XYZ Corporation is under investigation for possible financial statement fraud. As a forensic accountant, you have been
Question:
XYZ Corporation is under investigation for possible financial statement fraud. As a forensic accountant, you have been asked to analyze the company's financial statements and identify any potential red flags.
The company's balance sheet for the current year shows the following:
Cash and cash equivalents: $500,000
Accounts receivable: $700,000
Inventory: $1,000,000
Property, plant, and equipment: $2,500,000
Accumulated depreciation: $500,000
Accounts payable: $900,000
Notes payable: $1,000,000
Common stock: $1,000,000
Retained earnings: $1,300,000
Based on this information, answer the following questions:
(a) Calculate the company's current ratio and quick ratio. Interpret the ratios and explain what they indicate about the company's liquidity.
(b) Calculate the company's debt-to-equity ratio and debt-to-total-assets ratio. Interpret the ratios and explain what they indicate about the company's solvency.
(c) Calculate the company's inventory turnover ratio and average days in inventory. Interpret the ratios and explain what they indicate about the company's inventory management.
(d) Based on your analysis, do you identify any potential red flags? Explain your answer.
Note: Round all ratios to two decimal places.
Financial Accounting
ISBN: 978-1259103285
5th Canadian edition
Authors: Robert Libby, Patricia Libby, Daniel Short, George Kanaan, M