A
Introduction: The ratios are calculated using the information available in the financial statements of a company. Such ratios help the users of the accounting information to understand the liquidity, profitability and other related aspects of a company.
To perform: The ratios analysis model.
A
Explanation of Solution
1. Formulate the Question
How liquid is S Inc. and H Corporation?
2. Gather the information from the financial statements.
The
3. Calculate the ratio.
Current ratio of both the companies has been calculated below −
S Inc.
Current ratio (2015) =
Current liabilities =
Current ratio (2014) =
Current liabilities =
H Corporation
Current ratio (2015) =
Current assets -
Current liabilities =
Current ratio (2014) =
Current assets -
Current liabilities =
4. Compare the ratio with other ratios.
| 2015 | 2014 | |
| S Inc. | 1.03 | 0.95 |
| H Corporation | 1.02 | 2.34 |
5. Interpret the ratios
Current ratio of S Inc. has improved from 0.95 in the year 2014 to 1.03 in 2015 which means the liquidity of the company has improved.
Current ratio of H Corporation has declined from 2.34 in 2014 to 1.02 in 2015.
B
Introduction: The ratios are calculated using the information available in the financial statements of a company. Such ratios help the users of the accounting information to understand the liquidity, profitability and other related aspects of a company.
To perform: The business analysis model.
B
Explanation of Solution
1. Formulate the Question
Should loan be sanctioned to S Inc.?
2. Gather information from the financial statements and other sources
Taking decisions about lending a loan or not is a crucial one and hence a variety of factors should be kept in mind while deciding whether S Inc. should be provided the required loan or not. Such factors include assessing the information gathered from balance sheet,
3. Analyze the information gathered
Analyses of the information gathered so far includes comparing the current ratio of S Inc. with H Corporation. The banker should look at the trends over time in the current ratio.
4. Make the decision
Decision needs to be taken about the loan should be sanctioned or not. Since the current ratio of the company has improved from the previous year and debts mentioned in the balance sheet are not that huge and can be paid off using the current assets, this suggests that the company has better liquidity. But only liquidity factor is not a good measure to decide about lending a loan or not, so the banker needs to look at profitability and other factors as well.
5. Monitor the decision
If the banker extends the loan, then periodic monitoring will be required and continuous analysis of the financial statements will also be required to identify the liquidity and credit paying capacity of the firm.
Want to see more full solutions like this?
Chapter 2 Solutions
Using Financial Accounting Information
- O’Malley Corporation was incorporated and began business on January 1, 2017. It has been successful and now requires a bank loan for additional working capital to finance expansion. The bank has requested an audited income statement for the year 2020. The accountant for O’Malley Corporation provides you with the following income statement which O’Malley plans to submit to the bank. O’Malley CorporationIncome Statement Sales revenue $850,000 Dividends 32,300 Gain on recovery of insurance proceeds from earthquake loss 38,500 920,800 Less: Selling expenses $101,100 Cost of goods sold 510,000 Advertising expense 13,700 Loss on obsolescence of inventories 34,000 Loss on discontinued operations 48,600 Administrative expense 73,400 780,800 Income before income tax 140,000 Income tax 56,000 Net income $ 84,000 Instructions Indicate the deficiencies in the…arrow_forwardPizza, Inc. balance sheet statement for December 31. 2015 with the following information tound to the nearest thousand i Data Table Barron Pizza, Inc. Balance Sheet as of Decemb Retained earnings: $43,512 Accounts payable: $74,547 Accounts receivable: $34,808 Common stock: $119,856 Cash: $8,258 Short-term debt $188 ($ in thousands) LIABILIT Current Inventory: $23,487 Goodwill: $48,302 Long-term debt S80,147 Other noncurrent liabilities: $42,597 Net plant, property, and equipment. $192,340 Other noncurrent assets.