Question

Shown below is selected information from the financial statements of Downing, Inc., a retail furniture store.
From the balance sheet:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Plant assets (net of accumulated depreciation) . . . . . . . . . . . . . . . . . . . . . . . 500,000
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
From the income statement:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . 84,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .... . 6,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... . . 15,000
From the statement of cash flows:
Net cash provided by operating activities
(including interest paid of $79,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,000
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . (46,000)
Financing activities:
Amounts borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000
Repayment of amounts borrowed . . . . . . . . . . . . . . . . . . . . . . (14,000)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,000)
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . ... .. .16,000
Net increase in cash during the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . $ 10,000

Instructions
a. Explain how the interest expense shown in the income statement could be $84,000, when the interest payment appearing in the statement of cash flows is only $79,000.
b. Compute the following (round to one decimal place):
1. Current ratio
2. Quick ratio
3. Working capital
4. Debt ratio
c. Comment on these measurements and evaluate Downing, Inc.’s short-term debt-paying ability.
d. Compute the following ratios (assume that the year-end amounts of total assets and total stockholders’ equity also represent the average amounts throughout the year):
1. Return on assets
2. Return on equity
e. Comment on the company’s performance under these measurements. Explain why the return on assets and return on equity are so different.
f. Discuss
(1) The apparent safety of long-term creditors’ claims and
(2) The prospects for Downing, Inc., continuing its dividend payments at the present level.



$1.99
Sales0
Views281
Comments0
  • CreatedApril 17, 2014
  • Files Included
Post your question
5000