You, the accountant, are analyzing Nolans Corporation. Nolans corp. has expanded its production facilities by 200% since 2016. The income statements for the last three year are below:

Nolan Security Corporation
Statement of Financial Position
At December 31, 2020
Assets		Liabilities
Current		Current
Cash	$100	Accounts Payable	$300
Accounts Receivable	200	Wages Payable	50
Merchandise Inventory	500	Dividends Payable	50
Prepared Expenses	50		400
	850
Non-current		Non-current
Property, plant & equipment (net)	1,000	Loan Payable	800
			1,200
		Shareholders’ Equity
		Common Shares	500
		Retained Earnings	150
		Total Shareholder’s Equity	650
Total Assets	$1,850	Total Liability and Equity	$1,850

Requirements: Show all work.

1. Calculate current ratio, acid-test ratio, and debt to shareholder’s equity ratio.

2. Discuss the meaning of each ratio result. (What do these ratios mean for Nolans Security?)

Part III: The following balance sheet (statement of financial position) is presented for LevelUp Corporation.

LevelUp Corporation
Statement of Financial Position
At December 31, 2020
Assets		Liabilities
Current		Current
Cash	$60	Accounts Payable	$100
Accounts Receivable	140	Loan Payable	20
Merchandise Inventory	250	Notes Payable	60
Prepared Expenses	10		180
	460
Non-current		Non-current
Property, plant & equipment (net)	330	Loan Payable	140
			320
		Shareholders’ Equity
		Preferred shares, 10% (8 shares)	120
		Common shares (50 shares)	250
		Retained earnings	100
			470
Total Assets	$790	Total Liability and Equity	$790

LevelUp Corporation
Income Statement
For the Year Ending December 31, 2020
Net Sales (all on credit)	$800
Cost of Goods Sold	600
Gross Profit	200
Selling and Administration Expenses	100
Income from Operations	100
Interest Expense	20
Income before Income Taxes	80
Income Taxes	30
Net Income	$50

Additional information from December 31, 2019 statement of financial position:

Accounts receivable                            $180

Merchandise inventory                        200

Property, Plant and Equipment (net) 250

Retained earnings                                   80

Preferred shares                                  120

Common Shares                                  250   

Requirements:

1. Compute the following ratios, showing all work.

Current ratio

Acid-test ratio

Accounts receivable collection period

Number of days of sales in inventory

Debt to shareholders’ equity ratio

Return on shareholder’s equity

2. What do these ratios tell you about the Level Up Corporation?

Answer rating: 100% (QA)

Here are the calculations and analysis for Nolans Security Corporation 1 Current ratio Current Asset... View the full answer