Question 1

For the Derkins Corporation, in a horizontal analysis, what is the relative change in revenue foryear 2?Convert your answer to a percentage then round toone decimal place and enter without the percent sign (e.g. 20.9% would be entered simply as 20.9).

Question 2

2. For the Derkins Corporation, what is the company's current ratio for year 1? Round your answer to two decimal places.

Question 3

For the Derkins Corporation, what is the company's debt ratio for year 2? Convert your answer to a percentage then round toone decimal place and enter without the percent sign (e.g. 20.9% would be entered simply as 20.9).

3. Question 4

For the Derkins Corporation, the company's liquidity is generally getting ________ over the three year period.

better

worse

Question 5

For the Derkins Corporation, the company's solvencyis generally getting ________ over the three year period.

better

worse

Question 6

For the Derkins Corporation, what is the company's return on investment ratio for year 3? Convert your answer to a percentage then round toone decimal place and enter without the percent sign (e.g. 20.9% would be entered simply as 20.9).

Question 7

For the Derkins Corporation, the company's profitability is generally getting ________ over the three year period.

better

worse

Question 8

If the Derkins Corporation purchased $750 of inventory on account in year 3, its current ratio would

improve.

get worse.

not change.

Question 9

If theDerkinsCorporation purchased $750 of inventory on account in year 3, itsnet income percentage would

improve.

get worse.

not change.

Question 10

For the Spiff Corporation, what is the company's current ratio for year 2? Round your answer to two decimal places.

Question 11

For Hobbes Inc., what is the company's debt ratio for year 3? Convert your answer to a percentage then round toone decimal place and enter without the percent sign (e.g. 20.9% would be entered simply as 20.9).

Question 12

For Hobbes Inc., what is the company's return on investment ratio for year 3? Round your answer to three decimal places and enter as a number not as a percentage (e.g. 0.209 not 20.9%).

Question 13

Between Spiff and Hobbes, which company would you rather sell inventory to, if sold on account?

Spiff

Hobbes

Question 14

Between Spiff and Hobbes, which company would you rathermake a long-term loan to?

Spiff

Hobbes

Question 15

Between Spiff and Hobbes, which company would you rather invest in?

Spiff

Hobbes

Question 16

If the Spiff Corporationborrowed $1,500 on a long-term loan in year 3, its net income percentage would

improve.

get worse.

not change.

Question 17

If Hobbes Inc. borrowed $1,500 on a long-term loan in year 3, its return on investment ratio would

improve.

get worse.

not change.

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The University of Texas at Austin McCombs School of Business Foundations of Accounting (ACC 310F) Assignment 5 Once you have completed the assignment below, you must submit your answers using the answer sheet provided in Canvas (in the Assignments area); not all answers will be turned in. Once submitted, your answers cannot be changed. Where appropriate, partial credit will be given. The teaching assistants and I can help you on Part A of the assignment, but not on Part B. Unlike a quiz, you may work with other classmates if you wish, but you must submit your own work. You will not be able to view your submitted answers in Canvas so you should keep a copy of them for reference. You should round and present each ratio as demonstrated in class. Part A (20 points) The Derkins Corporation had the following information available: Derkins Corporation Year 3 Year 2 Year 1 Income Statement Revenue Cost of goods sold Selling & admin. expenses Interest expense Net Income 30,848 23,122 6,082 504 1,140 27,433 20,938 5,053 458 984 25,512 19,875 4,672 350 615 Balance Sheet Assets Cash Accounts receivable Inventory Property & equipment (net) Total Assets 681 495 2,750 3,742 7,668 354 587 2,627 2,810 6,378 589 412 2,245 2,564 5,810 Liabilities Accounts payable Unredeemed gift cards Long-term liabilities 373 469 3,234 358 410 2,824 330 385 2,643 Stockholders' Equity Capital Retained earnings Total Liabilities and Equity 985 2,607 7,668 985 1,801 6,378 985 1,467 5,810 Required: 1. Prepare a horizontal analysis on revenue, cost of goods sold and net income and assess the results. 2. Calculate the current ratio, days' sales in accounts receivable ratio, days' sales in inventory ratio as well as the debt ratio and assess the results to determine if the company's liquidity and solvency are generally getting better or worse. 3. Calculate the gross profit and net profit percentage as well as the return on investment ratio and assess the results to determine if the company's profitability is generally getting better or worse. -- Page 1 of 2 -- 4. If the company purchased $750 of inventory on account in year 3, how would that transaction impact each ratio calculated in requirement 2 and 3? Part B (30 points) Year 3 Hobbes, Inc. Year 2 Year 1 Spiff Corporation Year 3 Year 2 Year 1 Income Statement Revenue Cost of goods sold Selling & admin. expenses Interest expense Net Income 13,918 7,715 2,298 70 3,835 11,517 5,847 1,834 21 3,815 12,721 5,556 2,096 11 5,057 18,548 9,587 2,200 194 6,568 17,186 8,675 1,961 339 6,211 18,369 9,866 2,090 346 6,068 Balance Sheet Assets Cash Accounts receivable Inventory Property & equipment (net) Total Assets 1,181 265 2,038 9,170 12,654 975 254 1,601 5,390 8,219 1,235 463 1,585 1,195 4,477 3,359 455 2,602 10,254 16,670 2,678 300 2,281 3,866 9,125 1,973 315 1,685 3,697 7,670 Liabilities Accounts payable Unredeemed gift cards Long term liabilities 892 1,020 625 746 700 491 731 932 346 2,726 422 2,798 2,259 328 2,089 1,697 350 1,748 Stockholders' Equity Capital Retained earnings Total Liabilities and Equity 815 9,303 12,654 815 5,468 8,219 815 1,653 4,477 1,290 9,434 16,670 1,290 3,159 9,125 1,290 2,585 7,670 Required: 1. Calculate the current ratio as well as the debt ratio for each company and assess the results. 2. Calculate the net income percentage as well as the return on investment ratio for each company and assess the results. 3. Based on your results in requirement 1 and 2, which company would you rather a. sell inventory to, if sold on account? b. make a long-term loan to? c. invest in? 4. If each company borrowed $1,500 on a long-term loan in year 3, how would that transaction impact each ratio calculated in requirement 1 and 2? -- Page 2 of 2