70.2K

Verified Solution

Link Copied!

Below are the comparative Balance Sheets for ACE for 20x1 and 20x2, as well as the 20x2 Income Statement. DOUBLE CHECK THE ORDER OF THE YEARS!

	20x2		20x1
Cash	$1,800		$1,150
Accounts Receivable (net)	1,750		1,300
Inventory	1,600		1,900
Total Current Assets	$5,150		$4,350
Equipment	1,900		1,700
	(1,200)		(1,170)
Long Term Investment (HTM)	1,300		1,420
Total Assets	$7,150		$6,300
Accounts Payable	$1,200		$900
Accrued Liabilities (sell and admin)	200		250
Income Tax Payable	0		0
Total Current Liabilities	$1,400		$1,150
Bond Payable	1,400		1,550
Total Long Term Liabilities	1,400		1,550
Common Stock, 20 par	1,900		1,700
Retained Earnings	2,450		1,900
Total Liabilities and Equity	$7,150		$6,300
Sales Revenue	$6,900
Cost of Goods Sold	4,700
Gross Profit	2,200
Salaries and Administrative Exp	930
Income from Operations	1,270
Gain on sale of investments	80
Net Income before Tax	1,350
Income Tax Expense	540
Net Income	810

Additional Information

1 When necessary, you should round to whole dollars

2 Do not be concerned with Bad Debt Expense

3 During the year, $70 of common stock was issued in exchange for plant assets

4 No long term investments were purchased

5 - All cash flow items can be determined from the above

REQUIRED

1. You are to prepare ACEs SCF for 20x2. You are to prepare the Operating section under BOTH approaches.

(2) After completing the SCF, please answer/discuss the following questions >>

1 What was the cost of the long term investments sold during 20x2?

2 How many shares of common stock does ACE have outstanding at 12/31/x1

3 What was ACEs tax rate in 20x2?

4 Does it appear that ACE is a growing firm, a mature firm, or a firm in the declining stages of its life cycle?

5 Has ACE become more or less risky during 20x2?

6- If ACE had the same net income in both 20x1 and 20x2, would you expect the same ROE?

7 What has happened to ACEs liquidity during 20x2?

Answer & Explanation Solved by verified expert

See Answer