Videos
(a)
Income statement shows that how much income and expense in the current a calendar or financial year.
To discuss:
Determine how much the Twisted’s company sale, net income and assets have grown during last in 3 years.
Answer to Problem 88PSA
This table shows that the change in the last 3 year in different item
| Particular | 2019 | 2017 | Total change |
| Sale | 51638 | 34425 | 17213 |
| Net income | 2279 | 1603 | 676 |
| Total assets | 16516 | 10281 | 6235 |
Explanation of Solution
Shows this table for Last year 3 sale, net income and fixed year
| Particular | 2019 | 2018 | 2017 |
| Sale | 51638 | 41310 | 34425 |
| Net income | 2279 | 1920 | 1603 |
| Total assets | 16516 | 12646 | 10281 |
(b)
Increase in assets means the company increases the production for the expand the business so that the company finance the find from the different source and use for the purchase of different kind of assets.
To discuss:
Explain how twisted has financed the increase in assets.
Answer to Problem 88PSA
The company has increases its assets from 2017 to 2019. In the 2017 company assets, only $10281 but these assets in 2019 is $16516. Company’s resource fund has two types only first one is
Explanation of Solution
| Particular | 2019 | 2018 | 2017 |
| Property plant | 4860 | 3600 | 2756 |
| Other assets | 574 | 585 | 562 |
| Common stock | 7989 | 6863 | 5961 |
| Retain earning | 3264 | 2138 | 1236 |
(c)
In the liquidity there is two types of formula which on is
Current ratio shows that the relationship between current assets and current liabilities.
To compute:
Find the Twisted’s liquidate is adequate.
Answer to Problem 88PSA
As per the current ratio the company is able to pay the all short-term debt because the standard ratio of current ratio is 1:1, and in this question the current ratio is 2.061 which shows the goods ratio.
But as per the quick ratio the company needs to improve the assets because due to heavy inventory in the hands of company shows the negative effect for the company.
Explanation of Solution
Current ratio shows that the company ability to cover its short-term obligation with its current assets.
Current ratio =
Quick ratio =
Quick assets = Current assets − inventory − prepaid assets
= $11082 - $6064 =$5018
(Note: this data is related for 2019).
(d)
Interest expense means if company taking the loan amount from the outside the business then the company pay the interest on the particular debt. Interest expense shows in the income statement and this expense reduce the company profit.
To discuss:
Define why interest expense increase.
Answer to Problem 88PSA
Company has two source of funds for taking the loan amount.
Company has not increase the long-term loan but company increase the company increase the short-term note payable so that the company increase the interest expense which shows in the income statement.
Explanation of Solution
This table shows that the increase the different amount in last 3 years
| Particular | 2019 | 2018 | 2017 |
| Interest expense | 1237 | 765 | 554 |
| Short-term notes payable | 4230 | 1620 | 450 |
| Long-term debt | 3150 | 3150 | 3150 |
(e)
The company wants to increase the sale proportion then definitely the company’s increase the variable expense in the same proportion, and net profit increase as per their ratio.
To compute:
Twisted company increase the sale proportion then what effect in the net profit.
Answer to Problem 88PSA
The net income increase by the $3705.75
Twisted company
Income statement
| Particular | 2020 ($) |
| Sale (51638 +25% of 51638) | 64547.5 |
| Cost of goods sold (31050 + 25% of 31050) | 38812.5 |
| Gross margin | 25735 |
| Other income | 383 |
| Total income (A) | 26118 |
| Selling and expense | 16570 |
| Interest | 1237 |
| Total cost (B) | 17807 |
| Income before tax | 8311 |
| Tax | 2326.24 |
| Net income | 5984.75 |
Explanation of Solution
- Net income increase by the 25% of the last year.
- Other expense to same and other income also to be same.
- Cost of goods sold to be increase in the sale ratio as the sale increase.
| Particular | 2020 ($) |
| Sale (51638 +25% of 51638) | 64547.5 |
| Cost of goods sold (31050 + 25% of 31050) | 38812.5 |
| Gross margin | 25735 |
| Other income | 383 |
| Total income (A) | 26118 |
| Selling and expense | 16570 |
| Interest | 1237 |
| Total cost (B) | 17807 |
| Income before tax | 8311 |
| Tax | 2326.24 |
| Net income | 5984.75 |
(f)
Company wants that company increase the shareholder worth and also increase the company earning per share and also increase the production for increase the sale so increase the net income.
To discuss:
Company want increase the 25% assets by the support the increase the 25% sale and also company wants that the dividend paid to the shareholder 50% of net income, the how much company take borrow by the capital or any other sources.
