Balniee Shoot s 3334927718 23267 20938 56000 72000 56000 400

Balniee Shoot s 33.34927,718 $23.267 $20,938 56.000 72.000 56.000 40,000 120.207 50.086 a1,304 17.200 3,784 6,637 876 10,018 537 344 Prepaid ?(pases .\" 548.809 621.200 195.602 784.000 Plant and equipment, net Total assots. iabliltiles and Equity Accounts pagable Accrued wagos payatlo... Incoma taxes payable Long torrn noto payable, securod by mortgage on plant assots. Common sharos, 180,000 sharos Rotained eam s 50.086 $ 33.182 $24.149 $ 18.920 16.028 8.765 566 3,440 36,662 19370 12,823 8,706 454200 515.200 571.200 627.200 176,000 176,000 176,000 176,00D 32.0003200032.00032,000 76476 S784.517 $821.538 $966.266 Total iabilitios and equity Digital Sholf Space Corp. lacome Statomont For Yoars Ended Docombor 31 2017 2016 2015 2014 Not sales $1,001.728 $626,080 $447.200 $344,000 ... 500,864 331,822 241488 180200 s 500,864 $294,258 $205,712 $154,800 320,553 175,302 107-328 68.800 Cost of goods sold Gross profit Operating expenses Operating profit Intorest expense. Profit before t os… Incorne taxos Profit s 180,311 $118,966 $98.384 86,000 27.552 30,912 34.272 37632 ..152,75q $ 88,044 $ 64112 48,368 36662 19370-12R22 8706 116.0T $ 68.674 5120 $20662 Part A Calculate the following for 2017 and 2016 (only two years) and identify whether the ratios compare favourably (F) or unfavourably (U) from 2016 to 2017: -/ 14 marks (a) quick ratio, (b) inventory turnover (c) accounts payable turnover, (d) debt ratio (e) times interest earned, (g) profit margin (h) return on total assets, book value per common share. Part B Prepare a trend analysis taking 2015 as the base year through to 2017 (only three years) using the income statement information. Explain the trend. /6 marks

Solution

A) a) Quick Ratio = Liquid Assets/Current Liabilities

Liquid Assets of 2016 = Cash+Accounts Receivables

= $27,718+$50,086 = $77,804

Current Liabilities of 2016 = Accounts Payable+Accrued Wages Payable+Income taxes payable

= $33,182+$8,765+$19,370 = $61,317

Quick Ratio of 2016 = $77,804/$61,317 = 1.27 times

Liquid Assets of 2017 = $33,349+$120,207 = $153,556

Current Liabilities of 2017 = $50,086+$16,028+$36,662 = $102,776

Quick Ratio of 2017 = $153,556/$102,776 = 1.49 times

Quick ratio has increased from 1.27 times in 2016 to 1.49 times in 2017, thus it is favorable (F).

b) Inventory Turnover = Cost of goods sold/Average Inventory

Inventory Turnover of 2016 = Cost of goods sold/[(Inventory 2015+Inventory 2016)/2]

= $331,822/[($4,830+$6,637)/2]

= $331,822/$5,733.50 = 57.87

Inventory Turnover of 2017 = Cost of goods sold/[(Inventory 2016+Inventory 2017)/2]

= $500,864/[($6,637+$10,018)/2]

= $500,864/$8,327.50 = 60.15

Inventory turnover ratio has also increased from 57.87 in 2016 to 60.15 in 2017 which is favorable (F).

c) Accounts Payable Turnover = Purchases from supppliers/Average Accounts Payable

Purchases for 2016 = Inventory 2016+Cost of goods sold-Inventory 2015

= $6,637+$331,822-$4,830 = $333,629

Average Accounts Payable for 2016 = (Accounts Payable 2015+Accounts Payable 2016)/2

= ($24,149+$33,182)/2 = $28,665.50

Accounts Payable Turnover Ratio of 2016 = $333,629/$28,665.50 = 11.64 times

Purchases for 2017 = Inventory 2017+Cost of goods sold-Inventory 2016

= $10,018+$500,864-$6,637 = $504,245

Average Accounts Payable for 2017 = (Accounts Payable 2016+Accounts Payable 2017)/2

= ($33,182+$50,086)/2 = $41,634

Accounts Payable Turnover Ratio of 2017 = $504,245/$41,634 = 12.11 times

Accounts payable turnover ratio has also increased from 2016 to 2017 which is favorable (F).

d) Debt Ratio = Total Liabilities/Total Assets

Debt Ratio of 2016 = (Current Liabilities+Long term note payable)/Total Assets

= ($61,317+$515,200)/$784,517 = $576,517/$784,517 = 0.73

Debt Ratio of 2017 = (Current Liabilities+Long term note payable)/Total Assets

= ($102,776+$459,200)/$769,976 = $561,976/$769,976 = 0.73

The debt ratio has not changed substantially from 2016 to 2017.