REQUIRED

1. Perform a horizontal analysis of the comparative balance sheets. Comment on the analysis.

2. Perform a vertical analysis of the income statement. The industry standards are gross margin of 35 percent and net income of 12 percent. Comment on the results.

3. Calculate each of the following ratios for the year ended December31, 2020. The industry standards are provided in parentheses for some of the ratios.

a. Current ratio(3.14)

b. Debt/equity ratio

c. Acid-test ratio

d. Times-interest-earned ratio.

e. Inventory turnover

f. Rate of return on sales

g. Days' sales in inventory

h. Rate of return on assets

i. Accounts Receivable turnover

j. Rate of return on commonshareholders' equity

k. Days' sales in receivables

l. Price/earnings ratiothe market price per share is $30.00 at yearend, when dividends were paid(5.00)

m. Debt ratio(0.50)

n. Dividend yield(5.12%)

4. Comment on your calculations for Cocoa Chip Ltd. in Requirement 3. Include comments for those ratios for which industry standards were provided.

Cocoa Chip Ltd. Statement of Retained Eamings For the Year Ended December 31, 2020 Retained earnings, January 1, 2020 $ 176,000 Add net income for 2020 63,750 239,750 Less dividends: Preferred 25,000 Common 9,000 34,000 $ 205,750 Retained earnings, December 31, 2020Cocoa Chip Ltd. Balance Sheet December 31, 2020 and 2019 2020 2019 Assets Cash 96,750|$ 52,000 Accounts receivable 88,500 96,000 Inventory 116,000 130,000 Prepaid expenses 9,000 8,000 Property, plant, and equipment 498,000 480,000 Less: Accumulated amortization (114,000) (79,000) Goodwill 40,000 40,000 734,250 $ 727,000 Total Assets Liabilities Accounts payable 32,000 $ 47,500 Notes payable (due in 30 days) 6,500 13,500 Mortgage payable 82,000 130,000 120,500 191,000 Total liabilities Shareholders' equity Preferred shares (1,250 shares; $20.00, callable at $210 per share) 240,000 |$ 240,000 Common shares (2020-12,000 shares; 2019-6,000 shares) 168,000 120,000 205,750 176,000 Retained earnings 613,750 536,000 Total shareholders' equity 734,250 $ 727,000 Total liabilities and shareholders' equityCocoa Chip Lid. Income Statement For the Year Ended December 31, 2020 Net sales $961,000 Cost of goods sold 618,000 Gross margin 343,000 Operating expenses: Selling expenses 144,000 Administrative expenses 88,000 Interest expense 26,000 Total operating expenses 258,000 Operating income 85,000 Income taxes (25%) 21,250 $63,750 Net income