THE BUSINESS This practice set is designed in two parts. The first part provides a review of the financial statements of a corporation selling United States and Texas flags. Pete's Patriotic Flags, Inc., primary operation is the sale of flags. A financial analysis and Statement of Cash Flow will be required. In the second part, Pete's Patriotic Flags, Inc. will expand to include the manufacturing process of the flags All cases of academic dishonesty will be reported to the Office of Student Life. PART ONE INSTRUCTIONS The financial information for the past two years (2021 and 2020) is provided. Using a spreadsheet application, such as Microsoft Excel, and the information from the previous years, provide the following: 1. Prepare a Statement of Cash Flows for the current year using the Indirect method. Use the following template. 2. Using horizontal analysis, prepare a Comparative Balance Sheet. Copy the financial statements on Blackboard into an Excel spreadsheet and insert a column to add the percentages. 3. Using vertical analysis, prepare a Comparative Income Statement. Copy the financial statements on Blackboard into an Excel spreadsheet and insert a column to add the percentages. 4. Using the financial statements in the practice set (located on Blackboard), calculate the ratios below: (Use the following templates shown here in the practice set) a. Working Capital both years b. Current Ratio both years Quick ratio both years d. Accounts Receivable Turnover 2021 e. Number of Days Sales in Receivables 2021 (Company policy states 30 days in receivables) f. Inventory Turnover 2021 & Number of Days Sales in Inventory 2021 (Company policy states 8 days to turn over inventory) h. Ratio of Liabilities to Stockholders' Equity 2021 1. Return on Total Assets 2021 J. Return on Stockholders' Equity 2021 k. Earnings Per Share 2020 and 2021 C. 5. Acting as an accounting advisor to the firm, prepare a memo in which you analyze the financial statements you prepared in step two and prepare an analysis of the company's financial position. Identify two strengths and two weaknesses in the company. Make two recommendations to improve the company's financial position. Be specific in each of the recommendations and use as many of the ratios calculated in ak and the vertical and horizontal analysis to support your explanation and analysis. If you do not use the ratios in your answer you will not credit for the memo. The length should be no more than three paragraphs: one for strengths, one for weaknesses, and one for recommendations. 6. Blackboard Instructions a. Memo analyzing the company's strengths and weaknesses with two recommendations. Write your memo in a Word document using ratios to analyze the strengths and weaknesses of the company. Make sure there are no spelling, grammatical, or punctuation errors. Once it is completed make sure that you print it out and then rewrite it in Blackboard, Add information concerning numbers using the format as shown here below and enter it into Blackboard as specified: b. When the answer is in units enter the number as is (see example below) 1.280 c. When the answer is for ratios lie., Current ratio) and has a decimal take it out two decimal spaces (See example below) i. 280.89 d. When ratios are in days/times take out to two decimal places and write days or times after the number (See example below) 1. 280.96 days or times e. When the answer is in dollars ALWAYS include a dollar sign, comma in the dollar amount and cents as shown below: L$280.83 or $3,800.44 or $480.00 or $3,600.00 Please follow all instructions. If the answers are formatted incorrectly the answer will be counted wrong. COMPRATIVE BALANCE SHEET Pete's Patriotic Flags, Inc. Comparative Balance Sheet December 31, 202 land 2020 2021 2020 Assets Current Assets Cash Accounts Receivable, net Merchandise Inventory Prepaid Rent Total Current Assets 366,520 160,000 130,000 70.000 $726,520 90,000 170,000 70,000 50.000 $380,000 Property. Plant, and Equipment: Equipment Less: Accumulated Depreciation - Equipment Total Property, plant and Equipment Total Assets 240,000 (60,000) $180,000 $906, 520 260,000 140,000) $220,000 $600,000 2021 2020 90,000 55,000 Liabilities and Stockholders' Equity Current Liabilities: Accounts Payable Dividends Payable Unearned Revenue Salaries payable Federal Income Taxes Payable Total Current Liabilities 20,000 70,000 30.000 $210,000 80,000 50.000 15.000 $200,000 Long Term Liabilities Bond Payable Note Payable Total Liabilities 100,000 20,000 60.000 $290,000 $300,000 Stockholders' Equity: Common Stock. $10 Par Paid-In Capital in Excess of Par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 150,000 15,000 451520 $616,520 $906,520 100,000 10,000 190.000 $300,000 $600,000 Pete's Patriotic Flags, Inc. Comparative Statement of income For the Years Ended December 31, 2021 and 2020 2021 2020 1,600,000 1.040.000 $560,000 940,000 92.000 $247,000 Sales Cost of Goods Sold Gross Margin Operating Expenses Salaries and Wages Expense Rent Expense Depreciation Expense Total Operating Expenses Income from Operations Loss on Sale of Equipment Interest Expense Increase (Decrease) in Operating Income Income before Taxes Federal Income Taxes Net Income 50,000 20,000 24.000 $94,000 $153,000 80,000 20,000 30,000 $130,000 $430,000 (500) 18,000) 18.500 421,500 [126,4502 $295,050 (3.000) (3.000) 150,000 (45,000) $105,000 2020 110,000 95,000 COMPARATIVE STATEMENT OF STOCKHOLDERS' EQUITY Pete's Patriotic Flags, Inc. Comparative Statement of Stockholders' Equity For the Years Ended December 31, 2021 and 2020 2021 Common Stock 165,000 Retained Earnings, Beginning 190,000 of Year Net Income 295,050 Less: Dividends ? Retained Earnings, End of Year $451,520 Total Stockholders' Equity 5616,520 1. Equipment with a cost of $20,000 was sold for $9,500 cash, 2. Stock was issued for cash. 3. The dividends were paid in cash. 4. The tax rate is 30%. 