Comparative financial statements for Na Pali Coast Company for the years ending December 31, 20-1 and 20-2 are provided. Na Pali Coast Company Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 1 20-2 20-1 2 Net sales $466,451.00 $291,613.00 3 Cost of goods sold 285,889.00 188,626.00 4 Gross profit $180,562.00 $102,987.00 5 Operating expenses 125,650.00 78,200.00 6 Operating income $54,912.00 $24,787.00 7 Other expenses 1,200.00 500.00 8 Income before income taxes $53,712.00 $24,287.00 9 Income tax expense 18,250.00 7,285.00 10 Net income $35,462.00 $17,002.00 Na Pali Coast Company Comparative Balance Sheet December 31, 20-2 and 20-1 1 20-2 20-1 2 Assets 3 Current assets: 4 Cash $8,600.00 $7,500.00 5 Government notes 3,000.00 2,000.00 6 Accounts receivable (net) 10,500.00 8,600.00 7 Merchandise inventory 53,600.00 33,200.00 8 Supplies and prepayments 4,500.00 3,200.00 9 Total current assets $80,200.00 $54,500.00 10 Property, plant, and equipment: 11 Land $40,000.00 $40,000.00 12 Building (net) 200,000.00 150,000.00 13 Delivery equipment (net) 13,000.00 15,000.00 14 Office equipment (net) 5,400.00 6,000.00 15 Patents 5,000.00 6,000.00 16 Total property, plant, and equipment $263,400.00 $217,000.00 17 Total assets $343,600.00 $271,500.00 18 Liabilities 19 Current liabilities: 20 Notes payable $5,000.00 $3,000.00 21 Accounts payable 28,700.00 22,300.00 22 Accrued and withheld payroll taxes 4,200.00 5,600.00 23 Accrued interest payable 500.00 1,700.00 24 Total current liabilities $38,400.00 $32,600.00 25 Long-term liabilities: 26 Bonds payable 50,000.00 20,000.00 27 Total liabilities $88,400.00 $52,600.00 28 Stockholders’ Equity 29 Common stock ($5 par) $115,000.00 $100,000.00 30 Paid-in capital in excess of par 65,000.00 60,000.00 31 Retained earnings 75,200.00 58,900.00 32 Total stockholders’ equity $255,200.00 $218,900.00 33 Total liabilities and stockholders’ equity $343,600.00 $271,500.00 Required: 1. Perform horizontal analysis of the comparative income statement and balance sheet. 2. Perform vertical analysis of the comparative income statement and balance sheet. 3. Compute the following liquidity measures for 20-2: (a) Working capital (b) Current ratio (c) Quick or acid-test ratio 4. Compute the following activity measures for 20-2: (a) Accounts receivable turnover and average number of days to collect receivables (Assume that sales on account for 20-2 were $120,000.) (b) Merchandise inventory turnover and average number of days to sell inventory (c) Asset turnover 5. Compute the following profitability measures for 20-2: (a) Profit margin ratio (b) Return on assets (c) Return on common stockholders’ equity (d) Earnings per share of common stock 6. Compute the following leverage measures for 20-2: (a) Debt-to-equity ratio (b) Times interest earned ratio (Assume interest expense for 20-2 was $1,200.) 7. Compute the following market measures for 20-2: (a) Price-earnings ratio (The market price of Na Pali Coast Company’s common stock was $23.00 on December 31, 20-2.) (b) Book value per share of common stock
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Na Pali Coast Company
|
Comparative Income Statement
|
For Years Ended December 31, 20-2 and 20-1
|
1
|
|
20-2
|
20-1
|
2
|
Net sales
