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 2021, $5,000 in 2020, and $3,000 in 2019.

3. In 2021 and 2020, dividends of $3,000 and $8,000, respectively, were paid to the common shareholders.

4. Cash provided by operating activities was $103,500 in 2021 and $129,000 in 2020.

5. Cash used by investing activities was $115,500 in 2021 and $35,000 in 2020.

Instructions

a. Calculate all possible liquidity, solvency, and profitability ratios for 2021 and 2020.

b. Identify whether the change in each ratio from 2020 to 2021 calculated in part (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 2020 and 2021.

Taking It Further

Does this problem employ an intracompany comparison or an intercompany comparison? Which do you think is more useful?

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CLICK AND CLACK LTD. Income Statement Year Ended December 31 2021 2020 Net sales $900,000 $840,000 Cost of goods sold Gross profit Operating expenses 625,000 575,000 275,000 265,000 164,000 160,000 Profit from operations Other revenues and expenses 111,000 105,000 Interest expense 35,000 20,000 Profit before income tax 76,000 85,000 20,000 Income tax expense 18,750 Profit $ 57,250 $ 65,000 CLICK AND CLACK LTD. Balance Sheet December 31 Assets 2021 2020 2019 Cash $ 95,000 $ 85,000 $ 10,000 Accounts receivable 114,000 110,000 108,000 Inventories 130,000 125,000 97,000 Prepaid expenses Land, buildings, and equipment 25,000 23,000 115,000 390,000 300,000 305,000 $648,000 Total assets $754,000 $630,000 Liabilities and Shareholders' Equity Liabilities Notes payable Accounts payable $100,000 42,000 $110,000 $100,000 45,000 60,000 Accrued liabilities 32,000 40,000 30,000 Bonds payable, due 2024 190,000 150,000 181,000 Total liabilities 377,000 332,000 371,000 Shareholders' equity Common shares (20,000 issued) Retained earnings Total shareholders' equity 200,000 200,000 200,000 177,000 116,000 59,000 377,000 316,000 259,000 Total liabilities and shareholders' equity $754,000 $648,000 $630,000