Accounting Questions Coursework - 825 Words

Accounting Questions (Coursework Sample) Content: Week Five ExerciseNameInstructorCourse Name and CodeDateQuestion one: Liquidity ratios * Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places) Which firm is the most liquid? Why?Item Edison Stagg Thornton Cash $6000 $5,000 $4,000 Accounts receivable $2,000 $2,500 $3,000 Short-term investments $3,000 $2,500 $2,000 Inventory $1,000 $2,500 $4,000 Prepaid expenses $800 $8,00 $800 Total Current Assets $12,800 $13,300 $13,800 Item Edison Stagg Thornton Notes Payable: short term $200 $200 $200 Accrued payables $3,100 $3,100 $3,100 Accounts payable $300 $300 $300 Total Current Liabilities $3,600 $3,600 $3,600 Edison Current Ratio $12,600/$3,600 3.50 Quick Ratio ($6,000+$3,000+$2,000)/$3,600 3.06 Thornton Current Ratio $13,800/$3,600 3.83 Quick Ratio ($4,000 + $2,000+$3000)/$3,600 2.50 Stagg Current Ratio $13,300/$3,600 3.69 Quick Ratio ($5,000+$2,500+$2,500)/$3,600 2.78 Comment: Thornton is the most-liquid company bec ause it has the largest inventory, and it can move its inventory quickly.Question Two: Computation and evaluation of activity ratiosAccounts Receivable Turnover Ratio = Net Credit Sales/Average Accounts Receivable= $832,000/[($205,000 + $156,000)/2]= 4.61Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory= $530,000/[($70,000+$50,000)/2]=8.83Question Three: Profitability ratios, trading on the equity * Compute the profit margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places.Profit margin on Sales Ratio = Net Income/Net Sales= $130,000/$1,750,000=7.43%Profit margin on the return on equity = Net Income/Average common stockholderà ¢Ã¢â€š ¬s equity= $130,000/$500,000= 26%Profit margin on the return on assets = Net income/Average Assets= $130,000/$1,200,000= 10.83% * Does the firm have positive or negative financial leverage? Briefly explain.The company has a negative financial leverage because of the $120 ,000 interest rate, which shows that the company has a huge debt. The debt capital ratio is too high. Indeed, it appears that the company is operating mainly with borrowed funds.Question four: Horizontal analysis. * Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.Mary Lynn Corporation Horizontal Analysis Item Increase/Decrease 20X2 20X1 Amount Percentage Current Assets $86,000 $80,000 86,000-80,000= $6,000 6,000/80000x100= 7.50% Net Property, Plant, and Equipment $99,000 $90,000 99,000-90,000= $9,000 9,000/90,000x100= 10.00% Intangibles $25,000 $50,000 25,000-50,000= -$25,000 25,000/50,000x100= -50.00% Current Liabilities $40,800 $48,000 40,800-48,000= -$7,200 7,200/48,000x100= -15.00% Long-term Liabilities $153,000 $160,000 153,000-160,000= -$7,000 7,000/160,000x100= -4.38% Stockholderà ¢Ã¢â€š ¬s Equity $16,200 $12,000 16,200-12,000= $4,200 4,200/12,000x100= 35.00% Net Sales $500,000 $500,000 500,000-500,000 0.00% Cost of Goods S old $322,500 $350,000 322,500-350,000= -$27,500 27,500/350,000x100= -7.85% Operating Expenses $93,500 $85,000 93,500-85,000= $8,500 8,500/85,000 x 100= 10.00% Comment: Decrease in long term liabilities show that the company has been repaying its debts. There is no change in net sales, but cost of goods sold has decreased. Furthermore, there is a increases in current assets, and a decrease in current liabilities, showing that the companyà ¢Ã¢â€š ¬s working capital has increased.Question five: Vertical AnalysisMary Lynn Corporation Vertical Analysis Item 20X2 20X1 Amount Percentage Amount Percentage Current Assets $86,000 40.95% $80,000 36.36% Net Property, Plant, and Equipment $99,000 47.14% $90,000 40.91% Intangibles $25,000 11.90% $50,000 22.73% Total Assets $210,000 100.00%