Continuing Cookie Chronicle CCC13

SoccerBoss
Category:
Accounting
Price: $65 USD

Question description

CCC13 The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2018 for the years 2018 and 2017, and the income statements for the years ended October 31, 2017 and 2018, are presented below.

COOKIE & COFFEE CREATIONS INC.

Balance Sheet

October 31

Assets

2018

2017

Cash

$  22,324

$  5,550

Accounts receivable

3,250

2,710

Inventory

7,897

7,450

Prepaid expenses

5,800

6,050

Equipment

102,000

75,500

Accumulated depreciation

  (25,200)

  (9,100)

Total assets

$116,071

$88,160

Liabilities and Stockholders’ Equity

Accounts payable

$  1,150

$  2,450

Income taxes payable

9,251

7,200

Dividends payable

27,000

27,000

Salaries and wages payable

7,250

1,280

Interest payable

188

0

Note payable—current portion

4,000

0

Note payable—long-term portion

6,000

0

Preferred stock, no par, $6 cumulative—

  3,000 and 2,800 shares issued,

  respectively

15,000

14,000

Common stock, $1 par—25,180

  shares issued

25,180

25,180

Additional paid in capital—treasury stock

250

250

Retained earnings

  20,802

  10,800

Total liabilities and stockholders’ equity

$116,071

$88,160

COOKIE & COFFEE CREATIONS INC.

Income Statement

Year Ended October 31

2018

2017

Sales

$485,625

$462,500

Cost of goods sold

  222,694

  208,125

Gross profit

  262,931

  254,375

Operating expenses

  Salaries and wages expense

147,979

146,350

  Depreciation expense

17,600

9,100

  Other operating expenses

48,186

42,925

  Total operating expenses

  213,765

  198,375

Income from operations

  49,166

  56,000

Other expenses

  Interest expense

413

0

  Loss on disposal of plant assets

2,500

0

  Total other expenses

2,913

0

Income before income tax

46,253

56,000

Income tax expense

  9,251

  14,000

Net income

$  37,002

$  42,000

Additional information:

Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semi-annual payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance.

Instructions

(a)  Calculate the following ratios for 2017 and 2018.

1.  Current ratio

2.  Debt to total assets

3.  Gross profit rate

4.  Profit margin

5.  Return on assets (Total assets at November 1, 2016, were $33,180.)

6.  Return on common stockholders’ equity (Total common stockholders’ equity at November 1, 2016, was $23,180. Dividends on preferred stock were $16,800 in 2017 and $18,000 in 2018).

(b)  Prepare a horizontal analysis of the income statement for Cookie & Coffee Creations Inc. using 2017 as a base year.

(c)  Prepare a vertical analysis of the income statement for Cookie & Coffee Creations Inc. for 2018 and 2017.

(d)  Comment on your findings from parts (a) to (c).

(e)  What impact would borrowing an additional $20,000 to buy more equipment have on each of the ratios in (a) above, assuming that no changes are expected on the income statement and balance sheet? Comment on your findings.

(f)  What would justify a decision by Cookie & Coffee Creations Inc. to buy the additional equipment? What alternatives are there instead of bank financing?


Tutor Answer

(Top Tutor) Daniel C.
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School: University of Virginia
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