105,000 10,000 $190,000 $300,000 THE BUSINESS This practice set is designed in two parts. The first part provides a review of the financial statements of a corporation selling United States and Texas flags. Pete's Patriotic Flags, Inc., primary operation is the sale of flags. A financial analysis and Statement of Cash Flow will be required. In the second part, Pete's Patriotic Flags, Inc. will expand to include the manufacturing process of the flags All cases of academic dishonesty will be reported to the Office of Student Life. PART ONE INSTRUCTIONS The financial information for the past two years (2021 and 2020) is provided. Using a spreadsheet application, such as Microsoft Excel, and the information from the previous years, provide the following: 1. Prepare a Statement of Cash Flows for the current year using the Indirect method. Use the following template. 2. Using horizontal analysis, prepare a Comparative Balance Sheet. Copy the financial statements on Blackboard into an Excel spreadsheet and insert a column to add the percentages. 3. Using vertical analysis, prepare a Comparative Income Statement. Copy the financial statements on Blackboard into an Excel spreadsheet and insert a column to add the percentages. 4. Using the financial statements in the practice set (located on Blackboard), calculate the ratios below: (Use the following templates shown here in the practice set) a. Working Capital both years b. Current Ratio both years Quick ratio both years d. Accounts Receivable Turnover 2021 e. Number of Days Sales in Receivables 2021 (Company policy states 30 days in receivables) f. Inventory Turnover 2021 & Number of Days Sales in Inventory 2021 (Company policy states 8 days to turn over inventory) h. Ratio of Liabilities to Stockholders' Equity 2021 1. Return on Total Assets 2021 J. Return on Stockholders' Equity 2021 k. Earnings Per Share 2020 and 2021 C. 5. Acting as an accounting advisor to the firm, prepare a memo in which you analyze the financial statements you prepared in step two and prepare an analysis of the company's financial position. Identify two strengths and two weaknesses in the company. Make two recommendations to improve the company's financial position. Be specific in each of the recommendations and use as many of the ratios calculated in ak and the vertical and horizontal analysis to support your explanation and analysis. If you do not use the ratios in your answer you will not credit for the memo. The length should be no more than three paragraphs: one for strengths, one for weaknesses, and one for recommendations. 6. Blackboard Instructions a. Memo analyzing the company's strengths and weaknesses with two recommendations. Write your memo in a Word document using ratios to analyze the strengths and weaknesses of the company. Make sure there are no spelling, grammatical, or punctuation errors. Once it is completed make sure that you print it out and then rewrite it in Blackboard, Add information concerning numbers using the format as shown here below and enter it into Blackboard as specified: b. When the answer is in units enter the number as is (see example below) 1.280 c. When the answer is for ratios lie., Current ratio) and has a decimal take it out two decimal spaces (See example below) i. 280.89 d. When ratios are in days/times take out to two decimal places and write days or times after the number (See example below) 1. 280.96 days or times e. When the answer is in dollars ALWAYS include a dollar sign, comma in the dollar amount and cents as shown below: L$280.83 or $3,800.44 or $480.00 or $3,600.00 Please follow all instructions. If the answers are formatted incorrectly the answer will be counted wrong. COMPRATIVE BALANCE SHEET Pete's Patriotic Flags, Inc. Comparative Balance Sheet December 31, 202 land 2020 2021 2020 Assets Current Assets Cash Accounts Receivable, net Merchandise Inventory Prepaid Rent Total Current Assets 366,520 160,000 130,000 70.000 $726,520 90,000 170,000 70,000 50.000 $380,000 Property. Plant, and Equipment: Equipment Less: Accumulated Depreciation - Equipment Total Property, plant and Equipment Total Assets 240,000 (60,000) $180,000 $906, 520 260,000 140,000) $220,000 $600,000 2021 2020 90,000 55,000 Liabilities and Stockholders' Equity Current Liabilities: Accounts Payable Dividends Payable Unearned Revenue Salaries payable Federal Income Taxes Payable Total Current Liabilities 20,000 70,000 30.000 $210,000 80,000 50.000 15.000 $200,000 Long Term Liabilities Bond Payable Note Payable Total Liabilities 100,000 20,000 60.000 $290,000 $300,000 Stockholders' Equity: Common Stock. $10 Par Paid-In Capital in Excess of Par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 150,000 15,000 451520 $616,520 $906,520 100,000 10,000 190.000 $300,000 $600,000 Pete's Patriotic Flags, Inc. Comparative Statement of income For the Years Ended December 31, 2021 and 2020 2021 2020 1,600,000 1.040.000 $560,000 940,000 92.000 $247,000 Sales Cost of Goods Sold Gross Margin Operating Expenses Salaries and Wages Expense Rent Expense Depreciation Expense Total Operating Expenses Income from Operations Loss on Sale of Equipment Interest Expense Increase (Decrease) in Operating Income Income before Taxes Federal Income Taxes Net Income 50,000 20,000 24.000 $94,000 $153,000 80,000 20,000 30,000 $130,000 $430,000 (500) 18,000) 18.500 421,500 [126,4502 $295,050 (3.000) (3.000) 150,000 (45,000) $105,000 2020 110,000 95,000 COMPARATIVE STATEMENT OF STOCKHOLDERS' EQUITY Pete's Patriotic Flags, Inc. Comparative Statement of Stockholders' Equity For the Years Ended December 31, 2021 and 2020 2021 Common Stock 165,000 Retained Earnings, Beginning 190,000 of Year Net Income 295,050 Less: Dividends ? Retained Earnings, End of Year $451,520 Total Stockholders' Equity 5616,520 1. Equipment with a cost of $20,000 was sold for $9,500 cash, 2. Stock was issued for cash. 3. The dividends were paid in cash. 4. The tax rate is 30%. 105,000 10,000 $190,000 $300,000
