Posted: September 13th, 2017

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CA#4
Comparative financial Statements for Track Ltd are shown below.
TRACK LTD, Income Statement, For the Year Ended 31-Dec.

2014    2013
Net sales         $1,000,000     $940,000
Cost of goods sold          650,000      635,000
Gross profit          350,000      305,000
Operating expenses          200,000      180,000
Profit from operations         150,000      125,000
Interest expense (net)          35,000      35,000
Profit before income taxes         115,000      90,000
Income tax expense          17,250      13,500
Profit          $97,750      $76,500

TRACK LTD., Balance Sheet, 31-Dec.        IN THE TWO  BLANK LINES INSERT A FORMULA TO CALCULATE
CURRENT ASSETS & CURRENT LIABILITIES NOTE DON’T INCLUDE CELL WITH THE YEAR
Assets        2014    2013    2012    2014    2013
Cash         $50,000     $42,000      $33,000     QUICK ASSETS    QUICK ASSETS
Accounts receivable         100,000      87,000      77,000
Inventories          240,000      200,000      150,000
Prepaid expenses         25,000      31,000      30,000

Long-term debt investments         180,000      100,000      50,000
Land          75,000      75,000      75,000
Building and equipment          570,000      600,000      660,000
Total assets         $1,240,000     $1,135,000     $1,075,000
Liabilities and Shareholders’ Equity
Liabilities
Notes payable         $125,000     $125,000     $125,000
Accounts payable         160,750      140,000      71,000
Accrued liabilities         52,000      50,000      20,000

Bonds payable, due 2018          100,000      100,000      200,000
Total liabilities          437,750      415,000      416,000
Shareholders’ equity
Preferred shares          200,000      200,000      200,000
Common shares (100,000 issued)         300,000      300,000      300,000
Retained earnings          302,250      220,000      159,000
Total shareholders’ equity          802,250      720,000      659,000
Total liabilities and shareholders’ equity         $1,240,000     $1,135,000     $1,075,000
Additional information.
1. All sales are on account.
2.Cash provided from operating activities for was             $133,500     in 2014 and     $180,500     in 2013.
3. Cash used by investing activities was         $110,000     in 2014 and     $51,660     in 2013.

Instructions USE CELL FORMULAE NOT NUMBERS WHEREEVER POSSIBLE
(a) Calculate the following ratios for 2013 and 2014. Indicate whether the change was Favourable (F)
or Unfavourable (U).
(b) Explain whether the liquidity, solvency and profitability has improved or not and why?.
Ratio    2014        2013        Comparison (F),(U)
Current ratio

Acid-test ratio

Receivables turnover

Inventory turnover

Debt to total assets

Ratio    2014        2013        Comparison (F),(U)
Interest coverage

Free cash flow

Profit margin

Asset turnover

Return on assets

(b) Explain whether the liquidity, solvency and profitability has improved or not and why?.