Purple Power Company Comparative Balance Sheet For the Year Ended December 31 20

Question

Purple Power Company Comparative Balance Sheet For the Year Ended December 31 2018 and 2017 2018 2017 Assets         Current assets:              Cash $960,000 $1,260,000      Marketable securities $0 $300,000      Accounts receivable, net $2,700,000 $1,800,000      Inventory $3,900,000 $2,400,000      Prepaid expenses $240,000 $180,000 Total current assets $7,800,000 $5,940,000 Plant and equipment, net $9,300,000 $8,940,000 Total assets $17,100,000 $14,880,000 Liabilities and Stockholders' Equity Liabilities:      Current liabilities $3,900,000 $2,760,000      Note payable, 10% $3,600,000 $3,000,000 Total liabilities $7,500,000 $5,760,000 Stockholders' equity:       Common stock, $78 par value $7,800,000 $7,800,000       Retained earnings $1,800,000 $1,320,000 Total stockholders' equity $9,600,000 $9,120,000 Total liabilities and stockholders' equity $17,100,000 $14,880,000 Purple Power Company Comparative Income Statement and Reconciliation For the Year Ended December 31 2018 and 2017 2018 2017 Sales (all on account) $15,750,000 $12,480,000 Cost of goods sold $12,600,000 $9,900,000 Gross margin $3,150,000 $2,580,000 Selling and administrative expenses $1,590,000 $1,560,000 Net operating income $1,560,000 $1,020,000 Interest expense $360,000 $300,000 Net income before taxes $1,200,000 $720,000 Income taxes (30%) $360,000 $216,000 Net income $840,000 $504,000 Common dividends $360,000 $252,000 Net income $840,000 $504,000 Beginning retained earnings $1,320,000 $1,068,000 Ending retained earnings $1,800,000 $1,320,000 Purple Power In Class Assignment PART TWO This Year Last Year a. The times interest earned ratio. b. The debt-to-equity ratio. c. The gross margin percentage. d. The return on total assets. (Total assets at the beginning of last year were $12,960,000.) e. The return on equity. (Stockholders’ equity at the beginning of last year totaled $9,048,000. There has been no change in common stock over the last two years.) f. Is the company’s financial leverage positive or negative?* PART THREE This Year Last Year a. The earnings per share. b. The dividend yield ratio. c. The dividend payout ratio. d. The price-earnings ratio. e. The book value per share of common stock. PART FOUR This Year Last Year a. Working capital. b. The current ratio. c. The acid-test ratio. d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,560,000.) e. The average sale period. (The inventory at the beginning of last year totaled $1,920,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year totaled $14,500,000.) * Leverage is positive if the return on equity is greater than the return on assets. Purple Power Company Comparative Balance Sheet For the Year Ended December 31 2018 and 2017 2018 2017 Assets         Current assets:              Cash $960,000 $1,260,000      Marketable securities $0 $300,000      Accounts receivable, net $2,700,000 $1,800,000      Inventory $3,900,000 $2,400,000      Prepaid expenses $240,000 $180,000 Total current assets $7,800,000 $5,940,000 Plant and equipment, net $9,300,000 $8,940,000 Total assets $17,100,000 $14,880,000 Liabilities and Stockholders' Equity Liabilities:      Current liabilities $3,900,000 $2,760,000      Note payable, 10% $3,600,000 $3,000,000 Total liabilities $7,500,000 $5,760,000 Stockholders' equity:       Common stock, $78 par value $7,800,000 $7,800,000       Retained earnings $1,800,000 $1,320,000 Total stockholders' equity $9,600,000 $9,120,000 Total liabilities and stockholders' equity $17,100,000 $14,880,000 Purple Power Company Comparative Income Statement and Reconciliation For the Year Ended December 31 2018 and 2017 2018 2017 Sales (all on account) $15,750,000 $12,480,000 Cost of goods sold $12,600,000 $9,900,000 Gross margin $3,150,000 $2,580,000 Selling and administrative expenses $1,590,000 $1,560,000 Net operating income $1,560,000 $1,020,000 Interest expense $360,000 $300,000 Net income before taxes $1,200,000 $720,000 Income taxes (30%) $360,000 $216,000 Net income $840,000 $504,000 Common dividends $360,000 $252,000 Net income $840,000 $504,000 Beginning retained earnings $1,320,000 $1,068,000 Ending retained earnings $1,800,000 $1,320,000 Purple Power In Class Assignment PART TWO This Year Last Year a. The times interest earned ratio. b. The debt-to-equity ratio. c. The gross margin percentage. d. The return on total assets. (Total assets at the beginning of last year were $12,960,000.) e. The return on equity. (Stockholders’ equity at the beginning of last year totaled $9,048,000. There has been no change in common stock over the last two years.) f. Is the company’s financial leverage positive or negative?* PART THREE This Year Last Year a. The earnings per share. b. The dividend yield ratio. c. The dividend payout ratio. d. The price-earnings ratio. e. The book value per share of common stock. PART FOUR This Year Last Year a. Working capital. b. The current ratio. c. The acid-test ratio. d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,560,000.) e. The average sale period. (The inventory at the beginning of last year totaled $1,920,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year totaled $14,500,000.) * Leverage is positive if the return on equity is greater than the return on assets.

Explanation / Answer

Solution:

This year Last year 1 Times interest earned ratio = Income before interest and tax / Interest expense                          4.33                     3.40 Income before interest and tax 1,560,000 1,020,000 Interest expense 360,000 300,000 2 Debt - Equity ratio = Total Debt / Stock holder's Equity                          0.78                     0.63 Total Debt               7,500,000           5,760,000 Stock holder's Equity               9,600,000           9,120,000 3 Gross margin percentage = Gross profit / Sales * 100 20.00% 20.67% Gross profit 3,150,000 2,580,000 Sales 15,750,000 12,480,000 4 Return on total assets = Net income / Average total assets Return on total assets = 5.25% 3.62% Net income 840,000 504,000 Average total assets =             15,990,000        13,920,000 Average total assets = ( Beginning total assets + Ending total assets ) / 2 Beginning total assets 14,880,000 12,960,000 Ending total assets 17,100,000 14,880,000

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