Please answer these two questions.

P24-3 (Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago

through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was

one of the organizers of Bradburn and is its current president. The company has been successful, but it currently

is experiencing a shortage of funds. On June 10, 2014, Daniel Brown approached the Topeka National

Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2015, and September 30,

2015. Another note of $6,000 is due on March 31, 2016, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburns cash flow problems are due primarily to the companys desire to

finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds.

The commercial loan officer of Topeka National Bank requested the following financial reports for the

last 2 fiscal years.

BRADBURN CORPORATION

BALANCE SHEET

MARCH 31

Assets 2015 2014

Cash $ 18,200 $ 12,500

Notes receivable 148,000 132,000

Accounts receivable (net) 131,800 125,500

Inventories (at cost) 105,000 50,000

Plant & equipment (net of depreciation) 1,449,000 1,420,500

Total assets $1,852,000 $1,740,500

Liabilities and Stockholders Equity

Accounts payable $ 79,000 $ 91,000

Notes payable 76,000 61,500

Accrued liabilities 9,000 6,000

Common stock (130,000 shares, $10 par) 1,300,000 1,300,000

Retained earnings a 388,000 282,000

Total liabilities and stockholders equity $1,852,000 $1,740,500

A Cash dividends were paid at the rate of $1 per share in fi scal year 2014 and $2 per

share in fiscal year 2015.

Instructions

(a) Compute the following items for Bradburn Corporation.

(1) Current ratio for fiscal years 2014 and 2015.

(2) Acid-test (quick) ratio for fiscal years 2014 and 2015.

(3) Inventory turnover for fiscal year 2015.

(4) Return on assets for fiscal years 2014 and 2015. (Assume total assets were $1,688,500 at 3/31/13.)

(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from

fiscal year 2014 to 2015.

(b) Identify and explain what other financial reports and/or financial analyses might be helpful to the

commercial loan officer of Topeka National Bank in evaluating Daniel Browns request for a time

extension on Bradburns notes.

(c) Assume that the percentage changes experienced in fiscal year 2015 as compared with fiscal year

2014 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburns desire

to finance the plant expansion from internally generated funds realistic? Discuss.

(d) Should Topeka National Bank grant the extension on Bradburns notes considering Daniel Browns

statement about financing the plant expansion through internally generated funds? Discuss.

BRADBURN CORPORATION

INCOME STATEMENT

FOR THE FISCAL YEARS ENDED MARCH 31

2015 2014

Sales revenue $3,000,000 $2,700,000

Cost of goods solda 1,530,000 1,425,000

Gross margin 1,470,000 1,275,000

Operating expenses 860,000 780,000

Income before income taxes 610,000 495,000

Income taxes (40%) 244,000 198,000

Net income $ 366,000 $ 297,000

aDepreciation charges on the plant and equipment of $100,000 and $102,500

for fi scal years ended March 31, 2014 and 2015, respectively, are included in

cost of goods sold.

*P 24-4 (Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour

Company.

13

GILMOUR COMPANY

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2015 AND 2014

December 31

2015 2014

Assets

Cash $ 180,000 $ 275,000

Accounts receivable (net) 220,000 155,000

Short-term investments 270,000 150,000

Inventories 1,060,000 980,000

Prepaid expenses 25,000 25,000

Plant & equipment 2,585,000 1,950,000

Accumulated depreciation (1,000,000) (750,000)

$3,340,000 $2,785,000

Liabilities and Stockholders Equity

Accounts payable $ 50,000 $ 75,000

Accrued expenses 170,000 200,000

Bonds payable 450,000 190,000

Capital stock 2,100,000 1,770,000

Retained earnings 570,000 550,000

$3,340,000 $2,785,000

Instructions

(Round to two decimal places.)

(a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the

total assets or total liabilities and stockholders equity.

(b) Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the

percent change for each item.

(c) Of what value is the additional information provided in part (a)?

(d) Of what value is the additional information provided in part (b)?

* P24-5 (Dividend Policy Analysis) Matheny Inc. went public 3 years ago. The board of directors will

be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been

financed primarily through the retention of earnings. A stock or a cash dividend has never been declared.

Presented below is a brief financial summary of Matheny Inc. operations.

