,000 28,283 38,283 $1,357,878 $ 10,000 51,105 61,105 $1,250,707 $ 10,000 151,383 161,383 $1,071,983 Statements of Income for the Year Ended December 31 2016 2017 2018 $3,579,208 $3,675,730 53,943,656 2,290,693 2,315,710 2,464,785 $1,288,515 $1,360,020 $1,478,871 Sales Cost of sales Gross profit Expenses Administrative Advertising Depreciation and amortization Computer Credit card Bad debts Equipment rental Freight Insurance Interest and bank charges Interest on long-term debt Janitorial supplies Office and restaurant supplies Professional fees Repairs and maintenance Royalty fees Taxes and licences Telephone Travel Utilities Wages and benefits $ 209,117 127,368 92,538 3,074 53,688 716 25,269 16,035 13,113 5,021 63,556 40,425 144,962 3,909 74,152 125,272 1,682 9,338 10,319 92,058 95,000 $1,206,612 $ 214,608 127,083 164,871 5,464 55,136 0 12,271 16,210 10,022 4,248 53,770 48,373 132,242 4,186 75,952 128,651 1,682 9,919 8,031 115,562 95,000 $1,283,281 $ 293,408 131,906 129,664 6,944 59,155 2,011 1,456 17,253 12,300 3,421 43,299 33,565 133,784 4,299 48,455 138,028 1,682 10,248 6,475 135,738 95,000 $1,308,091 3,450 1,788 4,569 Other income Earnings before income taxes Provision for income taxes 85,354 17,071 78,528 15,706 175,349 35,070 68,283 62,822 140,279 O Net income Retained earnings, beginning Net income Dividend Retained earnings, end 68,283 40,000 28,283 28,283 62,822 40,000 51,105 51,105 140,279 40,000 $ $ $ 151,383 Historical Financial Results - Toronto Operations The menu of dishes was created by a celebrity chef, who regularly visits the restaurant. The chef is paid a royalty fee of 3.5% of gross revenue The original cost of the current assets are as follows: Fixed assets (net) Land $165,000 Building 650,750 Computer and equipment 55,000 Furniture, fixtures, and equipment 105,000 Kitchen equipment 275,000 The capital assets are depreciated in the same manner as their capital cost allowance (CCA). The following CCA rates are used: building, 10%; computer equipment, 30%; furniture, fixtures, and equipment, 20%; and kitchen equipment, 30%. Deferred revenue represents the value of gift cards sold, but not yet redeemed. The company initially obtained a $1 million loan, which was repaid with blended payments over a five-year period, with interest of 7%. Alex has been paying himself an annual dividend of $40,000. He would like this dividend to continue into the future. In addition, Alex draws an annual salary of $95,000, which reflects the fair market value of the services he provides Future Financial Results - Mississauga Operations The Mississauga location is expected to generate the same revenues, and net income, as the Toronto operation
