Kate's Cards SERIAL PROBLEM: KATE'S CARDS (Note: This is a continuation of the Serial Problem: Kate's Cards from Chapter 1 through Chapter 12.) SP13. Kate is very pleased with the results of the first year of operations for Kate's Cards. She ended the year on a high note, with the company's reputation for producing quality cards leading to more busi- ness than she can currently manage. Kate is considering expanding and bringing in several employ. ees. In order to do this, she will need to find a larger location and also purchase more equipment. Ai this means additional financing. Kate has asked you to look at her year-end financial statements as if you were a banker considering giving Kate a loan. Comment on your findings and provide calcula- tions to support your comments. KATE'S CARDS Income Statement Year Ended August 31, 2019 $185,000 106,000 79,000 18,000 11,850 1,200 2,400 Sales revenue. Cost of goods sold Gross profit.. Operating expenses Wages Consulting.. Insurance Utilities Rent Depreciation Total operating expenses. Income from operations Interest expense. Income before income tax Income tax expense Net income 14,400 3,250 51,100 27,900 900 27,000 5,400 $ 21,600 re Chapter 13 Analysis and interpretation of Financial Statements 6 KATE'S CARDS Balance Sheet August 31, 2019 Assets Current assets $17,400 11,000 16,000 1,000 45,400 17,500 3.250 $59.650 Equipment Cash. Accounts receivable Inventory..... Prepaid insurance Toral current assets Accumulated depreciation Total assets Liabilities Current liabilities Accounts payable Uneamed revenue Other current liabilities Total current liabilities Note payable Total Nabiles. Stockholders' equity Common lock $ 6,200 1,250 1,900 9,350 15,000 24,350 Additional sid-in-capital Praterred air.ck.... Retained Aarnings Total stolders' equity... Total tables and stockholders' equity 500 9,500 5,000 20,300 35,300 $59,650 $21,600 3,250 (11.000) (16,000) (1,000) 6,200 1,250 1,900 6,200 KATE'S CARDS Statement of Cash Flows Year Ended August 31, 2019 Cash flow from operating activities Net income..... Add depreciation Increase in accounts receivable Increase in inventory Increase in prepaid expenses. Increase in accounts payable Increase in unearned revenue Increase in other current liabilities Cash provided by operating activities. Cash flow from investing activities Purchase of equipment. Cash used by investing activities Cash flow from financing activities Proceeds from bank note Issuance of common stock. Issuance of preferred stock. Cash dividends Cash provided by financing activities Net increase in cash Cash at beginning of year. (17,500) (17,500 15,000 10,000 5,000 (1,300)* 28,700 17,400 0 $17.400 Cash at end of year Kate issued cash dividends on both the common stock and the preferred stock. There are 50 preferred shares Oustanding and 500 common shares outstanding. The dividends that Kate paid were $6 per share on the preferred Shares and $2 per share on the common shares. Formula Ratio 4 Kate's Cards Serial Problem -- Chapter 13 5 6 7 1 Gross profit percentage 8 2 Return on sales 9 3 Asset turnover 10 4 Return on assets 11 5 Return on common stockholders' equity 12 6 Current ratio 13 7 Quick ratio 14 8 Operating cash flow to current liabilities ratio 15 9 Accounts receivable turnover 16 10 Average collection period 17 11 Inventory turnover 18 12 Days' sales in inventory 19 13 Debt to equity ratio 20 14 Times interest earned ratio 21 15 Operating cash flow to capital expenditures ratio 22 23 24 Analysis: 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46