Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Use the information provided in Dealer's Choice below to answer this question: The company's leverage is steadily increasing. Which of the following is the best

Use the information provided in Dealer's Choice below to answer this question:

The company's leverage is steadily increasing. Which of the following is the best explanation?

A. The company is repaying its long-term debt more slowly than its net worth is increasing.

B. Most of the company's liability growth is in accounts payable, which outpaced net profit margins and the increase in inventory.

C. A disproportionately high amount of the company's debt is short-term; conversion of some of that debt to long-term would have improved leverage.

D. Owner's equity increased very slowly as a result of both low profitability and the payment of excessive dividends, and failed to keep pace with the increase in current assets.image text in transcribedimage text in transcribed

Dealer's Choice Balance Sheets (in $000s) As At December 31: 20Y3 20Y2 20Y1 306 924 231 576 204 524 ASSETS Current assets Cash Accounts receivable Inventory Raw materials Work in process Finished goods Total inventory Total current assets 281 232 76 589 1,819 341 239 86 666 1,473 170 105 86 361 1,089 Fixed assets Gross fixed assets Less: Accumulated depreciation Net fixed assets 679 97 582 703 79 624 681 69 612 Other noncurrent assets 20 0 14 TOTAL ASSETS $ 2,421 2,097 1,715 LIABILITIES AND EQUITY Current liabilities Line of credit Current portionLTD Accounts payable Accrued expenses Other current liabilities Total current liabilities 270 19 1,033 268 255 19 814 187 5 1,280 225 19 531 135 12 922 11 1,601 Long-term debt 142 149 155 Other noncurrent liabilities 3 3 3 Owners' equity 675 665 635 TOTAL LIABILITIES AND EQUITY $ 2,421 $ 2,097 1,715 Dealer's Choice Income Statements (in $000s) Years Ended December 31: 20Y3 20Y2 2011 $ $ $ Sales Cost of goods sold Gross profit 7,990 6,308 1,682 7,486 6,357 1,129 6,495 5,453 1,042 Selling, general, and administrative expense Depreciation expense Total SG&A expenses 1,377 26 1,403 859 24 883 758 18 776 80 50 Interest expense Loss on sale of fixed assets Other expenses Income before taxes 7 22 170 75 0 4 167 0 216 Taxes 82 81 102 Net income $ 88 $ 86 $ 114 Dividends 78 56 100 Retained earnings $ 10 $ 30 $ 14

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

Financial Accounting The Impact On Decision Makers

Authors: Gary A Porter, Curtis L Norton

7th Edition

1439080526, 9781439080528

More Books

Students also viewed these Finance questions

Question

work settings of recent graduates;

Answered: 1 week ago

Question

What are some sources of ethical guidance?

Answered: 1 week ago