60.1K

Verified Solution

Link Copied!

Part A Below is the financial information of Great Ocean Limited. Great Ocean Limited Income Statement For the year ended December 31, 2019 $ Net Sales 1.230,150 Costs of Goods Sold (COGS) (788,000) Gross Profit 442,150 Operating expenses 297,200 Interest expenses 10,200 Profit before tax 134,750 Income tax expense 40,425 Net profit $94,325 Great Ocean Limited Statement of Financial Position December 31, 2019 $ Assets Cash Investment - Short term Accounts receivable - net Notes receivable (trade) - Short term Merchandise inventory Prepaid expenses Property, plant and equipment, net Total assets 40,000 18,600 58,000 9,000 64,300 5,300 106,600 $301,800 Liabilities & Equity Accounts payable Accrued salaries Income tax payable Long-term note payable, secured Share capital - Ordinary Retained earnings Total liabilities & equity S 35,000 6,000 6,600 28,600 100,000 125,600 $301,800 Note 1: All sales were credit sales Note 2: The following account balances are the extract from the company's statement of financial position as of December 31, 2018: Account receivable $64,000 - Merchandise Inventory $97,800 - Share capital $100,000 - Retained earnings $71,275 Required: Based on the above statements and information, calculate the following ratios: (i) Current ratio (ii) Acid-test ratio (iii) Accounts receivable turnover (iv) Inventory turnover (v) Day's Sales uncollected in number of days) (vi) Day's Purchases in accounts payable (in number of days) (vii) Times interest earned (viii) Profit margin ratio (in %) (ix) Debt-to-equity ratio (x) Return on ordinary shareholders' equity (Show clearly the steps of your calculation with proper formula and proper unit for your answer ). Round the ratios to one decimal place (1 d.p.) (16 marks) Part B Sun Corporation, a major competitor of Great Ocean Limited, has the following ratios. Sun Corp. Current ratio Inventory turnover ratio December 31, 2019 2.8:1 7.2 times Required: Comment on the liquidity and operating efficiency of Great Ocean Limited and Sun Corp. by comparing / analyzing the given ratios (Need to explain the meaning of each of these ratios before making comparison). (4 marks) [Total 20 marks]

Answer & Explanation Solved by verified expert

See Answer