|
$466,451.00
|
$291,613.00
|
3
|
Cost of goods sold
|
285,889.00
|
188,626.00
|
4
|
Gross profit
|
$180,562.00
|
$102,987.00
|
5
|
Operating expenses
|
125,650.00
|
78,200.00
|
6
|
Operating income
|
$54,912.00
|
$24,787.00
|
7
|
Other expenses
|
1,200.00
|
500.00
|
8
|
Income before income taxes
|
$53,712.00
|
$24,287.00
|
9
|
Income tax expense
|
18,250.00
|
7,285.00
|
10
|
Net income
|
$35,462.00
|
$17,002.00
|
Na Pali Coast Company
|
Comparative
|
December 31, 20-2 and 20-1
|
1
|
|
20-2
|
20-1
|
2
|
Assets
|
|
|
3
|
Current assets:
|
|
|
4
|
Cash
|
$8,600.00
|
$7,500.00
|
5
|
Government notes
|
3,000.00
|
2,000.00
|
6
|
Accounts receivable (net)
|
10,500.00
|
8,600.00
|
7
|
Merchandise inventory
|
53,600.00
|
33,200.00
|
8
|
Supplies and prepayments
|
4,500.00
|
3,200.00
|
9
|
Total current assets
|
$80,200.00
|
$54,500.00
|
10
|
Property, plant, and equipment:
|
|
|
11
|
Land
|
$40,000.00
|
$40,000.00
|
12
|
Building (net)
|
200,000.00
|
150,000.00
|
13
|
Delivery equipment (net)
|
13,000.00
|
15,000.00
|
14
|
Office equipment (net)
|
5,400.00
|
6,000.00
|
15
|
Patents
|
5,000.00
|
6,000.00
|
16
|
Total property, plant, and equipment
|
$263,400.00
|
$217,000.00
|
17
|
Total assets
|
$343,600.00
|
$271,500.00
|
18
|
Liabilities
|
|
|
19
|
Current liabilities:
|
|
|
20
|
Notes payable
|
$5,000.00
|
$3,000.00
|
21
|
Accounts payable
|
28,700.00
|
22,300.00
|
22
|
Accrued and withheld payroll taxes
|
4,200.00
|
5,600.00
|
23
|
Accrued interest payable
|
500.00
|
1,700.00
|
24
|
Total current liabilities
|
$38,400.00
|
$32,600.00
|
25
|
Long-term liabilities:
|
|
|
26
|
Bonds payable
|
50,000.00
|
20,000.00
|
27
|
Total liabilities
|
$88,400.00
|
$52,600.00
|
28
|
|
|
|
29
|
Common stock ($5 par)
|
$115,000.00
|
$100,000.00
|
30
|
Paid-in capital in excess of par
|
65,000.00
|
60,000.00
|
31
|
|
75,200.00
|
58,900.00
|
32
|
Total stockholders’ equity
|
$255,200.00
|
$218,900.00
|
33
|
Total liabilities and stockholders’ equity
|
$343,600.00
|
$271,500.00
|
Required: | |
1. | Perform horizontal analysis of the comparative income statement and balance sheet. |
2. | Perform vertical analysis of the comparative income statement and balance sheet. |
3. | Compute the following liquidity measures for 20-2: |
(a) | |
(b) | |
(c) | Quick or acid-test ratio |
4. | Compute the following activity measures for 20-2: |
(a) | Accounts receivable turnover and average number of days to collect receivables (Assume that sales on account for 20-2 were $120,000.) |
(b) | Merchandise inventory turnover and average number of days to sell inventory |
(c) | Asset turnover |
5. | Compute the following profitability measures for 20-2: |
(a) | Profit margin ratio |
(b) | Return on assets |
(c) | Return on common stockholders’ equity |
(d) | Earnings per share of common stock |
6. | Compute the following leverage measures for 20-2: |
(a) | Debt-to-equity ratio |
(b) | Times interest earned ratio (Assume interest expense for 20-2 was $1,200.) |
7. | Compute the following market measures for 20-2: |
(a) | Price-earnings ratio (The market price of Na Pali Coast Company’s common stock was $23.00 on December 31, 20-2.) |
(b) | Book value per share of common stock |
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