Respond to each post below. Must be over 100 wrds each.

#1

Lance Berkman is the controller of Saturn, (a dance club).At the end of the year he wrote vendorchecks and entered them into his accounting ledger, however he held the checks until January.If Lance is holding the checks that indicates that he may not have all the cash to cover the vendor payments he wants to make at that time and is holding the checks until her receives additional funds.If Lance doesn't have the funds why wouldhe make out the vendor checks and enter them into his accounting ledger, to increase his expenses and lower his net profit.A lower net profit would result in lower income taxes to be paid (by the owner if self employed, partners in a partnership, and officers in a corporation).

Lance's decision to "pay" these vendors in December directly affects several ratios in the Financial Analysis statement:

a) Current Ratio = total current assets/total current liabilitiesBoth figures would be lowered, however the end result would be a lower number showing the company's ability to pay current liabilities from current assets in a more favorable light

b) Cash Ratio = Cash + Cash equivalents/Total current liabilities Both figures would be lowered, however the end result would be a lower number showing the company' ability to pay current liabilities from cash and cash equivalents in amore favorable light

c) Acid-Ratio= Cash +short term investments + current receivables/ Total current liabilities Both figures would belowered, however the end result would be a lower number showing the company's ability to pay all its current liabilities ifthey came due in a more favorable light

d) Gross Profit Percentage =Gross profit/Net sale RevenuePaying the vendors would result in a lower gross profit percentage and therefore reduce income tax liabilities and showing the company as less profitable.

e) Debt Ratio = Total liabilities/total assetsThis number would decrease on both sides however the end result wouldbe a lower numbershowing the company's assets financed with debt to be reduced showing the company in a more favorable light

f) Debt toequity ratio =Total liabilities/totalequity This number would decreaseshowing the company' proportion of total liabilities in a more favorable light.

Using my test numbers each of the above results are true, however depending on the company's actual numbers the end results may vary slightly.The larger the amount of vendors paid the larger the impact on the end of year statement."Paying" the vendors in December lowers the amount of Cash (and Assets)the company has and lowers the Total current liability (and Total liability) accounts.

Another benefit of showing these liabilities were paid in December would be to lower the turn around time on the company's Accounts Payable ledger.This would be a favorable change if the company was applying for additional credit.Most lenders will look not only at the Net Profit and Cash on hand, but focus more on the turn around time on the Accounts Payable.The lenders realize that cash will flow in and out of the company at times, however companies that are able to show a record of paying their Accounts Payable in a timely manner are better candidates for a loan since they have a proven record of making timely payments.

#2

The financial ratios that are most affected by Lance Berkman waiting until after year-end to send out checks to suppliers are cash ratio, acid-test ratio, and the debt to equity ratio. Cash ratio is a ratio that indicates how well a company can pay off their current liabilities with only cash and equivalent forms of cash. The formula for cash ratio is (cash + cash equivalents) / total current liabilities (Miller-Nobles, 2018). Acid-test ratio is also a ratio used to indicate how well a company can pay off their total current liabilities, but it includes short-term investments and net current receivables on top of cash and cash equivalents. The formula for acid-test ratio is (cash and cash equivalents + short-term investments + net current receivables) / total current liabilities (Miller-Nobles, 2018). Debt to equity ratio is a ratio that indicates the proportion of a company's total liabilities to the company's total equity. The formula for debt to equity ratio is total liabilities / total equity(Miller-Nobles, 2018) . By waiting until the beginning of the next year to send checks to suppliers, which decreases current assets and current liabilities, Berkman is increasing the cash ratio, increasing the acid-test ratio, and increasing the debt to equity ratio. Even though an increase in the debt to equity ratio is not desirable to investors because of the increased risk, the increases in the acid-test ratio and cash ratio are desirable for investors, which is why Berkman held the checks until the next month.