Question 2 (Total 20 marks)Part a (10 marks)The financial statements of Giant Company appear below:GIANT COMPANYComparative Statements of Financial PositionDecember 31,2020 and 2019Assets20202019Cash.$25,000$40,000Short-term investments.15,00060.000Accounts receivable (net).50,00030,000Inventorv50,00070,000Property,plant and equipment (net).260.000300.000Total assets$400.000$500.000Liabilities and stockholders’equityAccounts payable..$20,000$30,000Short-term notes payable.30.00090.000Bonds payable90,000160,000Share capital -Ordinary..150,000150,000Retained earnings.110.00070.000Total liabilities and stockholders’equity.$400.000$500.000GIANT COMPANYIncome StatementFor the Year Ended December 31.2020Net sales.$400,000Cost of goods sold.240.000Gross profit.160,000ExpensesOperating expenses.$42,000Interest expense.18.000Total expenses.60.000Income before income taxes.100.000Income tax expense.30.000Net income.$70.000Additional information:a.Cash dividends of $23,000 were declared and paid in 2020.Weighted-average number of ordinary shares stock outstanding during 2020was 30.000 shares.Market value of ordinary shares on December 31,2020,was $21 per share.2021-2022 Semester OneRequired:Using the financial statements and additional information,compute theratios for Giant Company for 2020.Show all computations.Computat1.Current ratioReturn on ordinary shareholders’equity34Price-earnings ratioAcid-test ratio56Receivables turnoverTimes interest earned78Profit marginDays’sales in inventory9.Dividend yield10.Return on assets.Part B:(6 marks)Comparative information taken from the Wyatt Company’s financial statements isshown below:20212020Notes receivable$20,000$-0-Accounts receivable175.000140.000Retained earnings30,000(40,000)Income taxes payable55.00020.000Sales900.000750,000Operating expenses160,000200,000Required:Using horizontal analysis,show the percentage change from 2020 to 2021 with 2020as the base year.Show your calculations where appropriate.Part C:(4 marks)You are an accountant of ABC Company.Your supervisor has asked you tocomment on the following information from the company’s most recent annualreport1.This year,net income was $5.25 million and the net sales were $43.75 million._ast year’s net income was $5 million and the net sales were $33.5 million.2The current ratio has changed to 2:1 from last year’s 1.5:13.The debt/total assets ratio has changed to 4:5 from last year’s 3:5.The companypurchased three(3)pieces of new manufacturing machines.4.Current year’s receivables turnover is 11 times while last year’s was 10 times;theaverage collection period is 33.2 days this year and 36.5 days last year.Thecredit terms are 2/10,n/30.2021-2022 Semester oneRequired:Write at least two (2)complete sentences to analyze each of the above four items.
