4. What was the payable turnover for Excitingpart's Closet? How did it affect the problem? (Including computation) 4) Payable Tumover Kattoe: Net Credit Purchoce Auerage tecount Payo ble fayabto Tumover kotto = tere, CO G6 - Operoting seck + Purchate s - $ 300.000 = $ 100. 000 + Purchatte - & G00 co00 clocrng stock

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Summarize your analysis.
4. What was the payable turnover for Excitingpart's Closet? How did it affect the problem?
(Including computation)
4) Payable Tumover Kattoe :
Net Credit Purchoce
Payabto Turnover Kortto =
Avorage kccovnt Rayoble
tere,
CO G6 - Operoting Clech + Purchate s - closing Stock
$ 200.000 = $ 100. 000 Purchates -& G00 co00
Parchaces = 4 500,000
Average Account Payable, Opreningt Clacing
26 401 , 00 otsto,000
: $ 150.0o
Thus, Account Paya ble Turnover Katros SS00 c0 0
1-11
$16a000
It determines how much times the company is able to pay its creditors. The ratio is lower, this
means that the company is not able to repay its debt.
5. What factors lead to the low cash balance for Excitingpart's Closet?
Factors lead to low cash balance:
Purchase of new machinery for cash results in low cash balance.
Increase in account receivable balance. This means the company is unable to realise the
credit sales made.
6. Is Excitingpart's Closet profitable? (Including computation)
6) pro pit abl lity!
Operoting Ratro =
Operating mcome
cales
Year 20 14 = 270,000
* 100 = 46%
( G00.000
Year 20 16 = $ 100 . 000 x lo0 = 50°(0
4 800 :000
Yes, the company is profitable as there is increase in sales value and also increase in operating
profit ratio by 5% as compared to last year.
7. Is the company heavily financed by debt or equity? (Including computation)
The Excitingparts Closet is all equity funded company, it does not have debt. The total equity for
2015 is 1,800,000 and for 2014 it was 1,520,000. There are not any long-term debts outstanding
for the company during 2015 or 2014.
Transcribed Image Text:4. What was the payable turnover for Excitingpart's Closet? How did it affect the problem? (Including computation) 4) Payable Tumover Kattoe : Net Credit Purchoce Payabto Turnover Kortto = Avorage kccovnt Rayoble tere, CO G6 - Operoting Clech + Purchate s - closing Stock $ 200.000 = $ 100. 000 Purchates -& G00 co00 Parchaces = 4 500,000 Average Account Payable, Opreningt Clacing 26 401 , 00 otsto,000 : $ 150.0o Thus, Account Paya ble Turnover Katros SS00 c0 0 1-11 $16a000 It determines how much times the company is able to pay its creditors. The ratio is lower, this means that the company is not able to repay its debt. 5. What factors lead to the low cash balance for Excitingpart's Closet? Factors lead to low cash balance: Purchase of new machinery for cash results in low cash balance. Increase in account receivable balance. This means the company is unable to realise the credit sales made. 6. Is Excitingpart's Closet profitable? (Including computation) 6) pro pit abl lity! Operoting Ratro = Operating mcome cales Year 20 14 = 270,000 * 100 = 46% ( G00.000 Year 20 16 = $ 100 . 000 x lo0 = 50°(0 4 800 :000 Yes, the company is profitable as there is increase in sales value and also increase in operating profit ratio by 5% as compared to last year. 7. Is the company heavily financed by debt or equity? (Including computation) The Excitingparts Closet is all equity funded company, it does not have debt. The total equity for 2015 is 1,800,000 and for 2014 it was 1,520,000. There are not any long-term debts outstanding for the company during 2015 or 2014.
