Question: (This is a continuation of the Waterways Problem from Chapters 1 through 13.) WCP14 The comparative balance sheets of Waterways Corporations Irrigation Installation Division for
(This is a continuation of the Waterways Problem from Chapters 1 through 13.)
WCP14 The comparative balance sheets of Waterways Corporations Irrigation Installation
Division for the years 2016 and 2017 and the income statements for the year 2016 and
2017 are presented below.
Additional information:
85% of the sales for Waterways were credit sales. There are 5,000 shares outstanding for
both years. This is a private corporation, whose shares are not available to the public.
WATERWAYS CORPORATIONINSTALLATION DIVISION
Balance Sheets
December 31
Assets 2017 2016
Current assets
Cash $ 836,797 $ 746,681
Accounts receivable 680,750 542,685
Work in process 702,159
Inventory 16,766 7,500
Prepaid expenses 76,550 42,590
Total current assets 2,313,022 1,339,456
Property, plant, and equipment
Land 300,000 300,000
Buildings 450,000 450,000
Equipment 929,400 800,200
Furnishings 40,416 40,416
Accumulated depreciation (482,523) (485,204)
Total property, plant, and equipment 1,237,293 1,105,412
Total assets $3,550,315 $2,444,868
Liabilities and Stockholders Equity
2017 2016
Current liabilities
Accounts payable $ 157,095 $ 128,360
Income taxes payable 101,344 79,989
Wages payable 4,517 1,984
Interest payable 1,187
Other current liabilities 14,515 15,246
Revolving bank loan payable 15,000
Total current liabilities 293,658 225,579
Long-term liabilities
Note payable 140,000
Total liabilities 433,658 225,579
Stockholders equity
Common stock 1,250,000 1,250,000
Retained earnings 1,866,657 969,289
Total stockholders equity 3,116,657 2,219,289
Total liabilities and stockholders equity $3,550,315 $2,444,868
WATERWAYS CORPORATIONINSTALLATION DIVISION
Income Statements
For the Year Ending December 31
2017 2016
Sales $5,536,077 $4,957,266
Less: Cost of goods sold 3,132,777 2,807,316
Gross profit 2,403,300 2,149,950
Operating expenses
Advertising 50,000 48,000
Insurance 400,000 400,000
Salaries and wages 584,640 554,640
Depreciation 71,319 62,319
Other operating expenses 21,200 18,476
Total operating expenses 1,127,159 1,083,435
Income from operations 1,276,141 1,066,515
Other income
Gain on sale of equipment 18,000
Other expenses
Interest expense (12,187)
Income before income tax 1,281,954 1,066,515
Income tax expense 384,586 319,955
Net income $ 897,368 $ 746,56
Instructions
(a) Prepare a horizontal analysis of the income statement using 2016 as the base year.
(b) Prepare a vertical analysis of the income statement for 2017.
(c) Calculate the following ratios for 2017 and indicate whether the ratio is a liquidity,
solvency, or profitability ratio.
(1) Asset turnover ratio.
(2) Receivables turnover ratio.
(3) Average collection period.
(4) Current ratio.
(5) Debt to total assets ratio.
(6) Earnings per share.
(7) Profit margin rate.
(9) Return on assets ratio.
(10) Return on common stockholders equity ratio.
(11) Times interest earned ratio.
(d) Comment on your findings.
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