The statement of financial position and income statement of Matcha & Coffee Creations Inc. for its first year of operations, the year ended October 31, 2019, follows.

MATCHA & COFFEE CREATIONS INC.

Statement of Financial Position

October 31, 2019

Assets

Current assets

Cash NT$86,219

Accounts receivable 3,250

Inventory 17,897

Prepaid expenses 6,300 NT$113,666

Property, plant, and equipment

Furniture and fixtures NT$12,500

Accumulated depreciation

furniture and fixtures (1,250) 11,250

Computer equipment 4,200

Accumulated depreciation

computer equipment (600) 3,600

Kitchen equipment 29,000

Accumulated depreciation

kitchen equipment (2,050) 26,950 41,800

Total assets NT$155,466

MC14 (Continued)

Liabilities and Equity

Current liabilities

Accounts payable NT$ 5,848

Income tax payable 19,690

Dividends payable 700

Salaries and wages payable 2,250

Interest payable 188

Note payablecurrent portion 4,000 NT$ 32,676

Long-term liabilities

Note payablelong-term portion 6,000

Total liabilities 38,676

Equity

Share capital

Share capitalpreference, 2,800 shares

issued and outstanding NT$ 14,000

Share capitalordinary, 25,930 shares

issued, 25,180 outstanding 25,930 39,930

Retained earnings 77,360

Total share capital and retained earnings 117,290

Less: Treasury shares (750 ordinary shares) 500

Total equity 116,790

Total liabilities and equity NT$155,466

MATCHA & COFFEE CREATIONS INC.

Income Statement

Year Ended October 31, 2019

Sales revenue		NT$462,500
Cost of goods sold		231,250
Gross profit		231,250
Operating expenses
Salaries and wages expense	NT$92,500
Depreciation expense	3,900
Other operating expenses	35,987	132,387
Income from operations		98,863
Other expenses
Interest expense 413
Income before income tax		98,450
Income tax expense		19,690
Net income		NT$ 78,760

MC14 (Continued)

Additional information:

Mei-ling and Curtis are thinking about borrowing an additional NT$20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semiannual installment payments of NT$2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance.

Instructions

(a) Calculate the following ratios:

1. current ratio 6. gross profit rate

2. accounts receivable turnover 7. profit margin

3. inventory turnover 8. asset turnover

4. debt to assets 9. return on assets

5. times interest earned 10. return on ordinary shareholders equity

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

(c) Based on your analysis in parts (a) and (b), do you think a bank would lend Matcha & Coffee Creations Inc. NT$20,000 to buy the additional equipment? Explain your reasoning.

(d) What alternatives could Matcha & Coffee Creations consider instead of bank financing?