Answer to Problem 88PSA
Company assets in 2019 = $16516
Company want increase the assets by 25% of $16516 = $4129
Company paid the dividend 50% of net profit = 50% of $5984.75
= $2992.37
Company require total fund from capital = $4129 - $2992.37 = $1136.63.
Explanation of Solution
The net income increase by the 2769.22
Twisted company
Income statement
| Particular | 2020 ($) |
| Sale (51638 +25% of 51638) | 64547.5 |
| Cost of goods sold (31050 + 25% of 31050) | 38812.5 |
| Gross margin | 25735 |
| Other income | 383 |
| Total income (A) | 26118 |
| Selling and expense | 16570 |
| Interest | 1237 |
| Total cost (B) | 17807 |
| Income before tax | 8311 |
| Tax | 2326.24 |
| Net income | 5984.75 |
Company assets in 2019 = $16516
Company want increase the assets by 25% of $16516 = $4129
Company paid the dividend 50% of net profit = 50% of $5984.75
= $2992.37
Company require total fund from capital = $4129 - $2992.37 = $1136.63.
Want to see more full solutions like this?
Chapter 12 Solutions
Cornerstones of Financial Accounting
- Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the companys financial statements for the 2 most recent years. Required: Note: Round all answers to two decimal places. 1. Compute the following for each year: (a) return on assets, (b) return on stockholders equity, (c) earnings per share, (d) price-earnings ratio, (e) dividend yield, and (f ) dividend payout ratio. 2. CONCEPTUAL CONNECTION Based on the analysis in Requirement 1, would you invest in the common stock of Kepler?arrow_forwardRequired information [The following information applies to the questions displayed below.] You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company's financial statements, including comparing Lydex's performance to its major competitors. The company's financial statements for the last two years are as follows: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expense Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities Stockholders' equity: Common stock, $70 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Lydex Company $ 910,000 0 2,500,000 3,550,000 250,000 7,210,000 9,420,000 $ 16,630,000 $ 1,150,000…arrow_forwardWhich one of the following ratios is relevant to assess long-term solvency? A. Current Ratio B. Debt-Service Coverage Ratio C. Return on Equity D. Profit Marginarrow_forward
- want answer for both question please providearrow_forwardcalculate the efficiency ratios, liquidity ratios, leverage ratios, and profitability ratios for KPC Corporation for this year. Where data is available, also calculate ratios for last year. Use a 360-day year. All sales are on credit to business customers. Assume an income tax rate of 30 percent.arrow_forwardHow do I solve this?arrow_forward
- I am not confident my EPS numbers are working, we need this to calculate the next questions, am I on the right track? Profitability Ratios Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company's financial statements for the 2 most recent years. Kepler Company Comparative Balance Sheets This Year Last Year Assets Current assets: Cash $ 50,000 $100,000 Accounts receivable, net 300,000 150,000 Inventory 600,000 400,000 Prepaid expenses 25,000 30,000 Total current assets $ 975,000 $680,000 Property and equipment, net 125,000 150,000 Total assets $1,100,000 $830,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 400,000 $290,000 Short-term notes payable 200,000 60,000 Total current liabilities $ 600,000 $350,000 Long-term…arrow_forwardAlex is currently considering to invest his money in one of the companies betweenCompany A and Company B. The summarized final accounts of the companies for theirlast completed financial year are as follows: (refer to the images) Required:a. Calculate the following ratios for Company A and Company B. State clearly theformulae used for each ratio:i. Gross Profit Marginii. Net Profit Marginiii. Inventory Turnover Period (days)iv. Receivables Collection Period (days)v. Payables Payment Period (days)vi. Current Ratiovii. Quick Ratiob. Comment on each of the ratios calculated in part (a) above.arrow_forwardplease provide answer with calculatinoarrow_forward
- Question: Rick's Travel Service has asked you to help piece together financial information on the firm for the most current year. Managers give you the following information: sales are $8.0 million, total debt is $3.5685 million, debt ratio is 65 percent, and ROE is 17.8 percent. Using the above information, calculate Rick's ROAarrow_forwardbase on the image provided answer the following a. What is the overall performance of the company in the next five (5) years? Justify your answer. b. At what year will the forecasted total operating expenses exceed the standard? Give at least two(2) possible reasons behind it.arrow_forwardGrammatico Company has just completed its third year of operations. The income statement is as follows: Selected information from the balance sheet is as follows: Required: Note: Round answers to two decimal places. 1. Compute the times-interest-earned ratio. 2. Compute the debt ratio. 3. CONCEPTUAL CONNECTION Assume that the lower quartile, median, and upper quartile values for debt and times-interest-earned ratios in Grammaticos industry are as follows: How does Grammatico compare with the industrial norms? Does it have too much debt?arrow_forward
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...FinanceISBN:9781305635937Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning