Hi there,

Could you please answer the problem 14-12 given below?

Thanks

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. 564 CHAPTER 14 Analyzing Financial Statements: A Managerial Perspective REQUIRED a. Compute the following amounts and ratios at the beginning of the year: 1. Current ratio. 2. Acid-test ratio (quick ratio). b. Indicate the effect of each transaction listed above on the current ratio and the acid-test ratio (quick ratio). Give the effect in terms of increase, decrease, or none. Part a is done as an example below to show the format used. Current Ratio increase Effect on Acid-Test Ratio (Quick Ratio) increase Paid a cash dividend previously declared