Comparative financial statements for Click and Clack Ltd. are shown below.

Additional information:
1. Seventy-five percent of the sales were on account.
2. The allowance for doubtful accounts was $4,000 in 2014, $5,000 in 2013, and $3,000 in 2012.
3. In 2014 and 2013, dividends of $3,000 and $8,000, respectively, were paid to the common shareholders.
4. Cash provided by operating activities was $73,500 in 2014 and $129,000 in 2013.
5. Cash used by investing activities was $115,500 in 2014 and $35,000 in 2013.
Instructions
(a) Calculate all possible liquidity, solvency, and profitability ratios for 2014 and 2013.
(b) Identify whether the change in each ratio from 2013 to 2014 calculated in (a) was favourable (F), unfavourable
(U), or no change (NC).
(c) Explain whether overall
(1) Liquidity,
(2) Solvency, and
(3) Profitability improved, deteriorated, or remained the same between 2013 and 2014.
Taking It Further
Does this problem employ an intra company comparison or an intercompany comparison?
Which do you think is more useful?
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Transcribed Image Text:

CLICK AND CLACK LTD Income Statement Year Ended December 31 Net sales Cost of goods sold Gross proft Operating expenses Profit from operations Other revenues and expenses 2014 $900,000 620,000 280,000 164,000 116,000 2013 $840,000 575,000 265,000 160,000 105,000 Interest expense (35,000) (20,000) Gain on fair value adjustment of trading investments Profit before income tax Income tax expense Profit 5,000 86,000 22,000 64,000 0 85,000 20,000 65,000 CLICK AND CLACK LTD Balance Sheet Accounts receivable Land, buildings, and equipment iabilities and Shareholde Bonds payable, due 2018 Shareholders' equity Common shares (20,000 issued) Total shareholders' equity Total liabilities and shareholders equity