the president of the bernett company cannot understand why bernett is having trouble 544533
The balance sheet for December 31, 2002, income statement for the year ended December 31, 2002, and the statement of cash flows for the year ended December 31, 2002, of the Bernett Company are on the next two pages.
The president of the Bernett Company cannot understand why Bernett is having trouble paying current obligations. He notes that business has been very good, as sales have more than doubled, and the company achieved a profit of $69,000 in 2002.
Don't use plagiarized sources. Get Your Custom Essay on
the president of the bernett company cannot understand why bernett is having trouble 544533
For $10/Page 0nly
Required:
a. Comment on the statement of cash flows.
b. Compute the following liquidity ratios for 2002:
1. Current ratio
2. Acid-test ratio
3. Operating cash flow/current maturities of long-term debt and current notes payable
4. Cash ratio
c. Compute the following debt ratios for 2002:
1. Times interest earned
2. Debt ratio
3. Operating cash flow/total debt
d. Compute the following profitability ratios for 2002:
1. Return on assets (using average assets)
2. Return on common equity (using average common equity)
e. Compute the following investor ratio for 2002: Operating cash flow/cash dividends.
f. Give your opinion as to the liquidity of Bernett.
g. Give your opinion as to the debt position of Bernett.
h. Give your opinion as to the profitability of Bernett.
i. Give your opinion as to the investor ratio.
j. Give your opinion of the alternatives Bernett has in order to ensure that it can pay bills as they come due.
|
BERNETT COMPANY |
||
|
2002 |
2001 |
|
|
Assets |
||
|
Cash |
$ 5,000 |
$ 28,000 |
|
Accounts receivable, net |
92,000 |
70,000 |
|
Inventory |
130,000 |
85,000 |
|
Prepaid expenses |
4,000 |
6,000 |
|
Land |
30,000 |
10,000 |
|
Building |
170,000 |
30,000 |
|
Accumulated depreciation |
(20,000) |
(10,000) |
|
Total assets |
$411,000 |
$219,000 |
|
Liabilities and Stockholders’ Equity |
||
|
Accounts payable |
$ 49,000 |
$ 44,000 |
|
Income taxes payable |
5,000 |
4,000 |
|
Accrued liabilities |
6,000 |
5,000 |
|
Bonds payable (current $10,000 at 12/31/02) |
175,000 |
20,000 |
|
Common stock |
106,000 |
96,000 |
|
Retained earnings |
70,000 |
50,000 |
|
Total liabilities and stockholders’ equity |
$411,000 |
$219,000 |
|
BERNETT COMPANY |
||
|
Sales |
$500,000 |
|
|
Less expenses: |
||
|
Cost of goods sold |
||
|
(includes depreciation of $4,000) |
310,000 |
|
|
Selling and administrative expenses |
||
|
(includes depreciation of $6,000) |
80,000 |
|
|
Interest expense |
11,000 |
|
|
Total expenses |
401,000 |
|
|
Income before taxes |
99,000 |
|
|
Income tax expense |
30,000 |
|
|
Net income |
$ 69,000 |
|
|
BERNETT COMPANY |
||
|
Net cash flow from operating activities: |
||
|
Net income |
$ 69,000 |
|
|
Noncash expenses, revenues, losses and gains |
||
|
included in income: |
||
|
Depreciation |
10,000 |
|
|
Increase in receivables |
(22,000) |
|
|
Increase in inventory |
(45,000) |
|
|
Decrease in prepaid expenses |
2,000 |
|
|
Increase in accounts payable |
5,000 |
|
|
Increase in income taxes payable |
1,000 |
|
|
Increase in accrued liabilities |
1,000 |
|
|
Net cash flow from operating activities |
$ 21,000 |
|
|
Cash flows from investing activities: |
||
|
Increase in land |
$ (20,000) |
|
|
Increase in buildings |
(140,000) |
|
|
Net cash used by investing activities |
(160,000) |
|
|
Cash flows from financing activities: |
||
|
Bond payable increase |
$ 155,000 |
|
|
Common stock increase |
10,000 |
|
|
Cash dividends paid |
(49,000) |
|
|
Net cash provided by financing activities: |
116,000 |
|
|
Net decrease in cash |
($23,000) |
|
Calculator
Our features
We've got everything to become your favourite writing service
Money back guarantee
Your money is safe. Even if we fail to satisfy your expectations, you can always request a refund and get your money back.
Confidentiality
We don’t share your private information with anyone. What happens on our website stays on our website.
Our service is legit
We provide you with a sample paper on the topic you need, and this kind of academic assistance is perfectly legitimate.
Get a plagiarism-free paper
We check every paper with our plagiarism-detection software, so you get a unique paper written for your particular purposes.
We can help with urgent tasks
Need a paper tomorrow? We can write it even while you’re sleeping. Place an order now and get your paper in 8 hours.
Pay a fair price
Our prices depend on urgency. If you want a cheap essay, place your order in advance. Our prices start from $11 per page.