Question 2 (Total 20 marks) Part A (10 marks) The financial statements of Giant Company appear below: GIANT COMPANY Comparative Statements of Financial Position December 31, 2020 and 2019 Assets 2020 Cash $ 25,000 Short-term investments 15,000 Accounts receivable (net) 50,000 Inventory 50,000 Property, plant and equipment (net) 260.000 Total assets $400,000 2019 $ 40,000 60,000 30,000 70,000 300,000 $500,000 Liabilities and stockholders' equity Accounts payable Short-term notes payable Bonds payable Share capital - Ordinary Retained earnings Total liabilities and stockholders' equity $ 20,000 30,000 90,000 150,000 110,000 $400,000 $ 30,000 90,000 160,000 150,000 70.000 $500,000 $400,000 240.000 160,000 GIANT COMPANY Income Statement For the Year Ended December 31, 2020 Net sales Cost of goods sold Gross profit Expenses Operating expenses $42,000 Interest expense 18,000 Total expenses Income before income taxes Income tax expense Net income 60.000 100,000 30,000 $ 70,000 Additional information: a. Cash dividends of $23,000 were declared and paid in 2020. b. Weighted-average number of ordinary shares stock outstanding during 2020 was 30,000 shares Market value of ordinary shares on December 31, 2020, was $21 per share. C. 1 Required: Using the financial statements and additional information, compute the ratios for Giant Company for 2020. Show all computations. Computat 1. Current ratio 2. Return on ordinary shareholders' equity. 3. Price-earnings ratio 4. Acid-test ratio 5. Receivables turnover 6. Times interest earned 7. Profit margin 8. Days' sales in inventory 9. Dividend yield 10. Return on assets qi Part B: (6 marks) Comparative information taken from the Wyatt Company's financial statements is shown below: 2021 2020 (a) Notes receivable $ 20,000 $ -0- (b) Accounts receivable 175,000 140,000 (c) Retained earnings 30,000 (40,000) (d) Income taxes payable 55,000 20,000 (e) Sales 900,000 750,000 (f) Operating expenses 160,000 200,000 Required: Using horizontal analysis, show the percentage change from 2020 to 2021 with 2020 as the base year. Show your calculations where appropriate. Part C: (4 marks) You are an accountant of ABC Company. Your supervisor has asked you to comment on the following information from the company's most recent annual report: 1. This year, net income was $5.25 million and the net sales were $43.75 million. Last year's net income was $5 million and the net sales were $33.5 million. 2. The current ratio has changed to 2:1 from last year's 1.5:1 3. The debt/total assets ratio has changed to 4:5 from last year's 3:5. The company purchased three (3) pieces of new manufacturing machines. 4. Current year's receivables turnover is 11 times while last year's was 10 times; the average collection period is 33.2 days this year and 36.5 days last year. The credit terms are 2/10, n/30. 2021-2022 Semester One Required: Write at least two (2) complete sentences to analyze each of the above four items