8. Compute the horizontal and vertical analysis.
Horizontal Analysis
2014
Particulars
2015
Difference
% Difference
Increase (Deerease)
(e-a-b)
(a)
(b)
(сЪ x 100)
Income Statement
Sales
800.000 600,000
200.000
33%
Less: Cost of Goods Sold
300,000 225,000
75.000
33%
Less: Operating Expense
Operating Income
Machinery
100.000
105,000
-5,000
-5%
400,000
270.000
130.000
48%
120,000
81,000
39,000
48%
Net Income
280,000
189,000
91.000
48%
Statements of Financial Position
Assets:
Cash
60.000
270.000
-210.000
-78%
Accounts Receivable
Inventory
Machinery
740.000
500,000
240,000
48%
600.000 400,000
200.000
50%
-50,000
180.000
800.000 850,000
-6%
Total Assets
2.200.000 2.020.000
9%
Liabilities:
Accounts Payable
-100,000
-100.000
400,000 500,000
-20%
Total Liabilities
400,000 500,000
-20%
Equity:
0%
Capital Stock
Accumulated Proft
Total Equity
Total Liabilities and Equity
200.000 200,000
1,600,000 1.320,000
280,000
21%
1.800.000 1,520.000
280.000
18%
2,200,000 2,02e,000
180,000
9%
Vertical Analysis
Particulars
2015
2014
(a)
(a/S00,000)
(b)
(b600,000)
Income Statement
Sales
800,000
100% 600,000
100%
Less: Cost of Goods Sold
300,000
38% 225,000
38%
Less: Operating Expense
Operating Income
Machinery
Net Income
13% 105,000
50% 270,000
100,000
18%
400,000
120,000
45%
15%
81,000
14%
280,000
35% 189,000
32%
Statements of Financial Position
Assets:
(a/2,200,000)
(a/2,020,000)
Cash
60,000
3% 270,000
13%
Accounts Receivable
740,000
34% 500,000
25%
Inventory
Machinery
Total Assets
600,000
27% 400,000
20%
800,000
36% 850,000
42%
2,200,000
100% 2,020,000
100%
Liabilities:
18% 500,000
18% 500,000
Accounts Payable
400,000
25%
Total Liabilities
400,000
25%
Equity:
Capital Stock
Accumulated Proft
200,000
9% 200,000
10%
1,600,000
73% 1,320,000
82% 1,520,000
100% 2,020,000
65%
Total Equity
Total Liabilities and Equity
1,800,000
2,200,000
75%
100%
9. What will be your recommendations/changes that must be done to the operations of
Excitingpart's Closet?
Recommendation to the Company: The company must increase its cash collection and balance as
it has been decreased to 3% of the total asset (vertical analysis). The investment in the accounts
receivable and inventory should be decreased.
Transcribed Image Text:8. Compute the horizontal and vertical analysis. Horizontal Analysis 2014 Particulars 2015 Difference % Difference Increase (Deerease) (e-a-b) (a) (b) (сЪ x 100) Income Statement Sales 800.000 600,000 200.000 33% Less: Cost of Goods Sold 300,000 225,000 75.000 33% Less: Operating Expense Operating Income Machinery 100.000 105,000 -5,000 -5% 400,000 270.000 130.000 48% 120,000 81,000 39,000 48% Net Income 280,000 189,000 91.000 48% Statements of Financial Position Assets: Cash 60.000 270.000 -210.000 -78% Accounts Receivable Inventory Machinery 740.000 500,000 240,000 48% 600.000 400,000 200.000 50% -50,000 180.000 800.000 850,000 -6% Total Assets 2.200.000 2.020.000 9% Liabilities: Accounts Payable -100,000 -100.000 400,000 500,000 -20% Total Liabilities 400,000 500,000 -20% Equity: 0% Capital Stock Accumulated Proft Total Equity Total Liabilities and Equity 200.000 200,000 1,600,000 1.320,000 280,000 21% 1.800.000 1,520.000 280.000 18% 2,200,000 2,02e,000 180,000 9% Vertical Analysis Particulars 2015 2014 (a) (a/S00,000) (b) (b600,000) Income Statement Sales 800,000 100% 600,000 100% Less: Cost of Goods Sold 300,000 38% 225,000 38% Less: Operating Expense Operating Income Machinery Net Income 13% 105,000 50% 270,000 100,000 18% 400,000 120,000 45% 15% 81,000 14% 280,000 35% 189,000 32% Statements of Financial Position Assets: (a/2,200,000) (a/2,020,000) Cash 60,000 3% 270,000 13% Accounts Receivable 740,000 34% 500,000 25% Inventory Machinery Total Assets 600,000 27% 400,000 20% 800,000 36% 850,000 42% 2,200,000 100% 2,020,000 100% Liabilities: 18% 500,000 18% 500,000 Accounts Payable 400,000 25% Total Liabilities 400,000 25% Equity: Capital Stock Accumulated Proft 200,000 9% 200,000 10% 1,600,000 73% 1,320,000 82% 1,520,000 100% 2,020,000 65% Total Equity Total Liabilities and Equity 1,800,000 2,200,000 75% 100% 9. What will be your recommendations/changes that must be done to the operations of Excitingpart's Closet? Recommendation to the Company: The company must increase its cash collection and balance as it has been decreased to 3% of the total asset (vertical analysis). The investment in the accounts receivable and inventory should be decreased.
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