$16,738 Long-term investments: $22,330 Other current assets: $14,584 Total cur Total liat OWNER! Print Done a意前 %24 %24 %24 %24 %24arrow_forwardPresented below are selected data from the balance sheet of Julian Company for 2024. The figures are expressed in millions. Total Current assets Property, plant, and equipment Other assets Total Current liabilities Total Long-term debt Total Stockholders' equity a. Determine the amount of total current assets for Julian's 2024 balance sheet. b. How much of Julian Company is financed by creditors? Also provide the percentage financed by creditors. c. How much of Julian Company is financed by stockholders? Also provide the percentage financed by stockholders. $? $12,325 $3,121 $1,278 $3,646 $11,677 Question 20 Lulu Enterprises began the year with total liabilities of $188,000 and total stockholders equity of $330,000. Using this information, answer each of the following independent questions. a) If Lulu's total assets increased by $50,000 and its total liabilities increased by $20,000 during the year, what was the amount of Lulu's stockholders' equity at the end of the year? b) If Lulu's…arrow_forward
- Complex Balance Sheet Presented below is the unaudited balance sheet as of December 31, 2016, prepared by Zeus Manufacturing Corporation’s bookkeeper. Zeus Manufacturing CorporationBalance Sheet for the Year Ended December 31, 2016 Assets Liabilities and Shareholders' Equity Cash $225,000 Accounts payable $133,800 Accounts receivable (net) 345,700 Mortgage payable 900,000 Inventories 560,000 Notes payable 500,000 Prepaid income taxes 40,000 Lawsuit liability 80,000 Investments 57,700 Income taxes payable 61,200 Land 450,000 Deferred tax liability 28,000 Building 1,750,000 Accumulated depreciation 420,000 Machinery and equipment 1,964,000 Total Liabilities $2,123,000 Goodwill 37,000 Common stock, $50 par; 40,000 shares issued $2,231,000 Total Assets $5,429,400 Retained earnings 1,075,400 Total Shareholders' Equity $3,306,400 Total Liabilities and Shareholders' Equity $5,429,400 Your company has been engaged to perform…arrow_forward3.1 Calculate the ratio (expressed to two decimal places) for 2021 to reflect each of the following: 3.1.4 An indicator of how profitable a company is relative to its total assets. 3.1.5 Determination of how easily a company can pay the interest on its outstanding debt.3.1.6 The period that the company takes to collect the money owed to it from its credit sales. Answer the following questions above by using the information below: Disney LimitedStatement of Comprehensive Income for the year ended 31 December 2021RSales 1 960 000Cost of sales 1 240 000Operating profit 472 000Interest expense 48 000Profit before tax 424 000Profit after tax 305 280 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER: 2021 (R) 2020 (R)AssetsNon-current assets 2 320 000 1 960 000Inventories 720 000 440 000Accounts receivable…arrow_forwardUse the information provided below to prepare the Statement of Financial Position of Lynwood Limited as at 31 August 2023. The notes to the financial statements are not required. Show all workings. INFORMATION The following balances were obtained from the accounting records of Lynwood Limited after some of the adjustments and closing transfers were completed on 31 August 2023, the end of the financial year. R Inventory 315 000 Accounts receivable 92 000 Loan: Lindor Bank (19.5%) 200 000 Equipment (Cost) 1 980 000 Accumulated depreciation on equipment? Cash float 13 500 Accounts payable 211 000 Provision for bad debts? Accrued income? Ordinary share capital 1 161 000 Retained income 540 000 Company tax payable 18 000 Bank (DR) 99 000 Accrued expenses? Dividends payable 161 000 The following adjustments must be made: The account of a debtor who owed R2 000 must be written off. The provision for bad debts must be adjusted to 5% of debtors. The rent income account reflected a total of R99…arrow_forward
