ACC 318 Module Six Assignment

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Southern New Hampshire University *

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ACC 318

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Accounting

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Apr 3, 2024

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ACC 318 Module Six Assignment Template Complete this template by replacing the bracketed text with the relevant information. Calculations 1. Calculate the current ratio for fiscal years 2025 and 2026. 2025: Current Ratio = Current assets/current liabilities $320,000/$158,500 = 2.01 2026: Current Ratio = Current assets/current liabilities $403,000/$164,000 = 2.46 2. Calculate the acid test (quick ratio) for fiscal years 2025 and 2026. 2025: Quick Ratio = (Current assets - Inventories)/Current Liabilities ($320,000 - $50,000)/$158,500 = 1.70 2026: Quick Ratio = (Current assets – Inventories)/Current Liabilities ($403,000 - $105,000)/$164,000 = 1.82 3. Calculate the inventory turnover for the fiscal year 2026. Inventory Turnover = Cost of Goods Sold/Average Inventory $1,530,000/(($105,000 + $50,000)/2) = 19.7 4. Calculate the return on assets for fiscal years 2025 and 2026. (Assume that total assets were $1,688,500 at 3/31/24.) 2025: Return on Assets = Net Income/Average Total Assets $297,000/(($1,688,500 + $1,740,500)/2) = 17.3% 2026: Return on Assets = Net Income/Average Total Assets $366,000/(($1,740,500 + $1,852,000)/2) = 20.1% Percentage Changes 1. Calculate the percentage change in sales from the fiscal year 2025 to 2026. Percentage Change = (2026 Sales Revenue – 2025 Sales Revenue)/2025 Sales Revenue ($3,000,000 - $2,700,000)/$2,700,000 = 11.1% 2. Calculate the percentage change in cost of goods sold from the fiscal year 2025 to 2026. Percentage Change = (2026 COGS – 2025 COGS)/2025 COGS ($1,530,000 - $1,425,000)/$1,425,000 = 7.37% 3. Calculate the percentage change in gross margin from the fiscal year 2025 to 2026.

Percentage Change = (2026 Gross Margin – 2025 Gross Margin)/2025 Gross Margin ($1,470,000 - $1,275,000)/$1,275,000 $195,000/$1,275,000 = 15.29% 4. Calculate the percentage change in net income after taxes from the fiscal year 2025 to 2026. Percentage Change = (2026 Net Income After Taxes – 2025 Net Income After Taxes)/2025 Net Income After Taxes ($366,000 - $297,000)/$297,000 = 23.23% Financial Decisions and Factors 1. Describe at least one additional financial report or analysis that might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown’s request for a time extension on Bradburn’s notes. The statement of cash flows can help evaluate an entity’s ability to generate future cash flows as well as entity’s ability to pay dividends and meet obligations and may be useful to the commercial loan officer in assessing the request for the time extension. 2. Explain whether Bradburn’s desire to finance the plant expansion from internally generated funds is realistic. Assume that the percentage changes experienced in fiscal year 2026 as compared with fiscal year 2025 for sales, cost of goods sold, and operating expenses will be repeated in each of the next two years. Consider the following question to guide your response: A. What will the percentage changes for sales, cost of goods sold, and operating expenses look like in each of the next two years? Sales (11.11%) COGS (7.37%) Operating Expenses (10.26%) 2026 $3,000,000 $1,530,000 $860,000 2027 $3,330,000 $1,642,761 $948,236 2028 $3,699,630 $1,763,832 $1,045,525 Over the next two years, sales are projected to expand by 11.11%, while the cost of goods sold is expected to rise by 7.37%, in line with last year's increase. Over the following two years, an increase of 10.26% is anticipated in operational expenses. B. How does the percentage change for sales, cost of goods sold, and operating expenses affect Bradburn’s ability to finance the plant expansion from internally generated funds? Bradburn's capacity to use internally generated funds to finance the growth of the factory is impacted by changes in the percentages of sales, cost of products sold, and operational expenses. The business will be able to generate more than $300,000 in after-tax net income and finance the expansion if revenues, COGS, and operating expenses increase at the same rate as the prior year. 3. Explain whether Topeka National Bank should grant the extension on Bradburn’s notes considering Daniel Brown’s statement about financing the plant expansion through internally generated funds. Consider the following question to guide your response: A. Should Topeka National Bank grant the loan? Why or why not?

Indeed, the loan should be approved by the Topeka National Bank. The corporation has far more net income in 2026 than it has notes payable. The ratio of debt to equity is extremely low. The business can take on more debt to raise the loan amount. However, the corporation is only asking for an extension of the loan duration—not an increase in the loan balance. B. Will Bradburn’s projected operations for 2027 generate an adequate amount of cash to finance the plant expansion and repay the loan? Expected Numbers 2026 2027 Sales $3,000,000 $3,333,333 COGS $1,642,737 $1,530,000 Operating Expenses $948,205 $860,000 Income Before Income Tax $742,391 $610,000 Income Tax (40%) $296,957 $244,000 Net Income $445,435 $366,000 It is anticipated that the Bradburn Corporation will earn a $445,435 profit in 2027. The $300,000 CAPEX demand is easily covered by internal accruals from revenue in the upcoming year. The program for plant growth may be financed by money produced domestically. The corporation will have enough cash on hand to pay back the notes payable it owes, even after covering the cost of the plant expansion program. C. Does Bradburn need the 24-month extension? Why or why not? Bradburn does indeed need the additional 24 months. Although the capex plan may postpone the payment schedule, lowering the company's profits for a shorter period, it could still make the note outstanding in 12 months. The two-year period will give the corporation the time needed to implement the capex plan and increase revenue. Thus, the company's idle period is extended by 24 months. D. What do the financial ratios indicate about Bradburn’s financial structure? The balance sheet of Bradburn's is robust in terms of both liquidity and leverage. The company's current ratio is increasing yearly, coming in at over 2.4 times. Any short- term obligation can be fully covered by the current assets. The corporation has a very strong balance sheet in terms of leverage. The cash flow of the business is sufficient to finance internal activities. The return on assets for the company is higher than 20.4%. Very few businesses have a return on assets (ROA) of greater than 20%. Year after year, the company’s substantial cash flow was made possible by the high return ratio. References Include any references used to complete this assignment. This section is for the full citation. Sources should be cited using APA style. Fernando, J. (2023, December 21). Inventory Turnover Ratio: what it is, how it works, and for- mula . Investopedia. https://www.investopedia.com/terms/i/inventoryturnover.asp

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Seth, S. (2023, December 14). Quick ratio formula with examples, pros and cons . Investopedia. https://www.investopedia.com/terms/q/quickratio.asp Hargrave, M. (2024, January 28). Return on Assets (ROA): formula and 'Good' ROA defined . In- vestopedia. https://www.investopedia.com/terms/r/returnonassets.asp Fernando, J. (2023a, March 25). Current ratio explained with formula and examples . Investope- dia. https://www.investopedia.com/terms/c/currentratio.asp Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022, April 26). Intermediate Accounting . John Wiley & Sons. http://books.google.ie/books?id=zcZ6EAAAQBAJ&printsec=front - cover&dq=Intermediate+Accounting+18th+edition&hl=&cd=1&source=gbs_api