E5.4 (LO 3) The 2020 and 2019 financial statements of Ken’s Sportswear follow: Balance Sheet 2020 2019 Assets Cash $9,000 $7,000 Accounts receivable 12,000 9,000 Inventory 18,000 15,000 Property, plant, and equipment 60,000 50,000 Total assets $99,000 $81,000 Liabilities and Shareholders’ Equity Accounts payable $16,500 $12,000 Notes payable 46,000 40,000 Common stock 25,000 25,000 Retained earnings 11,500 4,000 Total liabilities and equity $99,000 $81,000 2020 2019 Income Statement Sales (all on credit) $72,000 Less: Cost of goods sold 30,000 Gross profit $42,000 Operating expenses 12,000 Net income from operations $30,000 Interest expense 5,000 Net income before taxes $25,000 Income tax expense 8,500 Net income $16,500 Dividends $9,000 Per-share market price $36 $30 Outstanding common shares 2,000 2,000 Compute the two performance ratios, leverage (debt/equity and interest coverage only), solvency (current and quick only), asset quality (receivable and inventory turnover only), expense control (return on sales only), performance, and other ratios from Figure 5–3 for 2020. Prepare common-size financial statements.
E5.4 (LO 3) The 2020 and 2019 financial statements of Ken’s Sportswear follow: Balance Sheet 2020 2019 Assets Cash $9,000 $7,000 Accounts receivable 12,000 9,000 Inventory 18,000 15,000 Property, plant, and equipment 60,000 50,000 Total assets $99,000 $81,000 Liabilities and Shareholders’ Equity Accounts payable $16,500 $12,000 Notes payable 46,000 40,000 Common stock 25,000 25,000 Retained earnings 11,500 4,000 Total liabilities and equity $99,000 $81,000 2020 2019 Income Statement Sales (all on credit) $72,000 Less: Cost of goods sold 30,000 Gross profit $42,000 Operating expenses 12,000 Net income from operations $30,000 Interest expense 5,000 Net income before taxes $25,000 Income tax expense 8,500 Net income $16,500 Dividends $9,000 Per-share market price $36 $30 Outstanding common shares 2,000 2,000 Compute the two performance ratios, leverage (debt/equity and interest coverage only), solvency (current and quick only), asset quality (receivable and inventory turnover only), expense control (return on sales only), performance, and other ratios from Figure 5–3 for 2020. Prepare common-size financial statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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E5.4 (LO 3) The 2020 and 2019 financial statements of Ken’s Sportswear follow:
| 2020 | 2019 | |
| Assets | ||
| Cash | $9,000 | $7,000 |
| 12,000 | 9,000 | |
| Inventory | 18,000 | 15,000 |
| Property, plant, and equipment | 60,000 | 50,000 |
| Total assets | $99,000 | $81,000 |
| Liabilities and Shareholders’ Equity | ||
| Accounts payable | $16,500 | $12,000 |
| Notes payable | 46,000 | 40,000 |
| Common stock | 25,000 | 25,000 |
| 11,500 | 4,000 | |
| Total liabilities and equity | $99,000 | $81,000 |
| 2020 | 2019 | |
| Income Statement | ||
| Sales (all on credit) | $72,000 | |
| Less: Cost of goods sold | 30,000 | |
| Gross profit | $42,000 | |
| Operating expenses | 12,000 | |
| Net income from operations | $30,000 | |
| Interest expense | 5,000 | |
| Net income before taxes | $25,000 | |
| Income tax expense | 8,500 | |
| Net income | $16,500 | |
| Dividends | $9,000 | |
| Per-share market price | $36 | $30 |
| Outstanding common shares | 2,000 | 2,000 |
- Compute the two performance ratios, leverage (debt/equity and interest coverage only), solvency (current and quick only), asset quality (receivable and inventory turnover only), expense control (return on sales only), performance, and other ratios from Figure 5–3 for 2020.
- Prepare common-size financial statements.
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