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Q: Financial Accounting Balance Sheet and Ratios ( No Answer,   0 Comments )
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 Subject: Financial Accounting Balance Sheet and Ratios Category: Business and Money > Accounting Asked by: urbs44-ga List Price: \$25.00 Posted: 10 May 2006 06:34 PDT Expires: 11 May 2006 20:18 PDT Question ID: 727258
 ```Hello everyone. I am trying to solve a financial accounting problem realating to a practice test. If any of you could help me, I would truly appreciate it. Here it is: 14-4 Comparing Loan Requests from Two Companies Using Several Ratios The 2004 financial statements for Rand and Tand companies are summarized here: Balance Sheet Rand Tand Cash \$25,000 \$45,000 Accounts receivable(net) 55,000 5,000 Inventory 110,000 25,000 Operational assets(net) 550,000 160,000 Other assets 140,000 57,000 Total assets \$880,000 \$292,000 Current liabilities \$120,000 \$15,000 Long-term debt (12%) 190,000 \$55,000 Capital stock (par \$20) 480,000 210,000 Contributed capital in excess of par 50,000 4,000 Retained earnings 40,000 8,000 Total liabilities and stockholders? equity \$880,000 \$292,000 Income Statement Sales revenue (on credit) (½)\$800,000 (1/4)\$280,000 Cost of goods sold (480,000) (150,000) Expenses(include interest and income tax) (240,000) (95,000) Net income \$80,000 35,000 Selected Data from the 2003 Statements Accounts receivable, net \$47,000 \$11,000 Long-term debt (12%) 190,000 55,000 Inventory 95,000 38,000 Other Data Per share price at the end of 2004 \$ 14.00 \$ 11.00 Average income tax rate %30 %30 Dividends declared and paid in 2004 \$ 20,000 \$ 9,000 These two companies are in the same line of business and in the same state but in different cities. Each company has been in operation for about 10 years. Rand Company is audited by one of the national accounting firms; Tand Company is audited by a local accounting firm. Both companies received an unqualified opinion (i.e., the independent auditors found nothing wrong) on the financial statements. Rand Company wants to borrow \$75,000 cash, and Tand Company needs \$30,000. The loans will be for a two-year period and are needed for ?working capital purposes.? Required: 1. Complete a schedule that reflects a ratio analysis of each company. Compute the ratios below. 2. Assume that you work in the loan department for a local bank. You have been asked to analyze the situation and recommend which loan is preferable. Based on the data given, your analysis prepared in requirement 1, and other information, give your choice and supported explanation. Formulas: Tests on Profitability 1. Return on equity (ROE) Income/ Average Owners? Equity 2. Return on assets (ROA) (Income + Interest Expense(net of tax)/ Average Total Assets 3. Financial leverage percentage Return on Equity ? Return on Assets 4. Earnings per share (EPS) Income/ Average Number of Shares of Common Stock Outstanding 5. Quality of income Cash Flows from Operating Activities/ Net Income 6. Profit margin Income(before extraordinary items)/ Net Sales Revenue 7. Fixed asset turnover Net Sales Revenue/ Average Net Fixed Assets Tests on Liquidity 8. Cash ratio (Cash + Cash Equivalents)/ Current Liabilities 9. Current ratio Current Assets/ Current Liabilities 10. Quick ratio Quick Assets/ Current Liabilities 11. Receivable turnover Net Credit Sales/ Average Net Receivables 12. Inventory turnover Cost of Goods Sold/ Average Inventory Tests of Solvency 13. Times interest earned (Net Income + Interest + Income Tax Expense)/ Interest Expense 14. Cash coverage Cash Flows from Operating Activities/ Interest Paid (before interest and tax expense) 15. Debt-to-equity Total Liabilities/ Owners? Equity Market Tests 16. Price/earnings ratio Current Market Price per Share/ Earnings per Share 17. Dividend yield Dividends per Share/ Market Price per Share```