Question
Question 2 The comparative balance sheets of Waterways Corporation's Irrigation Installation Division for the years 2019 and 2020 and the income statements for the year
Question 2
The comparative balance sheets of Waterways Corporation's Irrigation Installation Division for the years 2019 and 2020 and the income statements for the year 2019 and 2020 are presented below.
Additional information:
85% of the sales for Waterways were credit sales. There are 5,000 shares outstanding for both years. This is a private corporation whose shares are not available to the public.
WATERWAYS CORPORATIONINSTALLATION DIVISION
Balance Sheets
December 31
Assets 2020 2019
Current assets
Cash $828,400 $749,800
Accounts receivable 681,300 541,200
Work in process 697,700
Inventory 16,900 7,400
Prepaid expenses 76,100 42,600
----------- -------------
Total current assets 2,300,400 1,341,000
-------------- ---------------
Property, plant, and equipment
Land 303,000 303,000
Buildings 452,000 452,000
Equipment 937,300 807,800
Furnishings 40,100 40,100
Accumulated depreciation (486,200) (480,700)
------------- -------------
Total property, plant, and equipment 1,246,200 1,122,200
-------------- --------------
Total assets $3,546,600 $2,463,200
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $157,500 $128,200
Income taxes payable 101,200 79,500
Wages payable 4,500 1,900
Interest payable 1,200
Other current liabilities 14,600 15,400
Revolving bank loan payable 15,100
------------ --------------
Total current liabilities 294,100 225,000
Long-term liabilities
Note payable 139,000
------------ -------------
Total liabilities 433,100 225,000
Stockholders' equity
Common stock 1,250,000 1,250,000
Retained earnings 1,863,500 988,200
------------- --------------
Total stockholders' equity 3,113,500 2,238,200
-------------- --------------
Total liabilities and stockholders' equity $3,546,600 $2,463,200
========== =========
WATERWAYS CORPORATIONINSTALLATION DIVISION
Income Statements
For the Year Ending December 31
2020 2019
Sales $5,503,729 $4,956,600
Less: Cost of goods sold 3,115,900 2,821,900
--------------- --------------
Gross profit 2,387,829 2,134,700
------------ --------------
Operating expenses
Advertising 50,300 48,300
Insurance 403,100 403,100
Salaries and wages 588,200 558,200
Depreciation 80,300 71,300
Other operating expenses 21,000 18,390
------------- -------------
Total operating expenses 1,142,900 1,099,290
------------- ---------------
Income from operations 1,244,929 1,035,410
Other income
Gain on sale of equipment 17,800
Other expenses
Interest expense (12,300)
--------------- ----------------
Income before income tax 1,250,429 1,035,410
Income tax expense 375,129 310,623
--------------- ---------------
Net income $875,300 $724,787
========= =========
(a)
Make a horizontal analysis of the income statement using 2019 as the base year. (Do not leave any answer field blank. Enter 0 for amounts. Round percentage values to 1 decimal place, e.g. 52.7%. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
WATERWAYS CORPORATIONINSTALLATION DIVISION
Income Statement
----------------------------
2020 2019 Change Percent
Sales $5,503,729 $4,956,600 $---------- -----------%
Less: Cost of goods sold 3,115,900 2,821,900 ------------ -----------%
-------------- ---------------
Gross profit 2,387,829 2,134,700 ------------ -----------%
-------------- ---------------
Operating expenses
Advertising 50,300 48,300 ------------ ------------%
Insurance 403,100 403,100 ------------ ------------%
Salaries and wages 588,200 558,200 ------------- ------------%
Depreciation 80,300 71,300 ------------- ------------%
Other operating expenses 21,000 18,390 ------------- ------------%
----------- ------------
Total operating expenses 1,142,900 1,099,290 ------------- ------------%
------------- --------------
Income from operations 1,244,929 1,035,410 ------------- ------------%
Other income
Gain on sale of equipment 17,800 ------------- ------------%
Other expenses
Interest expense (12,300) ------------- --------------%
------------ --------------
Income before income tax 1,250,429 1,035,410 ------------- --------------%
Income tax expense 375,129 310,623 ------------- --------------%
------------- --------------
Net income $875,300 $724,787$ ------------- --------------%
========= ==========
(b)
Make a vertical analysis of the income statement for 2020. (Round percentage values to 1 decimal place, e.g. 52.7%. Enter negative amounts using either a negative sign preceding the number e.g. -45% or parentheses e.g. (45)%)
WATERWAYS CORPORATIONINSTALLATION DIVISION
Income Statement
----------------------------
Amount Percent
Sales $5,503,729 -------------%
Less: Cost of goods sold 3,115,900 -------------%
---------------
Gross profit 2,387,829 -------------%
---------------
Operating expenses
Advertising 50,300 -------------%
Insurance 403,100 -------------%
Salaries and wages 588,200 -------------%
Depreciation 80,300 -------------%
Other operating expenses 21,000 -------------%
---------------
Total operating expenses 1,142,900 -------------%
----------------
Income from operations 1,244,929 ------------- %
Other income
Gain on sale of equipment 17,800 -------------%
Other expenses
Interest expense (12,300) -------------%
--------------
Income before income tax 1,250,429 ------------- %
Income tax expense 375,129 ------------- %
----------------
Net income $875,300 --------------%
===========
(c)
Calculate the following ratios for 2020 and indicate whether the ratio is a liquidity, solvency, or profitability ratio. (Round Asset turnover ratio, Accounts receivable turnover ratio, Current ratio and Earnings per share to 2 decimal places, e.g. 15.25. Round Average collection period, Debt to assets ratio, Profit margin, Return on assets ratio, Return on common stockholders' equity ratio and Times interest earned ratio to 1 decimal place, e.g. 15.2 or 15.2%. Use 365 days for calculation.)
Type
(1)Asset turnover ratio ------------- times ---------------
(2)Accounts receivable turnover ratio ------------- times ---------------
(3)Average collection period -------------- days ---------------
(4)Current ratio -------------- : 1 ---------------
(5)Debt to assets ratio -------------- % ---------------
(6)Earnings per share $-------------- ---------------
(7)Profit margin --------------- % ---------------
(8)Return on assets ratio -------------- % ----------------
(9)Return on common stockholders' equity ratio -------------- % ---------------
(10)Times interest earned ratio -------------- times ---------------
(d) Comment on your findings.
Liquidity: The company's liquidity is ---------------
Solvency: The company's solvency is very ---------------
Profitability: The company's profitability is --------------
Overall: By all measures the company appears to be both financially ------------------
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