CHAPTER $18$

Cookie Creations

$($Note: This is a continuation of the Cookie Creations from Chapters $1$ through $17.)$

CC$18$ The balance sheet and income statement of Cookie & Coffee Creations Inc. for

its first year of operations, the year ended October $31,2024,$ follows.

COOKIE & COFFEE CREATIONS INC.

Balance Sheet

October $31,2024$

Assets

Current assets

Liabilities$\_$and Steckholders' Equity

Current liabilities

Total liabilities

Paid$-$in capital

Preferred stock, $2,800$ shares issued and outstanding $$14,000$

Common stock, $25,930$ shares issued, $25,180$

Retained earnings

Total paid$-$in capital and retained earnings

Less: Treasurv stock$-$common $(750$ shares$).$ at cos

Total stockholders' equity

Total liabilities and stockholders' equity

COOKIE & COFFEE CREATIONS INC.

Income Statement

Year Ended October $31,2024$

Additional information:

Natalie and Curtis are thinking about borrowing an additional $$20,000$ to buy more

equipment. The loan would be repaid over a $4-$year period. The terms of the loan provide

for equal semiannual installment payments of $$2,500$ on May $1$ and November $1$ of each

year, plus interest of $5\%$ on the outstanding balance. Dividends on preferred stock were

$$1,400.$ Since this is the first year of operations and the beginning balances are zero,

use the ending balance as the average balance where appropriate.

Instructions

$($a$)$ Calculate the following ratios.

Current ratio

Accounts receivable turnover

Inventory turnover

Debt to assets ratio

Times interest earned

Gross profit rate

Profit margin

Asset turnover

Return on assets

Return on common stockholders' equity

$($b$)$ Comment on your findings from part $($a$).$

$($c$)$ Based on your analysis in parts $($a$)$ and $($b$),$ do you think a bank would lend Cookie

& Coffee Creations Inc. $$20,000$ to buy the additional equipment? Explain your

reasoning.

$($d$)$ What alternatives could Cookie & Coffee Creations Inc. consider instead of bank

financing?