QUESTION FIVE: The following information relates to the operations of the East L. Trading Company for the three-year period ended 31 December 2019 Income statements 2019 2018 2017 $ $ $ Net sales 1,000,000 900,000 800,000 Cost of goods sold 600,000 550,000 545,000 Gross income 400,000 350,000 255,000 Selling and administration expenses 300,000 275,000 220,000 Net income before tax 100,000 75,000 35,000 Tax at 50% 50,000 37,500 17,500 Net income after tax 50,000 37,500 17,500 Dividends 30,000 25,000 10,000 Net increase in retained earnings 20,000 12,500 7,500 Balance sheets 2019 2018 2017 $ $ $ Assets Land and buildings 500,000 450,000 425,000 Plant and machinery 450,000 500,000 410,000 Inventory (at cost) 635,000 600,000 520,000 Debtors 425,000 410,000 440,000 Bank balance 40,000 55,000 63,000 2,050,000 2,015,000 1,858,000 Shareholders equity and liabilities $ $ $ Ordinary share capital K1 shares fully paid 600,000 600,000 600,000 Share premium account 125,000 125,000 125,000 Retained earnings 532,000 512,000 500,000 12% debentures 2019 200,000 200,000 200,000 Creditors 496,000 493,000 390,000 Accrued expenses 15,000 17,000 9,000 Taxation 52,000 43,000 24,000 Provision for dividends 30,000 25,000 10,000 2,050,000 2,015,000 1,858,000 Required: From the foregoing information, calculate the following ratios for the year 2018 and 2019 (assume that all sales are on credit basis and the year is 360 days): (d) The average collection period for debtors (e) The shareholders ’equity ratio (f) The return on capital employed Evaluate the liquidity position of the company at the end of 2019 as compared with 2018.

QUESTION FIVE: The following information relates to the operations of the East L. Trading Company for the three-year period ended 31 December 2019 Income statements 2019 2018 2017 $ $ $ Net sales 1,000,000 900,000 800,000 Cost of goods sold 600,000 550,000 545,000 Gross income 400,000 350,000 255,000 Selling and administration expenses 300,000 275,000 220,000 Net income before tax 100,000 75,000 35,000 Tax at 50% 50,000 37,500 17,500 Net income after tax 50,000 37,500 17,500 Dividends 30,000 25,000 10,000 Net increase in retained earnings 20,000 12,500 7,500 Balance sheets 2019 2018 2017 $ $ $ Assets Land and buildings 500,000 450,000 425,000 Plant and machinery 450,000 500,000 410,000 Inventory (at cost) 635,000 600,000 520,000 Debtors 425,000 410,000 440,000 Bank balance 40,000 55,000 63,000 2,050,000 2,015,000 1,858,000 Shareholders equity and liabilities $ $ $ Ordinary share capital K1 shares fully paid 600,000 600,000 600,000 Share premium account 125,000 125,000 125,000 Retained earnings 532,000 512,000 500,000 12% debentures 2019 200,000 200,000 200,000 Creditors 496,000 493,000 390,000 Accrued expenses 15,000 17,000 9,000 Taxation 52,000 43,000 24,000 Provision for dividends 30,000 25,000 10,000 2,050,000 2,015,000 1,858,000 Required: From the foregoing information, calculate the following ratios for the year 2018 and 2019 (assume that all sales are on credit basis and the year is 360 days): (d) The average collection period for debtors (e) The shareholders ’equity ratio (f) The return on capital employed Evaluate the liquidity position of the company at the end of 2019 as compared with 2018.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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QUESTION FIVE:
The following information relates to the operations of the East L. Trading Company for the three-year period ended 31 December 2019
Income statements
2019 2018 2017
$ $ $
Net sales 1,000,000 900,000 800,000
Cost of goods sold 600,000 550,000 545,000
Gross income 400,000 350,000 255,000
Selling and administration expenses 300,000 275,000 220,000
Net income before tax 100,000 75,000 35,000
Tax at 50% 50,000 37,500 17,500
Net income after tax 50,000 37,500 17,500
Dividends 30,000 25,000 10,000
Net increase in retained earnings 20,000 12,500 7,500
Balance sheets
2019 2018 2017
$ $ $
Assets
Land and buildings 500,000 450,000 425,000
Plant and machinery 450,000 500,000 410,000
Inventory (at cost) 635,000 600,000 520,000
Debtors 425,000 410,000 440,000
Bank balance 40,000 55,000 63,000
2,050,000 2,015,000 1,858,000
Shareholders equity and liabilities $ $ $
Ordinary share capital K1 shares fully paid 600,000 600,000 600,000
Share premium account 125,000 125,000 125,000
Retained earnings 532,000 512,000 500,000
12% debentures 2019 200,000 200,000 200,000
Creditors 496,000 493,000 390,000
Accrued expenses 15,000 17,000 9,000
Taxation 52,000 43,000 24,000
Provision for dividends 30,000 25,000 10,000
2,050,000 2,015,000 1,858,000
Required:
From the foregoing information, calculate the following ratios for the year 2018 and 2019 (assume that all sales are on credit basis and the year is 360 days):
(d) The average collection period for debtors

(e) The shareholders ’equity ratio

(f) The return on capital employed

Evaluate the liquidity position of the company at the end of 2019 as compared with 2018.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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