Headland Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Headland and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,320 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $5,940 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Headland’s cash flow problems are due primarily to the company’s desire to finance a $302,050 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. Headland Corporation Balance Sheet March 31 Assets 2021 2020 Cash $18,130 $12,400 Notes receivable 148,340 132,610 Accounts receivable (net) 132,970 125,610 Inventories (at cost) 105,280 49,700 Plant & equipment (net of depreciation) 1,442,810 1,431,850 Total assets $1,847,530 $1,752,170 Liabilities and Owners’ Equity Accounts payable $78,630 $90,790 Notes payable 76,580 61,850 Accrued liabilities 18,110 29,430 Common stock (130,000 shares, $10 par) 1,289,230 1,290,910 Retained earningsa 384,980 279,190 Total liabilities and stockholders’ equity $1,847,530 $1,752,170 aCash dividends were paid at the rate of $1 per share in fiscal year 2020 and $2 per share in fiscal year 2021. Headland Corporation Income Statement For the Fiscal Years Ended March 31 2021 2020 Sales revenue $3,007,270 $2,709,810 Cost of goods solda 1,522,790 1,432,430 Gross margin 1,484,480 1,277,380 Operating expenses 860,800 775,260 Income before income taxes 623,680 502,120 Income taxes (40%) 249,472 200,848 Net income $374,208 $301,272 aDepreciation charges on the plant and equipment of $100,160 and $103,110 for fiscal years ended March 31, 2020 and 2021, respectively, are included in cost of goods sold. (a) Compute the following items for Headland Corporation. (Round answers to 2 decimal places, e.g. 2.25 or 2.25%.) 1. Current ratio for fiscal years 2020 and 2021. 2. Acid-test (quick) ratio for fiscal years 2020 and 2021. 3. Inventory turnover for fiscal year 2021. 4. Return on assets for fiscal years 2020 and 2021. (Assume total assets were $1,694,460 at 3/31/19.) 5. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2020 to 2021. 4. Return on assets enter the return on assets in percentages rounded to 2 decimal places % enter the return on assets in percentages rounded to 2 decimal places % 5. Percent Changes Percent Increase Sales revenue enter percentages rounded to 2 decimal places % Cost of goods sold enter percentages rounded to 2 decimal places % Gross margin enter percentages rounded to 2 decimal places % Net income after taxes enter percentages rounded to 2 decimal places %

Headland Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Headland and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,320 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $5,940 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Headland’s cash flow problems are due primarily to the company’s desire to finance a $302,050 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. Headland Corporation Balance Sheet March 31 Assets 2021 2020 Cash $18,130 $12,400 Notes receivable 148,340 132,610 Accounts receivable (net) 132,970 125,610 Inventories (at cost) 105,280 49,700 Plant & equipment (net of depreciation) 1,442,810 1,431,850 Total assets $1,847,530 $1,752,170 Liabilities and Owners’ Equity Accounts payable $78,630 $90,790 Notes payable 76,580 61,850 Accrued liabilities 18,110 29,430 Common stock (130,000 shares, $10 par) 1,289,230 1,290,910 Retained earningsa 384,980 279,190 Total liabilities and stockholders’ equity $1,847,530 $1,752,170 aCash dividends were paid at the rate of $1 per share in fiscal year 2020 and $2 per share in fiscal year 2021. Headland Corporation Income Statement For the Fiscal Years Ended March 31 2021 2020 Sales revenue $3,007,270 $2,709,810 Cost of goods solda 1,522,790 1,432,430 Gross margin 1,484,480 1,277,380 Operating expenses 860,800 775,260 Income before income taxes 623,680 502,120 Income taxes (40%) 249,472 200,848 Net income $374,208 $301,272 aDepreciation charges on the plant and equipment of $100,160 and $103,110 for fiscal years ended March 31, 2020 and 2021, respectively, are included in cost of goods sold. (a) Compute the following items for Headland Corporation. (Round answers to 2 decimal places, e.g. 2.25 or 2.25%.) 1. Current ratio for fiscal years 2020 and 2021. 2. Acid-test (quick) ratio for fiscal years 2020 and 2021. 3. Inventory turnover for fiscal year 2021. 4. Return on assets for fiscal years 2020 and 2021. (Assume total assets were $1,694,460 at 3/31/19.) 5. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2020 to 2021. 4. Return on assets enter the return on assets in percentages rounded to 2 decimal places % enter the return on assets in percentages rounded to 2 decimal places % 5. Percent Changes Percent Increase Sales revenue enter percentages rounded to 2 decimal places % Cost of goods sold enter percentages rounded to 2 decimal places % Gross margin enter percentages rounded to 2 decimal places % Net income after taxes enter percentages rounded to 2 decimal places %

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Headland Corporation Balance Sheet March 31
Assets	2021	2020
Cash	$18,130	$12,400
Notes receivable	148,340	132,610
Accounts receivable (net)	132,970	125,610
Inventories (at cost)	105,280	49,700
Plant & equipment (net of depreciation)	1,442,810	1,431,850
Total assets	$1,847,530	$1,752,170

Liabilities and Owners’ Equity
Accounts payable	$78,630	$90,790
Notes payable	76,580	61,850
Accrued liabilities	18,110	29,430
Common stock (130,000 shares, $10 par)	1,289,230	1,290,910
Retained earnings^a	384,980	279,190
Total liabilities and stockholders’ equity	$1,847,530	$1,752,170

^aCash dividends were paid at the rate of $1 per share in fiscal year 2020 and $2 per share in fiscal year 2021.

Headland Corporation Income Statement For the Fiscal Years Ended March 31
	2021	2020
Sales revenue	$3,007,270	$2,709,810
Cost of goods sold^a	1,522,790	1,432,430
Gross margin	1,484,480	1,277,380
Operating expenses	860,800	775,260
Income before income taxes	623,680	502,120
Income taxes (40%)	249,472	200,848
Net income	$374,208	$301,272

^aDepreciation charges on the plant and equipment of $100,160 and $103,110 for fiscal years ended March 31, 2020 and 2021, respectively, are included in cost of goods sold.

(a)

Compute the following items for Headland Corporation. (Round answers to 2 decimal places, e.g. 2.25 or 2.25%.)

1.		Current ratio for fiscal years 2020 and 2021.
2.		Acid-test (quick) ratio for fiscal years 2020 and 2021.
3.		Inventory turnover for fiscal year 2021.
4.		Return on assets for fiscal years 2020 and 2021. (Assume total assets were $1,694,460 at 3/31/19.)
5.		Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2020 to 2021.

4.		Return on assets		enter the return on assets in percentages rounded to 2 decimal places	%		enter the return on assets in percentages rounded to 2 decimal places	%

5.	Percent Changes	Percent Increase
	Sales revenue	enter percentages rounded to 2 decimal places	%
	Cost of goods sold	enter percentages rounded to 2 decimal places	%
	Gross margin	enter percentages rounded to 2 decimal places	%
	Net income after taxes	enter percentages rounded to 2 decimal places	%

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Current Ratio = Current Assets/ Current liabilities

Acid-test (quick) ratio = (Current Assets - Inventories)/ Current liabilities

Inventory turnover ratio = Turnover/Average Inventories

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