The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2018 for the years 2018 and 2017, and the income statements for the years ended October 31, 2017 and 2018, are presented below.

COOKIE & COFFEE CREATIONS INC.

Income Statement

Year Ended October 31

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.

Instructions

(a) Calculate the following ratios for 2017 and 2018.

1. Current ratio

2. Debt to total assets

3. Gross profit rate

4. Profit margin

5. Return on assets (Total assets at November 1, 2016, were $33,180.)

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COOKIE & COFFEE CREATIONS INC. Assets Cash Accounts receivable Inventory Prepaid expenses Equipment Accumulated depreciation Total assets 2018 $ 22,324 3,250 7,897 5,800 102,000 (25,200) $116,071 2017 $ 5,550 2,710 7,450 6,050 75,500 (9,100) $88,160 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 $ 1,150 9,251 27,000 7,250 188 4,000 6,000 15,000 $ 2,450 7,200 27,000 1,280 0 0 0 14,000 Common stock, $1 par-25,180 shares issued Additional paid in capital-treasury stock Retained earnings Total liabilities and stockholders' equity 25,180 250 20,802 $116,071 25,180 250 10,800 $88,160 Sales Cost of goods sold Gross profit Depreciation expense Other operating Operating expenses 147,979 Salaries and wages expense expenses Total operating 2018 expenses $485,625 222,694 262,931 17,600 48,186 213,765 2017 $462,500 208,125 254,375 146,350 9,100 42,925 198,375 Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Additional information: 49,166 413 2,500 2,913 46,253 9,251 $ 37,002 0 0 0 56,000 56,000 14,000 $ 42,000 COOKIE & COFFEE CREATIONS INC. Assets Cash Accounts receivable Inventory Prepaid expenses Equipment Accumulated depreciation Total assets 2018 $ 22,324 3,250 7,897 5,800 102,000 (25,200) $116,071 2017 $ 5,550 2,710 7,450 6,050 75,500 (9,100) $88,160 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 $ 1,150 9,251 27,000 7,250 188 4,000 6,000 15,000 $ 2,450 7,200 27,000 1,280 0 0 0 14,000 Common stock, $1 par-25,180 shares issued Additional paid in capital-treasury stock Retained earnings Total liabilities and stockholders' equity 25,180 250 20,802 $116,071 25,180 250 10,800 $88,160 Sales Cost of goods sold Gross profit Depreciation expense Other operating Operating expenses 147,979 Salaries and wages expense expenses Total operating 2018 expenses $485,625 222,694 262,931 17,600 48,186 213,765 2017 $462,500 208,125 254,375 146,350 9,100 42,925 198,375 Income from operations Other expenses Interest expense Loss on disposal of plant assets Total other expenses Income before income tax Income tax expense Additional information: 49,166 413 2,500 2,913 46,253 9,251 $ 37,002 0 0 0 56,000 56,000 14,000 $ 42,000