Question
Part I: You, the accountant, are analyzing Nolans Corporation. Nolans corp. has expanded its production facilities by 200% since 2016. The income statements for the
Part I: You, the accountant, are analyzing Nolans Corporation. Nolans corp. has expanded its production facilities by 200% since 2016. The income statements for the last three year are below:
Nolan Security Corporation | |||
Statement of Financial Position | |||
At December 31, 2020 | |||
Assets | Liabilities | ||
Current |
| Current |
|
Cash | $100 | Accounts Payable | $300 |
Accounts Receivable | 200 | Wages Payable | 50 |
Merchandise Inventory | 500 | Dividends Payable | 50 |
Prepared Expenses | 50 |
| 400 |
| 850 |
|
|
|
|
|
|
Non-current |
| Non-current |
|
Property, plant & equipment (net) | 1,000 | Loan Payable | 800 |
|
|
| 1,200 |
|
| Shareholders Equity | |
|
| Common Shares | 500 |
|
| Retained Earnings | 150 |
|
| Total Shareholders Equity | 650 |
|
|
|
|
Total Assets | $1,850 | Total Liability and Equity | $1,850 |
Requirements: Show all work.
1. Calculate current ratio, acid-test ratio, and debt to shareholders equity ratio.
2. Discuss the meaning of each ratio result. (What do these ratios mean for Nolans Security?)
Part III: The following balance sheet (statement of financial position) is presented for LevelUp Corporation.
LevelUp Corporation | |||
Statement of Financial Position | |||
At December 31, 2020 | |||
Assets | Liabilities | ||
Current |
| Current |
|
Cash | $60 | Accounts Payable | $100 |
Accounts Receivable | 140 | Loan Payable | 20 |
Merchandise Inventory | 250 | Notes Payable | 60 |
Prepared Expenses | 10 |
| 180 |
| 460 |
|
|
|
|
|
|
Non-current |
| Non-current |
|
Property, plant & equipment (net) | 330 | Loan Payable | 140 |
|
|
| 320 |
|
| Shareholders Equity | |
|
| Preferred shares, 10% (8 shares)
| 120 |
|
| Common shares (50 shares)
| 250 |
|
| Retained earnings | 100 |
|
|
| 470 |
Total Assets | $790 | Total Liability and Equity | $790 |
LevelUp Corporation | |
Income Statement | |
For the Year Ending December 31, 2020 | |
Net Sales (all on credit) | $800 |
Cost of Goods Sold | 600 |
Gross Profit | 200 |
Selling and Administration Expenses | 100 |
Income from Operations | 100 |
Interest Expense | 20 |
Income before Income Taxes | 80 |
Income Taxes | 30 |
Net Income | $50 |
Additional information from December 31, 2019 statement of financial position:
Accounts receivable $180
Merchandise inventory 200
Property, Plant and Equipment (net) 250
Retained earnings 80
Preferred shares 120
Common Shares 250
Requirements:
1. Compute the following ratios, showing all work.
Current ratio
Acid-test ratio
Accounts receivable collection period
Number of days of sales in inventory
Debt to shareholders equity ratio
Return on shareholders equity
2. What do these ratios tell you about the LevelUp Corporation?
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