Question

Just E-I is what I need.

Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements: $ 120,600 36,200 21,500 $ 62,900 25,830 10,600 $ 26,470 For the Year Ended December 31, 2019: Net revenues Cost of services provided Depreciation expense Operating income Interest expense Income tax expense Net income At December 31, 2019: Assets Cash and short-term investments Accounts receivable, net Property, plant, and equipment, net Total assets Liabilities and Stockholders' Equity Accounts payable Income taxes payable Notes payable (long term) Paid-in capital Retained earnings Total liabilities and stockholders' equity $ 9,400 30,400 240,200 $ 280,000 $ 5,000 5,300 143,500 30,000 96,200 $ 280,000 At December 31, 2018, total assets were $250,600 and total stockholders' equity was $101,800. There were no changes in notes payable or paid-in capital during 2019. Required: a. The cost of services provided amount includes all operating expenses (selling, general, and administrative expenses) except depreciation expense. What do you suppose the primary reason was for management to separate depreciation from other operating expenses? From a conceptual point of view, should depreciation be considered a "cost" of providing services? b. Why do you suppose the amounts of depreciation expense and interest expense are so high for Gerrard Construction Co.? To which specific balance sheet accounts should a financial analyst relate these expenses? c. Calculate the company's average income tax rate. (Hint: You must first determine the earnings before taxes.) e. Calculate the amount of total current assets. f. Why doesn't the company have a Merchandise Inventory account? g. Calculate the amount of working capital and the current ratio at December 31, 2019. Assess the company's overall liquidity. h. Calculate ROI (including margin and turnover) and ROE for the year ended December 31, 2019. i. Calculate the amount of dividends declared and paid during the year ended December 31, 2019. (Hint: Do a T-account analysis of retained earnings.)

Answer 1

e. Total current assets: $39800

Cash and short-term investments	9400
Accounts receivable, net	30400
Total current assets $	39800

f. The company being an excavation contractor is a services company and not a manufacturer, wholesaler, or retailer and hence does not have any merchandise inventory.

g. Working capital = Current assets - Current liabilities = $39800 - ($5000 + $5300) = $39800 - $10300 = $29500

Current ratio = Current assets/Current liabilities = $39800/$10300 = 3.86 (rounded off to two decimal places)

The company's overall liquidity is very good since the current ratio is greater than 1.

h. Margin = Net income/Net revenues = $26470/$120600 = 21.95%

Turnover = Net revenues/Average total assets = $120600/$265300 = 0.45

Average total assets =($250600 + $280000)/2 = $265300

ROI = Margin x Turnover = 21.95% x 0.45 = 9.88%

ROE = Net income/Average stockholders' equity = $26470/$114000 = 23.22%

Average stockholders' equity = ($101800 + $30000 + $96200)/2 = $114000

Kindly round off as required since no instructions have been provided with the question regarding rounding off. Answers could vary due to any other rounding off.

i. Dividends declared and paid: $2070

Retained Earnings
Beg. Bal.		71800
Dividends	2070	26470	Net income
End. Bal.		96200

Beginning balance = $101800 - $30000 = $71800