Sandhill Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2019 and 2020 follow. Sandhill Medical Comparative Balance Sheet As of December 31 2020 2019 Assets Current assets Cash $380,000 $417,500 Accounts receivable, net 1,023,000 776,400 Inventory 742,000 681,050 Other current assets 381,300 247,050 Total current assets 2,526,300 2,122,000 Property, plant, & equipment, net 8,703,820 8,439,965 Total assets $11,230,120 $10,561,965 Liabilities and Stockholders’ Equity Current liabilities $3,169,000 $2,846,000 Long-term debt 3,702,700 3,892,600 Total liabilities 6,871,700 6,738,600 Preferred stock, $5 par value 58,950 58,950 Common stock, $0.25 par value 104,600 103,900 Retained earnings 4,194,870 3,660,515 Total stockholders’ equity 4,358,420 3,823,365 Total liabilities and stockholders’ equity $11,230,120 $10,561,965 Sandhill Medical Comparative Income Statement and Statement of Retained Earnings For the Year 2020 2019 Sales revenue (all on account) $10,177,300 $9,614,000 Cost of goods sold 5,612,000 5,298,700 Gross profit 4,565,300 4,315,300 Operating expenses 2,840,300 2,634,200 Net operating income 1,725,000 1,681,100 Interest expense 300,350 308,650 Net income before taxes 1,424,650 1,372,450 Income taxes (30%) 427,395 411,735 Net income $997,255 $960,715 Dividends paid Preferred dividends 29,450 29,500 Common dividends 433,450 413,050 Total dividends paid 462,900 442,550 Net income retained 534,355 518,165 Retained earnings, beginning of year 3,660,515 3,142,350 Retained earnings, end of year $4,194,870 $3,660,515 Calculate the following leverage ratios for 2020. (Round all answers to 2 decimal places, e.g. 2.55% or 2.55.) a. Debt ratio enter percentages % b. Debt-to-equity ratio enter a ratio c. Times interest earned ratio enter a number of times times
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Sandhill Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2019 and 2020 follow.
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Sandhill Medical
Comparative Balance Sheet As of December 31 |
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|---|---|---|---|---|---|
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2020
|
2019
|
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| Assets | |||||
|
Current assets
|
|||||
|
Cash
|
$380,000 | $417,500 | |||
|
Accounts receivable, net
|
1,023,000 | 776,400 | |||
|
Inventory
|
742,000 | 681,050 | |||
|
Other current assets
|
381,300 | 247,050 | |||
|
Total current assets
|
2,526,300 | 2,122,000 | |||
|
Property, plant, & equipment, net
|
8,703,820 | 8,439,965 | |||
|
Total assets
|
$11,230,120 | $10,561,965 | |||
| Liabilities and |
|||||
|
Current liabilities
|
$3,169,000 | $2,846,000 | |||
|
Long-term debt
|
3,702,700 | 3,892,600 | |||
|
Total liabilities
|
6,871,700 | 6,738,600 | |||
|
|
58,950 | 58,950 | |||
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Common stock, $0.25 par value
|
104,600 | 103,900 | |||
|
|
4,194,870 | 3,660,515 | |||
|
Total stockholders’ equity
|
4,358,420 | 3,823,365 | |||
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Total liabilities and stockholders’ equity
|
$11,230,120 | $10,561,965 |
|
Sandhill Medical
Comparative Income Statement and Statement of Retained Earnings For the Year |
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|---|---|---|---|---|---|
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2020
|
2019
|
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Sales revenue (all on account)
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$10,177,300 | $9,614,000 | |||
|
Cost of goods sold
|
5,612,000 | 5,298,700 | |||
|
Gross profit
|
4,565,300 | 4,315,300 | |||
|
Operating expenses
|
2,840,300 | 2,634,200 | |||
|
Net operating income
|
1,725,000 | 1,681,100 | |||
|
Interest expense
|
300,350 | 308,650 | |||
|
Net income before taxes
|
1,424,650 | 1,372,450 | |||
|
Income taxes (30%)
|
427,395 | 411,735 | |||
|
Net income
|
$997,255 | $960,715 | |||
|
Dividends paid
|
|||||
|
Preferred dividends
|
29,450 | 29,500 | |||
|
Common dividends
|
433,450 | 413,050 | |||
|
Total dividends paid
|
462,900 | 442,550 | |||
|
Net income retained
|
534,355 | 518,165 | |||
|
Retained earnings, beginning of year
|
3,660,515 | 3,142,350 | |||
|
Retained earnings, end of year
|
$4,194,870 | $3,660,515 |
Calculate the following leverage ratios for 2020. (Round all answers to 2 decimal places, e.g. 2.55% or 2.55.)
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a.
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Debt ratio
|
enter percentages % | |
|---|---|---|---|
|
b.
|
Debt-to-equity ratio
|
enter a ratio | |
|
c.
|
Times interest earned ratio
|
enter a number of times times |
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