Calgary Compressor and Pnew Brunswick Pneumatic are competing manufacturing firms. Their financial statements are printed here.

a. How are the current assets of each firm financed?

b. Which firm has the larger investment in current assets? Why?

c. Which firm is more likely to incur carrying costs, and which is more likely to incur shortage costs? Why?

CALGARY COMPRESSOR

Statement of Comprehensive Income 2015

Income:

Sales..........................................................$162,749

Other income................................................ 1,002

Total income............................................$163,751

Operating expenses:

Cost of goods sold................................... 103,570

Selling and administrative expenses....... 28,495

Depreciation................................................. 2,274

Total expenses........................................$134,339

Pre-tax earnings......................................... 29,412

Taxes........................................................... 14,890

Net earnings............................................ $ 14,522

Dividends................................................... $ 9,845

Retained earnings..................................... $ 4,677

PNEW BRUNSWICK PNEUMATIC

Statement of Comprehensive Income 2015

Income:

Sales..............................................................$91,374

Other income.................................................. 1,067

Total income................................................$92,441

Operating expenses:

Cost of goods sold........................................ 59,042

Selling and administrative expenses......... 18,068

Depreciation................................................... 1,154

Total expenses............................................$78,264

Pre-tax earnings........................................... 14,177

Taxes............................................................... 6,838

Net earnings............................................... $ 7,339

Dividends.................................................... $ 4,905

Retained earnings...................................... $ 2,434

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CALGARY COMPRESSOR Statement of Financial Position 2014 2015 Assets Current assets: Cash Net accounts receivable Inventory S16,339 13,862 23,887 43,287 54,867 $ 85,404 $ 92,616 25,778 Total current assets Fixed assets: Plant property, and equipment 99.615101,543 Less: accumulated depreciation (31,957 (34,331) Net fixed assets Prepaid expenses Other assets Total assets S 67,658 67,212 1,914 13,052 $167,991 $174,794 1,791 13.138 Liabilities and equity Current liabilities: Accounts payable Notes payable Accrued expenses Other taxes payable S 4,893 6,494 10,483 7,422 9,924 34,323 22,036 54,233 56,359 11.617 7,227 8.460 32,197 22.036 у Total current liabilities Long-term debt Total liabilities Equity: Common stock Paid-in capital Retained earnings Total equity 38,000 12,000 68,435 118,435 $167,991 $174,794 38.000 12.000 63.758 113.758 Total liabilities and equity PNEW BRUNSWICK PNEUMATIC Statement of Financial Position 2014 2015 Assets Current assets: Cash Net accounts receivable Inventory $5,794 3,307 22,133 44.661 $70,101 26,177 46,463 $78,434 Total current assets Fixed assets: Plant, property, and equipment 31,842 31,116 297) (18,143) $12,973 688 Less: accumulated depreciation Net fixed assets Prepaid expenses Other assets Total assets $12,545 763 1,601 $93,343 85.147 Liabilities and equity Current liabilities: Accounts payable Bank loans Accrued expenses Other taxes payable $6,008 3,722 4,254 5,688 $19,672 5,019 645 3,295 4.951 $13,910 Total current liabilities Equity: Common stock Paid-in capital Retained earnings Less: Treasury s 20,576 5,624 46,164 ,127 (1,127) $73,671$71,237 $85.147 20,576 5,624 48,598 tock Total equity Total liabilities and equity $93,343