Question

Presented here are a statement of income and Retained Earnings and Comparative Balance Sheets for Madison Pty Ltd , Which Operates a national chain of sporting goods stores.

Statement of income and Retained Earnings for the year ended 31 December 2016

Net sales	48000
Cost of Goods sold	36000
Gross Profit	12000
Selling, General and admin Expense	6000
Operating Income	6000
Interest Expense	280
Income Before Tax	5720
Income tax expense	2280
Net income	3440
Preference Dividends	100
Income available to ordinary shareholders	3340
Ordinary Dividends	500
To retained Earnings	2840
Retained Earnings 01/01/2016	12000
Retained Earnings the end of the year	14840
COMPARATIVE BALANCE SHEETS AS AT DECEMBER 31
	2016	2015
Cash	840	2700
Accounts Receivable	12500	9000
Inventory	8000	5500
Prepaid insurance	100	400
Total current Assets	21440	17600
Land	4000	4000
Building & Equipment	12000	9000
Accumulated Depreciation	(3700)	(3000)
Total Lon-Term Assets	12300	10000
Total Assets	R33 740	R27 600
Accounts Payable	7300	5000
Taxes Payable	4600	4200
Notes Payable	2400	1600
Current portion of Mortgage bond	200	200
Total Current Liabilities	14500	11000
Mortgage Bond	1400	1600
Total Liabilities	15900	12600
Preference Shares	1000	1000
Ordinary Shares	2000	2000
Retained Earnings	14840	12000
Total	17840	15000
	R33 740	27 600

Required:

1. Prepare a statement of Cash Flows for Madison Garden PTY (Ltd) for year ended December 31, 2016, using indirect method in the operating activities section of the statement.

2. Madison Gardens PTY (Ltd) 's management is concerned with its short term liquidity and its insolvency over a long run. To help management evaluate these, compute the following ratios, rounding all answers to the nearest one-tenth of a percent:

a.. Current Ratio

b, Acid Test Ratio

c, Cash flow from operations to current liabilities ratio

d. Accounts receivable Turnover ratio

e. Number of days sales in receivables

f. Inventory turnover ratio

g. Number of days sales in inventory

h. Debt-to-Equity Ratio

i. Debt Service coverage Ratio

j. Cash Flow from operations to capital expenditures Ratio (10)

3. Comment on Madison gardens liquidity and its insolvency. What additional information do you need to fully evaluate the Company?

Answer 1

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