Practice Problem 2 (25 minutes) This problem is based on the following financial statements for BBS Inc. Ratios are calculated using the year-end statement of financial position figures. BBS Inc. As at December 31 Statements of financial position (in $000s) Year 1 Year 2 Cash and marketable securities 280 10 Accounts receivable 300 430 Inventory 450 475 Equipment 1,500 1,645 Land 2,500 2,500 Patent 900 900 Total assets Short-term loans Accounts payable 5,930 5.960 400 350 190 196 Long-term debt 2,000 1,900 Future income taxes 300 320 Common shares 1,800 1,800 Retained earnings 1,240 1,394 Total liabilities and equity 5,930 5,960 Income statements for the years ended December 31, Year 1 Year 2 Sales 2,000 2,180 Cost of goods sold 1,300 1,450 Depreciation 150 185 Selling, general, and administrative expenses 90 102 Earnings before interest and taxes 460 443 Interest expense 145 150 Earnings before taxes 315 293 Taxes 95 88 Earnings after taxes Dividends Opening retained earnings Closing retained earnings 220 205 55 51 1.075 1,240 1,240 1,394