accounting assignment- When a financial analyst examines the credit risk of a company, it is common that he o

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Homework Assignment – Chapter 5

1.
When a financial analyst examines the credit risk of a company, it is common
that he or she uses a set of factors that all begin with the letter
“C.” Each factor provides a consideration that enters into the
lending decision. List and discuss how each of the factors affects a company’s
credit risk.

ANS:

1.

 

2.
Given the following information, calculate for Year 2 the number of days of
working capital financing the firm will need to obtain from other sources?

Year 1

Year 2

Accounts Receivable, net

$ 518

$ 562

Accounts Payable

203

192

Inventory

535

564

Credit Sales

3,205

3,636

Cost of Goods Sold

2,037

2,294

Selling and Admin. Expense

1,081

1,131

3. Refer to the financial statement data
for Patriot Corp. for 2011 and 2010. Complete the table by computing the
ratios.

Patriot Corp.

Balance Sheet

As of December 31,

2011

2010

Assets:

Cash and Cash Equivalents

$ 69,000

$ 55,250

Accounts Receivable

126,500

80,750

Inventory

92,000

63,750

Current Assets

287,500

199,750

Equipment

194,063

148,750

Less: Accumulated
depreciation

-38,813

-29,750

Equipment-Net

155,250

119,000

Land

132,250

106,250

Total assets:

$575,000

$425,000

Liabilities:

Accounts Payable

$ 69,000

$ 42,500

Accrued Salaries Payable

51,750

42,500

Rent Expense Payable

35,750

28,500

Income Tax Payable

4,788

1,250

Current Liabilities

161,288

114,750

Long-term note payable

172,500

102,000

Total Liabilities

333,788

216,750

Stockholders’ Equity:

Common stock

115,000

89,250

Retained earnings

126,212

119,000

Total liabilities and
stockholders’ equity:

$575,000

$425,000

Patriot Corp.

Income Statement

For the year ended December
31, 2011

Revenues

$ 373,750

Cost of goods sold

(224,250)

Gross Profit

$149,500

Operating Expenses

Depreciation expense

(9,062)

Salary expense

(56,063)

Insurance Expense

(44,850)

Rent Expense

(18,688)

Interest Expense

(6,120)

Total Operating Expenses

(134,783)

Income from Operations

14,717

Income Tax Expense

(4415)

Net income

$ 10,302

Dividends paid to Common
Shareholders

$ 3,090

Financial Ratio to be
calculated:

2011

2010

Current Ratio

Quick Ratio

Days Accounts Receivable

N/A

Days Inventory

N/A

Days Accounts Payable

N/A

Liabilities to Total Assets

Interest Coverage ratio

N/A

N/A – Not Applicable for
the given year

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