The Business This practice set is designed in two parts. The first part provides a review of the financial statements of a corporation selling inventory. Dynamic Drones' primary operation is the sale of drones to discount retailers in the market. In the second part, Dynamic Drones decides to start producing the drones and sell them directly. All cases of academic dishonesty will be reported to the Office of Student Conduct and Conflict resolution. Part One Instructions The financial information for the past two years (2018 and 2019) is provided. Using a spreadsheet application, such as Microsoft Excel, and the information from the previous years, provide the following 1. Prepare a statement of Cash Flows for the current year using the indirect method. 2. Using horizontal analysis, prepare a Comparative Balance Sheet. 3. Using vertical analysis, prepare an Income Statement. 4. Using the textbook, calculate the ratios set out below and round to two decimals: a. Current Ratio both years b. Quick ratio both years c. Accounts Receivable Turnover year 2019 only d. Days Sales in Receivables year 2019 only e. Inventory Turnover year 2019 only f. Days Sales in Inventory year 2019 only 8. Working Capital both years h. Liabilities to Stockholders' Equity both years 1. Earnings Per Share both years The financial statements provided in this practice set can also be downloaded from Blackboard, 5. Acting as an accounting advisor to the firm, prepare a memo in which you analyze the financial statements you prepared in step two and prepare an analysis of the company's financial position. Identify two strengths and two weaknesses in the company. Make two recommendations to improve the company's financial position. Be specific in each of the recommendations and use the ratios to support your analysis. The company has a credit policy of 1/10,n/30 and uses this as part of its evaluation. Industry average for receivables turnover is 30 days. Inventory turnover industry average is approximately 45 days. The length of the memo should be no more than one page. If there are any grammatical or spelling errors you will not receive credit for the memo. 2 Page Dynamic Drones Comparative Balance Sheet December 31, 2019 and 2018 | Assets 2019 2018 Current Assets Cash Accounts Receivable, Net Merchandise Inventory Prepaid Rent $ $ $ $ $ 60,000 140,000 110,000 20,000 330,000 $ $ $ $ $ 80,000 100,000 70,000 10,000 260,000 Total Current Assets Property, Plant, and Equipment: Equipment Less: Accumulated Depreciation - Equipment Total Property, Plant, and Equipment Total Assets $ $ $ $ 400,000 (60,000) 340,000 670,000 $ $ $ $ 191,000 (42,400) 148,600 408,600 2019 2018 Liabilities and Stockholders' Equity Current Liabilities: Accounts Payable Unearned Revenue Salaries Payable Federal Income Taxes Payable Total Current Liabilities $ $ $ $ $ 150,000 40,000 40,000 10,000 240,000 $ $ $ $ $ 40,000 50,000 30,000 10,000 130,000 Long Term Liabilities Note Payable Total Liabilities $ $ 50,000 290,000 $ 130,000 $ 98,600 Stockholders' Equity: Common Stock, $10 Par Paid-In Capital in Excess of Par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $ $ $ 150,000 20,000 210,000 $ $ $ 180,000 278,600 408,600 $ 670,000 UULTET Comparative Statement of Retained Earnings Dynamic Drones Comparative Statement of Retained Earnings For the Years Ended December 31, 2019 and 2018 | 2019 2018 Retained Earnings, Beginning of $ 180,000 $ 176,000 Year Net Income $ 101,400 $ 29,250 Less: Dividends $ 71,400 $ 25,250 Retained Earnings, End of Year $ 210,000 $ 180,000 1. Equipment with a cost of $11,000 on which depreciation has been recorded was sold for cash. Equipment was purchased using cash and a long-term note payable. 2. Stock was issued for cash. 3. Dividends were paid in cash