($000 omitted)

2015 2014 2013 2012 2011

Sales revenue $20,000 $16,000 $14,000 $6,000 $4,000

Net income 2,400 1,400 800 700 250

Average total assets 22,000 19,000 11,500 4,200 3,000

Current assets 8,000 6,000 3,000 1,200 1,000

Working capital 3,600 3,200 1,200 500 400

Common shares:

Number of shares

outstanding (000) 2,000 2,000 2,000 20 20

Average market price $9 $6 $4

Instructions

(a) Suggest factors to be considered by the board of directors in establishing a dividend policy.

(b) Compute the return on assets, profit margin on sales, earnings per share, price-earnings ratio, and

current ratio for each of the 5 years for Matheny Inc.

(c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed

in part (b) as a major factor in your analysis.

Please answer these two question. P24-3 (Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2014, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2015, and September 30, 2015. Another note of $6,000 is due on March 31, 2016, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn's cash flow problems are due primarily to the company's desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. BRADBURN CORPORATION BALANCE SHEET MARCH 31 Assets 2015 2014 Cash $ 18,200 $ 12,500 Notes receivable 148,000 132,000 Accounts receivable (net) 131,800 125,500 Inventories (at cost) 105,000 50,000 Plant & equipment (net of depreciation) 1,449,000 1,420,500 Total assets $1,852,000 $1,740,500 Liabilities and Stockholders' Equity Accounts payable $ 79,000 $ 91,000 Notes payable 76,000 61,500 Accrued liabilities 9,000 6,000 Common stock (130,000 shares, $10 par) 1,300,000 1,300,000 Retained earnings a 388,000 282,000 Total liabilities and stockholders' equity $1,852,000 $1,740,500 A Cash dividends were paid at the rate of $1 per share in fi scal year 2014 and $2 per share in fiscal year 2015. Instructions (a) Compute the following items for Bradburn Corporation. (1) Current ratio for fiscal years 2014 and 2015. (2) Acid-test (quick) ratio for fiscal years 2014 and 2015. (3) Inventory turnover for fiscal year 2015. (4) Return on assets for fiscal years 2014 and 2015. (Assume total assets were $1,688,500 at 3/31/13.) (5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2014 to 2015. (b) Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown's request for a time extension on Bradburn's notes. (c) Assume that the percentage changes experienced in fiscal year 2015 as compared with fiscal year 2014 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn's desire to finance the plant expansion from internally generated funds realistic? Discuss. (d) Should Topeka National Bank grant the extension on Bradburn's notes considering Daniel Brown's statement about financing the plant expansion through internally generated funds? Discuss. BRADBURN CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31 2015 2014 Sales revenue $3,000,000 $2,700,000 Cost of goods solda 1,530,000 1,425,000 Gross margin 1,470,000 1,275,000 Operating expenses 860,000 780,000 Income before income taxes 610,000 495,000 Income taxes (40%) 244,000 198,000 Net income $ 366,000 $ 297,000 aDepreciation charges on the plant and equipment of $100,000 and $102,500 for fi scal years ended March 31, 2014 and 2015, respectively, are included in cost of goods sold. *P 24-4 (Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company. 13 GILMOUR COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2015 AND 2014 December 31 2015 2014 Assets Cash $ 180,000 $ 275,000 Accounts receivable (net) 220,000 155,000 Short-term investments 270,000 150,000 Inventories 1,060,000 980,000 Prepaid expenses 25,000 25,000 Plant & equipment 2,585,000 1,950,000 Accumulated depreciation (1,000,000) (750,000) $3,340,000 $2,785,000 Liabilities and Stockholders' Equity Accounts payable $ 50,000 $ 75,000 Accrued expenses 170,000 200,000 Bonds payable 450,000 190,000 Capital stock 2,100,000 1,770,000 Retained earnings 570,000 550,000 $3,340,000 $2,785,000 Instructions (Round to two decimal places.) (a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders' equity. (b) Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item. (c) Of what value is the additional information provided in part (a)? (d) Of what value is the additional information provided in part (b)? * P24-5 (Dividend Policy Analysis) Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc. operations. ($000 omitted) 2015 2014 2013 2012 2011 Sales revenue $20,000 $16,000 $14,000 $6,000 $4,000 Net income 2,400 1,400 800 700 250 Average total assets 22,000 19,000 11,500 4,200 3,000 Current assets 8,000 6,000 3,000 1,200 1,000 Working capital 3,600 3,200 1,200 500 400 Common shares: Number of shares outstanding (000) 2,000 2,000 2,000 20 20 Average market price $9 $6 $4 Instructions (a) Suggest factors to be considered by the board of directors in establishing a dividend policy. (b) Compute the return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc. (c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis