The comparative balance sheet of Cookie & Coffee Creation Inc. at October 31, 2020 for the years 2020 and 2019, and the income statement for the years of October 31, 2019 and 2020, are presented below:

Additional information:

Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semi-annual payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance.

Calculate the following ratios for 2019 and 2020. (Round current ratio to 2 decimal places, e.g 12.61, debt ot assets and gross profit rate to 0 decimal places, e.g. 12 and all other answers to 1 decimal place e.g. 12.6%.)

Prepare a horizontal analysis of the income statement for Cookie & Coffee Creations Inc. using 2019 as a base year. (If amount and percentage are a decrease show the numbers as negative, e.g. -55,000, -12.25% or (55,000), (12.25%). Round percentages to 0 decimal places, e.g. 12%.)

Prepare a vertical analysis of the income statement for Cookie & Coffee Creations Ins, for 2020 and 2019. (Round percentages to 2 decimal places, e.g. 12.25%. Do not leave any answer field blank. Enter 0 for amounts.)

What impact would borrowing and additional $20,000 to buy more equipment have on each of the ratios in (a) above, assuming that no changes are expected on the income statement and balance sheet?

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Assets Cash Accounts receivable Inventory Prepaid expenses Equipment Accumulated depreciation Total assets COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Dividends payable Salaries and wages payable Interest payable Note payable-current portion Note payable-long-term portion Preferred stock, no par, $6 cumulative- 3,000 and 2,800 shares issued, respectively Common stock, $1 par-25,180 shares issued Additional paid in capital-treasury stock Retained earnings Total liabilities and stockholders' equity 2020 $22,324 3,250 7,897 5,800 102,000 (25,200) $116,071 2019 $5,550 2,710 7,450 6,050 75,500 (9,100) $88,160 ,150 9,251 27,000 7,250 188 4,000 6,000 15,000 25,180 250 20,802 10,800 $116,071 $88,160 $2,4 7,200 27,000 1,280 0 0 0 14,000 25,180 250 COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 Sales Cost of goods sold Gross profit Operating expenses Salaries and wages expense Depreciation expense Other operating expenses Total operating expenses Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Net income 2020 $485,625 222,694 262,931 147,979 17,600 48,186 213,765 49,166 413 2,500 2,913 2019 $462,500 208,125 254,375 146,350 9,100 42,925 198,375 56,000 0 0 0 1. Current ratio 2. Debt to assets 3. Gross profit rate 4. Profit margin 5. Return on assets (Total assets at November 1, 2018, were $33,180.) 6. Return on common stockholders' equity (Total common stockholders' equity at November 1, 2018, was $23,180. Dividends on preferred stock were $16,800 in 2019 and $18,000 in 2020). 2020 :1 % % % % % 2019 :1 % % % % % Sales Cost of goods sold Gross profit Operating expenses Salaries and wages expense Depreciation expense Other operating expenses Total operating expenses Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Net income COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 2020 2019 $485,625 $462,500 222,694 208,125 262,931 254,375 147,979 146,350 17,600 9,100 48,186 42,925 213,765 198,375 49,166 56,000 413 2,500 2,913 46,253 9,251 $37,002 0 0 0 56,000 14,000 $42,000 Difference Horizontal Analysis % % % % % % % % % % % Sales Cost of goods sold Gross profit Operating expenses Salaries and wages expense Depreciation expense Other operating expenses Total operating expenses Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Net income COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 Percentage 2020 $485,625 222,694 262,931 147,979 17,600 48,186 213,765 49,166 413 2,500 2,913 46,253 9,251 $37,002 % % % % 146,350 9,100 42,925 % 198,375 56,000 % % % % % 2019 $462,500 208,125 % 254,375 0 0 0 56,000 14,000 $42,000 Vertical Analysis % % % % % % % % % % % % % 1. Current ratio 2. Debt to assets 3. Gross profit rate 4. Profit margin 5. Return on assets 6. Return on common stockholders' equity Click if you would like to Show Work for Decrease Increase No Change Assets Cash Accounts receivable Inventory Prepaid expenses Equipment Accumulated depreciation Total assets COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Dividends payable Salaries and wages payable Interest payable Note payable-current portion Note payable-long-term portion Preferred stock, no par, $6 cumulative- 3,000 and 2,800 shares issued, respectively Common stock, $1 par-25,180 shares issued Additional paid in capital-treasury stock Retained earnings Total liabilities and stockholders' equity 2020 $22,324 3,250 7,897 5,800 102,000 (25,200) $116,071 2019 $5,550 2,710 7,450 6,050 75,500 (9,100) $88,160 ,150 9,251 27,000 7,250 188 4,000 6,000 15,000 25,180 250 20,802 10,800 $116,071 $88,160 $2,4 7,200 27,000 1,280 0 0 0 14,000 25,180 250 COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 Sales Cost of goods sold Gross profit Operating expenses Salaries and wages expense Depreciation expense Other operating expenses Total operating expenses Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Net income 2020 $485,625 222,694 262,931 147,979 17,600 48,186 213,765 49,166 413 2,500 2,913 2019 $462,500 208,125 254,375 146,350 9,100 42,925 198,375 56,000 0 0 0 1. Current ratio 2. Debt to assets 3. Gross profit rate 4. Profit margin 5. Return on assets (Total assets at November 1, 2018, were $33,180.) 6. Return on common stockholders' equity (Total common stockholders' equity at November 1, 2018, was $23,180. Dividends on preferred stock were $16,800 in 2019 and $18,000 in 2020). 2020 :1 % % % % % 2019 :1 % % % % % Sales Cost of goods sold Gross profit Operating expenses Salaries and wages expense Depreciation expense Other operating expenses Total operating expenses Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Net income COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 2020 2019 $485,625 $462,500 222,694 208,125 262,931 254,375 147,979 146,350 17,600 9,100 48,186 42,925 213,765 198,375 49,166 56,000 413 2,500 2,913 46,253 9,251 $37,002 0 0 0 56,000 14,000 $42,000 Difference Horizontal Analysis % % % % % % % % % % % Sales Cost of goods sold Gross profit Operating expenses Salaries and wages expense Depreciation expense Other operating expenses Total operating expenses Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Net income COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 Percentage 2020 $485,625 222,694 262,931 147,979 17,600 48,186 213,765 49,166 413 2,500 2,913 46,253 9,251 $37,002 % % % % 146,350 9,100 42,925 % 198,375 56,000 % % % % % 2019 $462,500 208,125 % 254,375 0 0 0 56,000 14,000 $42,000 Vertical Analysis % % % % % % % % % % % % % 1. Current ratio 2. Debt to assets 3. Gross profit rate 4. Profit margin 5. Return on assets 6. Return on common stockholders' equity Click if you would like to Show Work for Decrease Increase No Change

Answer rating: 100% (QA)

RATIOS 2020 2019 current ratio 080 057 debt to assets 47 43 gross profit rate 54 55 profit margin 76 ... View the full answer