Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Derkins Corporation had the following information available: Year 3 Year 2 Year 1 Income Statement Revenue 30,848 27,433 25,512 Cost of goods sold 23,122

The Derkins Corporation had the following information available:

Year 3

Year 2

Year 1

Income Statement

Revenue

30,848

27,433

25,512

Cost of goods sold

23,122

20,938

19,875

Selling & admin. expenses

6,082

5,053

4,672

Interest expense

504

458

350

Net Income

1,140

984

615

Balance Sheet

Assets

Cash

681

354

589

Accounts receivable

506

587

412

Inventory

3,200

2,627

2,245

Property and equip. (net)

3,281

2,810

2,514

Total Assets

7,668

6,378

5,760

Liabilities

Accounts payable

373

358

280

Unredeemed gift cards

469

410

385

Long-term liabilities

3,234

2,824

2,643

Stockholders' Equity

Common stock

985

985

985

Retained earnings

2,607

1,801

1,467

Total Liabilities and Equity

7,668

6,378

5,760

Required:

1. Prepare a horizontal analysis on revenue, cost of goods sold and net income and assess the results.

2. Prepare a vertical analysis on inventory, property and equipment as well as long-term liabilities and assess the results.

3. Calculate the current ratio, days sales in inventory ratio as well as the liabilities to stockholders equity ratio and assess the results to determine if the companys liquidity and solvency are generally getting better or worse.

4. Calculate the net income percentage as well as the return on investment ratio and assess the results to determine if the companys profitability is generally getting better or worse.

5. If the company purchased $750 of inventory on account, how would that transaction impact each ratio calculated in requirement 3 and 4?

Questions:

1. For the Derkins Corporation, in a horizontal analysis, what is the relative change in revenue for year 2? Round your answer to three decimal places and enter as a number not as a percentage (e.g. 0.209 not 20.9%).

2. For the Derkins Corporation, in a vertical analysis, what is the amount of property and equipment for year 3 relative to total assets? Round your answer to three decimal places and enter as a number not as a percentage (e.g. 0.209 not 20.9%).

3. For the Derkins Corporation, what is the company's current ratio for year 1? Round your answer to two decimal places.

4. For the Derkins Corporation, what is the company's liabilities to stockholders' equity ratio for year 2? Round your answer to two decimal places.

5. For the Derkins Corporation, the company's liquidity is generally getting ________ (better/worse) over the three year period.

6. For the Derkins Corporation, the company's solvency is generally getting ________ (better/worse)over the three year period.

7. For the Derkins Corporation, what is the company's return on investment ratio for year 3? Round your answer to three decimal places and enter as a number not as a percentage (e.g. 0.209 not 20.9%).

8. For the Derkins Corporation, the company's profitability is generally getting ________ (better/worse)over the three year period.

9. If the Derkins Corporation purchased $750 of inventory on account, its current ratio would________ (improve. / get worse. / not change.)

10. If the Derkins Corporation purchased $750 of inventory on account, its net income percentage would________ (improve. / get worse. / not change.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fire Extinguisher Log Book

Authors: Arahan Khan

1st Edition

B09TZKR5Z4, 979-8428924282

More Books

Students also viewed these Accounting questions