Hi there,

Could you answer the problem 14-11 given below?

Thanks.

562 CHAPTER 14 Analyzing Financial Statements: A Managerial Perspective PROBLEMS 14-10 AND 14-11. Financial Statement Analysis. Mandrake Motorcycles was started 3 years ago. The company manufactures and sells "classic" cycles similar in style to Harley- Davidson and Indian motorcycles made in the late 1940s. The following financial information for the company relates to Problems 14-10 and 14-11: December 31, 2017 Mandrake Motorcycles Balance Sheets December 31, 2018 Assets Current assets: Cash and cash equivalents $ 240,000 Accounts receivable 185,000 Inventory 850,000 Other current assets 200,000 Total current assets 1,475,000 Property, plant, and equipment, net 1,075,000 Total assets $2,550,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 260,000 Short-term debt payable 370,000 Other current liabilities 285,000 Total current liabilities 915,000 Long-term debt 195,000 Total liabilities 1,110,000 Stockholders' equity: Common stock 1,325,000 Retained earnings 115,000 Total stockholders' equity 1,440,000 Total liabilities and stockholders' equity $2,550,000 $ 425,000 200,000 630,000 210,000 1,465,000 1,175,000 $2,640,000 $ 205,000 320,000 280,000 805,000 410,000 1,215,000 1,325,000 100,000 1,425,000 $2,640,000 Mandrake Motorcycles Income Statements Year Ended December 31, 2018 Net sales $1,590,000 Cost of goods sold 980,000 Gross margin 610,000 Operating expenses Selling expenses 300,000 General and administrative expenses 210,000 Total operating expenses 510,000 Operating income 100,000 Interest expense 48,000 Income before taxes 52,000 Income taxes 18,200 Net income $ 33,800 Year Ended December 31, 2017 $1,690,000 1,175,000 515,000 210,000 200,000 410,000 105,000 72,000 33,000 11,550 $ 21,450 Problems 563 PROBLEM 14-10. Comprehensive Financial Statement Analysis (LO 1, 3] Marty "Monk Fisher owns the largest motorcycle dealership in southern Ohio. Recently, he was approached by Bob Sherman, founder of Mandrake Motorcycles, and offered the opportunity to be the sole distribu- tor of Mandrake bikes in the state. Acceptance of the offer will require Monk to open a dedicated Mandrake showroom and repair facility and, obviously, stock Mandrake cycles and parts. Monk is quite impressed by the Mandrake product, but before making a major investment, he wants to be confident that the company will be around for the long haul. Accordingly, he has asked you to analyze the audited financial statements of Mandrake for the previous 2 years. REQUIRED a. Prepare a horizontal and a vertical analysis of the 2018 and 2017 financial statements. b. Calculate the following ratios for 2018 and 2017: return on assets, gross margin percentage, receivables turnover, days' sales in receivables, inventory turnover, days' sales in inventory, debt to equity, and times interest earned. c. Based on your analysis in parts a and b, comment on any matters that Monk should probe in an upcoming meeting with Bob Sherman from Mandrake. d. Based on the limited information available, do you think Monk should open a Mandrake showroom? PROBLEM 14-11. Additional Information Related to Problem 14-10 [LO 1, 3] In 2019, Man- drake Motorcycles declared bankruptcy. Subsequently, it was determined that in fiscal 2018, the company produced more units than needed to fill pending orders. The result was a substantial decrease in production cost per unit. The company uses the LIFO inventory method. REQUIRED Discuss how (or if) this information is consistent with the results of the analysis conducted in Problem 14-10, parts a and b. PROBLEM 14-12. Effects of Transactions on Financial Ratios [LO 3] Cummings operates an equipment rental company and sells related supplies. The company's current assets and current liabilities at the beginning of the year are listed in the table below: Cash Marketable securities Accounts receivable, net Inventory $145,000 85,000 268,000 137,000 Prepaid expenses Accounts payable Notes payable, current Accrued expenses $ 34,000 217,000 68,000 46,000 During the year, Cummings completed the following transactions: 1. Paid a cash dividend previously declared of $18,000. 2. Issued additional shares of common stock for cash, $150,000. 3. Sold inventory costing $80,000 for $115,000, on account. 4. Declared a cash dividend of $19,000. 5. Paid accounts payable of $85,000. 6. Borrowed cash on a short-term note with the bank, 657,000. 7. Purchased inventory on account for $91,000. 8. Paid off all short-term notes due, $68,000. 9. Purchased equipment for cash, $23,000. 10. Sold marketable securities costing $29,000 for $25,000. 11. Collected cash on accounts receivable, $137,000. 12. Paid interest on a note payable, $3,500