PROBLEMS 14-10 and 14-11. Financial Statement Analysis. Mandrake Motorcycles was started 3 years ago. The company manufactures and sells classic cycles similar in style to HarleyDavidson and Indian motorcycles made in the late 1940s. The following financial information for the company relates to Problems 14-10 and 14-11: Mandrake Motorcycles Balance Sheets December 31, December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $ 240,000 $ 425,000 Accounts receivable 185,000 200,000 Inventory 850,000 630,000 Other current assets 200,000 210,000 Total current assets 1,475,000 1,465,000 Property, plant, and equipment, net 1,075,000 1,175,000 Total assets $2,550,000 $2,640,000 Liabilities and Stockholders Equity Current liabilities: Accounts payable $ 260,000 $ 205,000 Short-term debt payable 370,000 320,000 Other current liabilities 285,000 280,000 Total current liabilities 915,000 805,000 Long-term debt 195,000 410,000 Total liabilities 1,110,000 1,215,000 Stockholders equity: Common stock 1,325,000 1,325,000 Retained earnings 115,000 100,000 Total stockholders equity 1,440,000 1,425,000 Total liabilities and stockholders equity $2,550,000 $2,640,000 Mandrake Motorcycles Income Statements Year Ended Year Ended December 31, December 31, 2018 2017 Net sales $1,590,000 $1,690,000 Cost of goods sold 980,000 1,175,000 Gross margin 610,000 515,000 Operating expenses: Selling expenses 300,000 210,000 General and administrative expenses 210,000 200,000 Total operating expenses 510,000 410,000 Operating income 100,000 105,000 Interest expense 48,000 72,000 Income before taxes 52,000 33,000 Income taxes 18,200 11,550 Net income $ 33,800 $ 21,450 562 chapter 14 Analyzing Financial Statements: A Managerial Perspective c14AnalyzingFinancialStatementsAManagerialPerspective.indd Page 562 10/12/15 7:39 AM f-512 /208/WB01671/9781118978092/ch14/text_s PROBLEM 14-10. Comprehensive Financial Statement Analysis [LO 1, 3] Marty Monk Fisher owns the largest motorcycle dealership in southern Ohio. Recently, he was approached by Bob Sherman, founder of Mandrake Motorcycles, and offered the opportunity to be the sole distributor of Mandrake bikes in the state. Acceptance of the offer will require Monk to open a dedicated Mandrake showroom and repair facility and, obviously, stock Mandrake cycles and parts. Monk is quite impressed by the Mandrake product, but before making a major investment, he wants to be confident that the company will be around for the long haul. Accordingly, he has asked you to analyze the audited financial statements of Mandrake for the previous 2 years. Required a. Prepare a horizontal and a vertical analysis of the 2018 and 2017 financial statements. b. Calculate the following ratios for 2018 and 2017: return on assets, gross margin percentage, receivables turnover, days sales in receivables, inventory turnover, days sales in inventory, debt to equity, and times interest earned. c. Based on your analysis in parts a and b, comment on any matters that Monk should probe in an upcoming meeting with Bob Sherman from Mandrake. d. Based on the limited information available, do you think Monk should open a Mandrake showroom?