PROBLEM 3 (35 Points) - Selected data from the financial statements of Dee's Landscaping Inc. are included below. Instructions a. Explain how the interest expense shown in the income statement could be $80,000, when the interest payment appearing in the statement of cash flows is only $72,000. From the balance sheet: Cash $ 35,000 175,000 Accounts receivable Inventory 225,000 550,000 Plant assets (net of accumulated depreciation) Current liabilities 190,000 b. Compute the following (round to one decimal place): 1. Current ratio 2. Quick ratio 3. Working capital 4. Debt ratio C. Comment on these measurements and evaluate Hamilton's short-term debt-paying ability. d. Compute the following ratios (assume that the year-end amounts of total assets and total stockholders' equity also represent the average amounts throughout the year). 1. Return on assets Total stockholders' equity 500,000 Total assets 1,300,000 From the income statement: Net sales $2,400,000 2. Return on equity Cost of goods sold 1,800,000 Operating expenses 495,000 e. Comment on the company's performance under these measurements. Explain why the return on assets and return on equity are so different. f. Discuss (1) the apparent safety of long-term creditors' claims and (2) the prospects for Dee's Landscaping Inc. continuing its dividend payments at the present level. Interest expense 80,000 Income tax expense 4,000 21,000 Net income From the statement of cash flows: Net cash provided by operating activities (including interest paid of $72,000) $ 50,000 Net cash used in investing activities (54,000) Financing activities: Amounts borrowed Repayment of amounts borrowed $ 56,000 (25,000) (24,000) Dividends paid Net cash provided by financing activities 7,000 Net increase in cash during the year $ 3,000