Pluto$$s Pct Store Limited

Youssef & Emma have just won the lottery and have been approached by a local company for them to provide them with a loan. Pluto$$s is looking for a $$200,000$ loan so they can purchase a new building. Emma and Youssef know that you are currently taking an accounting course and have come to you for assistance. They have provided you with the income statement, balance sheet and statement of cash flows for the last $2$ years for the company, Pluto$$s Pet Store Limited, as well as some selected industry averages for $2023.$

Additional Information:

Pluto$$s Pet Store has $10,000$ common shares outstanding at December $31,2022$ & $2023.$ The market value of the shares was $$15/$ share on December $31,2022$ & $$12/$ share on December $31,2023.$

Dividends declared & paid $2023$ $$36,400$

Dividends declared & paid $2022$ $$30,000$

Selected data from December $31,2021,$ yearend financial statements:

Accounts receivable s $36\mathrm{.}000$

Inventory $90,000$

Total assets $308,600$

Accounts payable $58,900$

Shareholders$$ equity $127,600$

Selected industry averages for $2023$:

Gross profit margin ratio $35\mathrm{.}00\%$

Return on sales $($net profit margin$)9\%$

Rate of return on assets

Debt ratio $0\mathrm{.}6$

Days inventory outstanding $70$

Earnings per share $7\mathrm{.}0$

Quick Ratio $0\mathrm{.}90$

Required:

$1.$ Prepare a ratio analysis for Pluto's Pet Store Limited $($you must calculate at least $1$ ratios$)$

$2.$ Prepare a memo for Youssef & Emma advising them on whether they should provide Pluto's Pet Store Limited with the loan. The memo should include a discussion on $4$ ratios, the strengths or weaknesses identified in the statement of cash flows and your recommendation on whether they should make the loan.

Pluto's Pct Store Limited Income Statement

Year Ended December $31,2023$

$20232022$

Sales $700,000450,000$

Cost of goods sold $450,000300,000$

Selling & Admin $250,000150,000$

Advertising $15,0007,500$

Depreciation expense $9,0007,000$

Insurance expense $2,4002,000$

Office supplies expense $7,6003,500$

Salary expense $98,00050,000$

Utilities expense $18,00015,000$

$150,00085,000$

Income before interest & income tax $100,00065,000$

Interest expense $10,0004,000$

Income before income taxes $90,00061,000$

Income tax expense $18,00012,400$

Net income $72,00048,600$

Pluto's Pct Storc Limited

Balance Shcct

December $31,2023$

Current Assets $20232022$

Cash $25,00020,000$

Accounts receivable, net $55,00045,000$

Inventory

Prepaid expenses $100,00085,000$

$600400$

$180,000$

$150,400$

Property Plant and equipment $300,000200,000$

Accumulated depreciation $-$PPE $-45,000$

$-36,000$

$435,000314,000$

LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities

Accounts payable $65,90067,150$

Salary payable $1,100450$

Income taxes payable $18,00012,400$

$85,00080,000$

Note payable $165,60085,000$

Total Liabilities

$250,600165,000$

Shareholders' Equity

Common shares $20,00020,000$

Retained earnings $165,000$

$129,400$

$185,000149,400$

Total shareholders' equity $435,600314,400$

Pluto's Pct Storc Limited

Statement of Cash Flows

Year ended December $31,2023$

$20232022$

Cash flows from operating activities:

Net income $72,00048,600$

Adjustments to reconcile net income to net.

cash provided by operating activities $-11,200-18,600$

Net cash provided by $($used for$)$ operating activities $60,80030,000$

Cash flows from investing activities

Purchase of property, plant, and equipment $-100,000-25,000$

Proceeds from sale of property, plant, and equipment $10,000$

Net cash provided by $($used for$)$ investing activities $-100,000-15,000$

Cash flows from financing activities

Proceeds from issuance of shares $5,000$

Borrowed Money $90,00010,000$

Payment of dividends $-36,000-30,000$

Repayment of long$-$term debt $-9,400-8,500$

Net cash provided by $($used for$)$ financing activities $44,200-23,500$

Net increase$/$decrease in cash and cash equivalents $5,000-8,500$

Cash, beginning of year $20,00028,500$

Cash, end of year $25,00020,000$