Question

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: a. Working Capital both years b. Current Ratio both years Quick ratio both years d. Accounts Receivable Turnover 2019 e Number of Days Sales in Receivables 2019 (Company policy states 30 days in receivables) f. Inventory Turnover 2019 8 Number of Days Sales in Inventory 2019 (Company policy states 50 days to turn over inventory) h. Ratio of Liabilities to Stockholders' Equity 2018 and 2019 i. Return on Total Assets 2019 1. Return on Stockholders' Equity 2019 k. Earnings Per Share 2018 and 2019 The financial statements provided in this practice set can also be downloaded from Blackboard. An example of a Statement of Cash Flow has been provided at the end of the Practice Set. Download the Excel files (Income Statement and Balance Sheet) from Blackboard and add a column and calculate the ratios for the vertical and horizontal analysis. 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 2 Page

Answer 1

Comparative Balance Sheet
Dec. 31, 2019 & 2018
Assets	2019 ($)	2018 ($)	increase/(decrease)	% change
current assets
cash	65000	80000	-15000	-18.75%
accounts receivable	150000	100000	50000	50.00%
inventory	135000	70000	65000	92.86%
supplies	9700	500	9200	1840.00%
prepaid insurance	30000	10000	20000	200.00%
total current assets	389700	260500	129200	49.60%
property, plant and equipment
equipment	500000	240000	260000	108.33%
less: accumulated depreciation	-80000	-90000	10000	-11.11%
total property, plant and equipment	420000	150000	270000	180.00%
total assets	809700	410500	399200	97.25%
Liabilities	2019 ($)	2018 ($)	increase/(decrease)	% change
current liabilities
accounts payable	150000	40000	110000	275.00%
unearned revenue	40000	50000	-10000	-20.00%
salaries payable	40000	30000	10000	33.33%
federal income taxes payable	10000	10000	0	0.00%
total current liabilities	240000	130000	110000	84.62%
long-term liabilities
notes payable	130000	0	130000	0.00%
total long-term liabilities	130000	0	130000	0.00%
stockholders equity
common stock	170000	100000	70000	70.00%
paid-in capital	43700	0	43700	0.00%
retained earnings	226000	180500	45500	25.21%
total stockholders equity	439700	280500	159200	56.76%
total liabilities and stockholders equity	809700	410500	399200	97.25%
Comparative Statement of Income
For the years ended Dec. 31, 2019 and 2018
	2019 ($)	2018 ($)	2019 ( %)	2018 ( %)
sales	700000	600000	100.00%	100.00%
cost of goods sold	524300	420000	74.90%	70.00%
gross margin	175700	180000	25.10%	30.00%
operating expense
salaries and wages expenses	47290	100000	6.76%	16.67%
rent expenses	20256	20000	2.89%	3.33%
depreciation expenses	20000	10000	2.86%	1.67%
total operating expenses	87546	130000	12.51%	21.67%
income from operations	88154	50000	12.59%	8.33%
loss on sale of equipment	-5213	0	-0.74%	0.00%
interest expense	-3656	-5000	-0.52%	-0.83%
increase (decrease) in operating income	79285	45000	11.33%	7.50%
federal income tax	-23786	-13500	-3.40%	-2.25%
net income	55500	31500	7.93%	5.25%

working capital ratio	current assets - current liabilities
	2019 ($)	2018 ($)
total current assets	389700	260500
total current liabilities	240000	130000
working capital ratio	149700	130500
current ratio	current assets / current liabilities
	2019 ($)	2018 ($)
total current assets	389700	260500
total current liabilities	240000	130000
current ratio	1.62	2.00
quick asset ratio	cash + accounts receivable / current liabilities
	2019 ($)	2018 ($)
cash	65000	80000
accounts receivable	150000	100000
total quick asset	215000	180000
total current liabilities	240000	130000
quick asset ratio	0.90	1.38
accounts receivable turnover	sales / average accounts receivable
	2019 ($)
sales	700000
opening accounts receivable	100000
closing accounts receivable	150000
average accounts receivable	125000
accounts receivable turnover	5.60
days sales in accounts receivable	365 / accounts receivable turnover
accounts receivable turnover	5.6
days sales in accounts receivable	65.18
inventory turnover	cost of goods sold / average inventory
	2019 ($)
cost of goods sold	524300
opening inventory	70000
closing inventory	135000
average inventory	102500
inventory turnover	5.12
days sales in inventory	365 / inventory turnover
	2019 ($)
inventory turnover	5.12
days sales in inventory	71.29
liabilities to stockholders equity	total liabilities / total stockholders equity
	2019 ($)	2018 ($)
total liabilities	370000	130000
total stockholders equity	439700	280500
liabilities to stockholders equity	0.84	0.46
return on total assets	operating income / average of total assets
	2019 ($)
operating income	88154
opening total assets	410500
closing total assets	809700
average of total assets	610100
return on total assets	0.14
return on stockholders equity	net income / average stockholders equity
	2019 ($)
net income	55500
opening stockholders equity	280500
closing stockholders equity	439700
average stockkholders equity	360100
return on stockholders equity	0.15
earning per share	net income / shares outstanding
	2019 ($)	2018 ($)
net income	55500	31500
shares outstanding	17000	10000
earning per share	3.26	3.15