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Comparative financial Statements for Track Ltd are shown below.
TRACK LTD, Income Statement, For the Year Ended 31-Dec.
2014 2013
Net sales $1,000,000 $940,000
Cost of goods sold 650,000 635,000
Gross profit 350,000 305,000
Operating expenses 200,000 180,000
Profit from operations 150,000 125,000
Interest expense (net) 35,000 35,000
Profit before income taxes 115,000 90,000
Income tax expense 17,250 13,500
Profit $97,750 $76,500
TRACK LTD., Balance Sheet, 31-Dec. IN THE TWO BLANK LINES INSERT A FORMULA TO CALCULATE
CURRENT ASSETS & CURRENT LIABILITIES NOTE DON’T INCLUDE CELL WITH THE YEAR
Assets 2014 2013 2012 2014 2013
Cash $50,000 $42,000 $33,000 QUICK ASSETS QUICK ASSETS
Accounts receivable 100,000 87,000 77,000
Inventories 240,000 200,000 150,000
Prepaid expenses 25,000 31,000 30,000
Long-term debt investments 180,000 100,000 50,000
Land 75,000 75,000 75,000
Building and equipment 570,000 600,000 660,000
Total assets $1,240,000 $1,135,000 $1,075,000
Liabilities and Shareholders’ Equity
Liabilities
Notes payable $125,000 $125,000 $125,000
Accounts payable 160,750 140,000 71,000
Accrued liabilities 52,000 50,000 20,000
Bonds payable, due 2018 100,000 100,000 200,000
Total liabilities 437,750 415,000 416,000
Shareholders’ equity
Preferred shares 200,000 200,000 200,000
Common shares (100,000 issued) 300,000 300,000 300,000
Retained earnings 302,250 220,000 159,000
Total shareholders’ equity 802,250 720,000 659,000
Total liabilities and shareholders’ equity $1,240,000 $1,135,000 $1,075,000
Additional information.
1. All sales are on account.
2.Cash provided from operating activities for was $133,500 in 2014 and $180,500 in 2013.
3. Cash used by investing activities was $110,000 in 2014 and $51,660 in 2013.
Instructions USE CELL FORMULAE NOT NUMBERS WHEREEVER POSSIBLE
(a) Calculate the following ratios for 2013 and 2014. Indicate whether the change was Favourable (F)
or Unfavourable (U).
(b) Explain whether the liquidity, solvency and profitability has improved or not and why?.
Ratio 2014 2013 Comparison (F),(U)
Current ratio
Acid-test ratio
Receivables turnover
Inventory turnover
Debt to total assets
Ratio 2014 2013 Comparison (F),(U)
Interest coverage
Free cash flow
Profit margin
Asset turnover
Return on assets
(b) Explain whether the liquidity, solvency and profitability has improved or not and why?.
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