Project 2 12/10 @10 am CHAPTER 18 Cookie Creations (Note: This is a continuation of the Cookie Creations from Chapters 1 through 173 CC18 The balance sheet and income statement of Cookie & Coffee Creations Inc for its first year of operations, the year ended October 31, 2018, follows COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31, 2018 Assets Current assets Cash Accounts receivable Inventory Prepaid Rent Property, plant, and equipment Equipment Accumulated depreciation equipment Total assets $32 219 3.250 17,897 6.300 $59,666 $99,700 (9.850) 89.850 $149.516 $5,848 18.500 700 2.250 188 4.000 $31,486 Liabilities and Stockholders' Equity Current liabilities Accounts payable Income taxes payable Dividends payable Salaries and wages payable Interest payable Notes payable current portion Long-term liabilities Notes payable-long-term portion Total liabilities Stockholders' equity Paid-in capital Preferred stock 2,800 shares issued and outstanding Common stock 25,930 shares issued 25,180 outstanding Retained earnings Total paid-in capital and retained earnings Less: Treasury stock-common (750 shares), at cost Total stockholders' equity Total liabilities and stockholders' equity 6.000 37.486 $14,000 25.930 39,930 72 600 112,530 500 112.030 $149.516 $462,500 231.250 231,250 COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31, 2018 Sales Revenue Cost of goods sold Gross profit Operating expenses Salaries and wages expense $92,500 Depreciation expense 9,850 Other operating expenses 35 987 Income from operations Other expenses Interest expense Income before income tax Income tax expense Net income 138 337 92,913 413 92,500 18.500 $74.000 Additional information: Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semiannual installment payments of $2.500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance. Dividends on preferred stock were $1,250. Since this is the first year of operations and the beginning balances are zero use the ending balance as the average balance where appropriate Instructions (a) Calculate the following ratios 1. Current ratio 6. Gross profit rate 2. Accounts receivable turnover 7. Profit margin 3. Inventory turnover 8. Asset turn 4. Debt to assets ratio 9. Return on assets 5. Times interest earned 10 Return on common stockholders' equity (b) Comment on your findings from part (a). (c) Based on your analysis in parts (a) and (b), do you think a bank would lend Cookie & Coffee Creations Inc. $20,000 to buy the additional equipment? Explain your reasoning (d) What alternatives could Cookie & Coffee Creations consider instead of bank financing