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Acounting

/in /by

1. ;
Liquidity ratios. Edison, Stagg, and Thornton
have the following financial information at the close of business on July 10:

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;

Edison

;

;

Stagg

;

;

Thornton

;

;

Cash

;

;

$6,000

;

;

$5,000

;

;

$4,000

;

;

Short-term investments

;

;

3,000

;

;

2,500

;

;

2,000

;

;

Accounts receivable

;

;

2,000

;

;

2,500

;

;

3,000

;

;

Inventory

;

;

1,000

;

;

2,500

;

;

4,000

;

;

Prepaid expenses

;

;

800

;

;

800

;

;

800

;

;

Accounts payable

;

;

200

;

;

200

;

;

200

;

;

Notes payable: short-term

;

;

3,100

;

;

3,100

;

;

3,100

;

;

Accrued payables

;

;

300

;

;

300

;

;

300

;

;

Long-term liabilities

;

;

3,800

;

;

3,800

;

;

3,800

;

  2. Compute the current and
    ; ; ; ; quick ratios for each of the three companies. (Round calculations to two
    ; ; ; ; decimal places.) Which firm is the most liquid? Why?

;

2. ; Computation and evaluation of
; activity ratios. The following data relate to Alaska Products, Inc:

;

;
; 		;

20X5

;

;

20X4

;

;

Net
; credit sales

;

;

$832,000

;

;

$760,000

;

;

Cost
; of goods sold

;

;

530,000

;

;

400,000

;

;

Cash,
; Dec. 31

;

;

125,000

;

;

110,000

;

;

Average
; Accounts receivable

;

;

205,000

;

;

156,000

;

;

Average
; Inventory

;

;

70,000

;

;

50,000

;

;

Accounts
; payable, Dec. 31

;

;

115,000

;

;

108,000

;

;
;
;

Instructions

;

a. ;
; Compute the accounts receivable and inventory turnover ratios
; for 20X5. Alaska rounds all calculations to two decimal places.

;

;
; 		;
; 		;
;
;
; 		;
; 		;
; 		;
;

3. Profitability
ratios, trading on the equity. Digital Relay has both
preferred and common stock outstanding. The com­pany reported the following
information for 20X7:

;

Net sales

;

;

$1,750,000

;

;

Interest expense

;

;

120,000

;

;

Income tax expense

;

;

80,000

;

;

Preferred dividends

;

;

25,000

;

;

Net income

;

;

130,000

;

;

Average assets

;

;

1,200,000

;

;

Average common stockholders’
; equity

;

;

500,000

;

  2. Compute the profit
    ; ; ; ; margin on sales ratio, the return on equity and the return on assets,
    ; ; ; ; rounding calculations to two decimal places.
  4. Does the firm have
    ; ; ; ; positive or negative financial leverage? Briefly ex­plain.

;

4. ; Horizontal analysis. Mary Lynn Corporation has
; been operating for several years. Selected data from the 20X1 and 20X2
; financial statements follow.

;

;

20X2

;

;

20X1

;

;

Current Assets

;

;

$86,000

;

;

$80,000
;

;

;

Property, Plant, and Equipment
; (net)

;

;

99,000

;

;

90,000

;

;

Intangibles

;

;

25,000

;

;

50,000

;

;

Current Liabilities

;

;

40,800

;

;

48,000

;

;

Long-Term Liabilities

;

;

153,000

;

;

160,000

;

;

Stockholders’ Equity

;

;

16,200

;

;

12,000

;

;

Net Sales

;

;

500,000

;

;

500,000

;

;

Cost of Goods Sold

;

;

322,500

;

;

350,000

;

;

Operating Expenses

;

;

93,500

;

;

85,000

;

;
;

a. ;
; Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment
; on the results of your work.

;

5.Vertical analysis. Mary Lynn Corporation has been operating for several
years. Selected data from the 20X1 and 20X2 financial statements follow.

;

20X2

;

;

20X1

;

;

Current Assets

;

;

; $86,000

;

;

; $80,000

;

;

Property, Plant, and Equipment (net)

;

;

99,000

;

;

80,000

;

;

Intangibles

;

;

25,000

;

;

50,000

;

;

Current Liabilities

;

;

40,800

;

;

48,000

;

;

Long-Term Liabilities

;

;

; 153,000

;

;

; 150,000

;

;

Stockholders’ Equity

;

;

16,200

;

;

12,000

;

;

Net Sales

;

;

; 500,000

;

;

; 500,000

;

;

Cost of Goods Sold

;

;

; 322,500

;

;

; 350,000

;

;

Operating Expenses

;

;

; 93,500

;

;

85,000

;

a. ; Prepare a vertical analysis for 20X1 and
20X2. Briefly comment on the results of your work.

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