Question 1 Granville Sharp established Granville Products Co as a sole proprietorship on January 5, 2019 At the companys year end of December 31, 2019, the accounts had the following balances Currents assets, excluding inventory $ 10,000 Other assets (long term) 107,000 Current liabilities 30,000 Long term bank loan 50,000 Capital (Owners investment, excluding income) 40,000 Purchases during the year January 2 5,000 $11 $55,000 June 30 8,000 $12 96,000 December 10 6,000 $16 96,000 Sales $284,000 Other expenses 40,000 A count of ending inventory on December 31, 2019 showed that there were 4,000 units on hand Granville is now preparing financial statements for the year He is aware that inventory may be costed using FIFO or weighted average cost (WAC) method He is unsure of which one to use and asks for your assistance In discussions with Granville, you learn the following Suppliers provide goods at regular prices as long as Granville Products current ratio (CR) is at least 2 to If CR is lower, the suppliers increase their price by 10 in order to compensate for what they consider to be a substantial credit risk The terms of the long term bank loan include the banks ability to demand immediate repayment of the loan if the debt to total assets ratio (TL TA) is greater than 45 Granville thinks that, for the company to be a success, the rate of return on total assets, ROA, calculated as NI TA, should be at least 30 Granville has an agreement with the companys only employee, Safa, that for each full percentage point above a 25 ROA, she will be given an additional one day off with pay in the following year Required Calculate EI under FIFO and WAC Prepare an income statement for 2019 and a year (2019) end B S under FIFI and WAC Calculate CR, TL TA, and ROA (NI TA) under each method Use the following format for I I and B S I S FIFO WAC Sales CGS GP Other expenses NI B S FIFO WAC Current assets, excluding inventory Inventory Total current assets Other assets (long term) Total assets Current liabilities Long term bank loan Total liabilities Capital (including income) Total liabilities and owners equity Evaluate the consequences of these 3 ratios in terms of the constraints and agreements Safa would receive how many days off in 2020 under each method Which method would you recommend and why

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Question #1 Granville Sharp established Granville Products Co. as a sole proprietorship on January 5, 2019. At the companys year end of December 31, 2019,

Question #1

Granville Sharp established Granville Products Co. as a sole proprietorship on January 5, 2019. At the companys year end of December 31, 2019, the accounts had the following balances:

Currents assets, excluding inventory $ 10,000

Other assets (long-term) 107,000

Current liabilities 30,000

Long-term bank loan 50,000

Capital (Owners investment, excluding income) 40,000

Purchases during the year:

January 2: 5,000 @ $11 $55,000

June 30: 8,000 @ $12 96,000

December 10: 6,000 @ $16 96,000

Sales $284,000

Other expenses 40,000

A count of ending inventory on December 31, 2019 showed that there were 4,000 units on hand.

Granville is now preparing financial statements for the year. He is aware that inventory may be costed using FIFO or weighted average cost (WAC) method. He is unsure of which one to use and asks for your assistance. In discussions with Granville, you learn the following.

Suppliers provide goods at regular prices as long as Granville Products current ratio (CR) is at least 2 to If CR is lower, the suppliers increase their price by 10% in order to compensate for what they consider to be a substantial credit risk.
The terms of the long-term bank loan include the banks ability to demand immediate repayment of the loan if the debt-to-total-assets ratio (TL/TA) is greater than 45%.
Granville thinks that, for the company to be a success, the rate of return on total assets, ROA, calculated as NI/TA, should be at least 30%.
Granville has an agreement with the companys only employee, Safa, that for each full percentage point above a 25% ROA, she will be given an additional one day off with pay in the following year.

Required:

Calculate EI under FIFO and WAC.
Prepare an income statement for 2019 and a year (2019) end B/S under FIFI and WAC.
Calculate CR, TL/TA, and ROA (NI/TA) under each method.

Use the following format for I/I and B/S

I/S:

FIFO WAC

Sales

CGS

Other expenses

B/S:

FIFO WAC

Current assets, excluding inventory

Inventory

Total current assets

Other assets (long-term)

Total assets

Current liabilities

Long-term bank loan

Total liabilities

Capital (including income)

Total liabilities and owners equity

Evaluate the consequences of these 3 ratios in terms of the constraints and agreements.
Safa would receive how many days off in 2020 under each method?
Which method would you recommend and why?