- https://www.republictt.com/pdfs/annual-reports/RFHL-Annual-Report-2022.pdf Financial Reporting Analysis: Use Republic Bank Limited Annual Report 2022 to answer the Questions. a) Evaluate the company’s latest annual financial statements (balance sheet, income statement, and cash flow statement) and comment on the company's financial performance and position. In your response, use the requirements of IAS 1 as a guide. b) Identify and discuss key accounting principles and standards applied in the company’s financial reporting process indicating their reasons for choosing these and how they were applied. Comment briefly on the appropriateness of the choices made given the company’s industry, location and type (e.g. MNC, regional conglomerate, etc.) c) Critically analyze any significant accounting policies and estimates disclosed in the notes to the financial statements. In your answer, indicate whether the company complied with the accounting standards and conventions.arrow_forwardThe comparative balance sheets for 2018 and 2017 and the statement of income for 2018 are given below for Dux Company. Additional information from Dux's accounting records is provided also. Assets Cash Accounts receivable Less: Allowance for uncollectible accounts Dividends receivable Inventory Long-term investment Land Buildings and equipment Less: Accumulated depreciation Liabilities Accounts payable Salaries payable Interest payable Income tax payable Notes payable Bonds payable Less: Discount on bonds Shareholders' Equity Common stock Paid-in capital-excess of par Retained earnings DUX COMPANY Comparative Balance Sheets December 31, 2018 and 2017 ($ in 900s) Less: Treasury stock DUX COMPANY Income Statement For Year Ended December 31, 2018 ($ in 800s) Revenues Sales revenue Dividend revenue Expenses Cost of goods sold. Salaries expense Depreciation expense Bad debt expense Interest expense Loss on sale of building Income tax expense Net income $325 9 $334 134 39 33 1 22 6 31 266…arrow_forwardREQUIRED Use the information provided below to calculate the ratios for 2021 (expressed to two decimal places) that would reflect each of the following: The time taken by the company to settle its debts with trade suppliers The amount of debt that the company uses to finance its assets The operational effectiveness of the company before considering interest income,interest expense and company tax. What investors are willing to pay for the shares of the company with due considerationgiven to the profit generated by each share in the company. Comment on the FIVE (5) ratios of Oslo Limited as compared to the industry average provided in the additional information. INFORMATION The information given below was extracted from the books of Oslo Limited: OSLO LIMITED STATEMENT OF COMPREHENSIVE…arrow_forward
- 2. Using the following select financial statement information from Black Water Industries, compute the accounts receivable turnover ratios for 2018 and 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Black Water Industries? Year 2017 2018 2019 BLACK WATER INDUSTRIES Net Credit Sales $685,430 700,290 768,500 Ending Accounts Receivable $330,250 360,450 401,650arrow_forwardUse the following selected financial information for Cascabel Corporation to answer questions Cascabel Corporation Balance Sheet December 31, 2015 Assets Liabilities and stockholders' equity Current assets Current liabilities Cash Accounts payable Accrued liabilities 2 36 Short-term investments 10 25 Accounts receivable 52 Total current liabilities 61 Inventory 57 Other current assets Long-term debt 102 Total current assets 129 Total liabilities 163 Long-term assets Stockholders' equity Net Plant 195 Common stock 110 Retained earnings Total stockholders' equity Total liabilities and equity 51 161 324 Total assets 324 Cascabel Corporation Income Statement For the Year Ended December 31, 2015arrow_forwardBelow are the titles of a number of debit and credit accounts as they might appear on the statement of financial position of Hayduke ASA as of October 31, 2022. Select the Current Asset, Current Liability, Borderline, and Not a Current Item from among these debit and credit accounts. Debit Interest Accrued on Government Securities Notes Receivable Petty Cash Fund Government Securities Treasury Shares Current Asset Current Liability Borderline Not a Current Item Credit Share Capital-Preference 6% First Mortgage Bonds, due in 2029 Preference Dividend, payable Nov. 1,2022 Allowance for Doubtful Accounts Customers' Advances (on contracts to be completed next year)arrow_forward
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage