The balance sheet and income statement of Cookie & CoffeeCreations Inc. for its first

year of operations, the year ended October 31, 2013, follows.

COOKIE & COFFEE CREATIONS INC.

Balance Sheet

October 31, 2013

Assets

Current assets

Cash $32,219

Accounts receivable 3,250

Merchandise Inventory 17,897

Prepaid expenses 6,300 $ 59,666

Property, plant, and equipment

Furniture and fixtures $12,500

Accumulated depreciationfurniture and fixtures 1,250 11,250

Computer equipment 4,200

Accumulated depreciationcomputer equipment 600 3,600

Kitchen equipment 83,000

Accumulated depreciationkitchen equipment 8,000 75,00089,850

Total assets $149,516

Liabilities and Stockholders Equity

Current liabilities

Accounts payable $ 5,848

Income tax payable 18,500

Dividends payable 700

Salaries payable 2,250

Interest payable 188

Note payablecurrent portion 4,000 $ 31,486

Long-term liabilities

Note payablelong-term portion 6,000

Total liabilities 37,486

Stockholders equity

Paid-in capital

Preferred stock, 2,800 shares issued $14,000

Common stock, 25,930 shares issued,

25,180 outstanding 25,930 39,930

Retained earnings 72,600

Total paid-in capital and retained earnings 112,530

Less:Treasury stockcommon (750 shares),

at cost (500)

Total stockholders equity 112,030

Total liabilities and stockholders equity $149,516

COOKIE & COFFEE CREATIONS INC.

Income Statement

Year Ended October 31, 2014

Sales revenue $462,500

Cost of goods sold 231,250

Gross profit 231,250

Operating expenses

Salaries and wages expense $92,500

Depreciation expense 9,850

Other operating expenses 35,987 138,337

Income from operations 92,913

Other expenses

Interest expense 413

Income before income tax 92,500

Income tax expense 18,500

Net income $ 74,000

Additional information:

Natalie and Curtis are thinking about borrowing an additional$20,000 to buy more kitchen

equipment. The loan would be repaid over a 4-year period. The termsof the loan provide for

equal semiannual installment payments of $2,500 on May 1 andNovember 1 of each year, plus

interest of 5% on the outstanding balance. Dividends on preferredstock were $1,250. Since this

is the first year of operations and the beginning balances arezero, use the ending balance as the

average balance where appropriate.

Instructions

(a) Calculate the following ratios.

1. Current ratio 6. Gross profit rate

2. Receivables turnover 7. Profit margin

3. Inventory turnover 8. Asset turnover

4. Debt to total assets 9. Return on assets

5. Times interest earned 10. Return on common stockholders'equity

(b) Comment on your findings from part (a).

(c) Based on your analysis in parts (a) and (b), do you think abank would lend Cookie & Coffee

Creations Inc. $20,000 to buy the additional equipment? Explainyour reasoning.

(d) What alternatives could Cookie & Coffee Creations considerinstead of bank financing?