Debit Credit

Debits
Cash 39,600 a. 27,610 67,210
Accounts Receivable 112,215 b. 9,035 121,250
Merchandise Inventory 210,930 c. 10,830 200,100
Prepaid Expense 10,875 d. 525 11,400
Plant Assets 315,000 e. 165,000 f. 19,500 460,500
Total 688,620 860,460
Credits
Accumulated Depreciation 90,000 h. 7,950 g. 46,500 128,550
Accounts Payable 59,220 i. 3,820 55,400
Salaries Payable 30,000 l. 24,000 54,000
Bonds Payable 105,000 k. 60,000 j. 75,000 120,000
Common Stock, $20 par 210,000 m. 30,000 240,000
Additional paid-in capital 22,500 n. 10,500 33,000
Retained Earnings 171,900 p. 64,000 o. 121,610 229,510
Total 688,620 860,460
Operating Activities Summary
Increase in Accounts Receivable b. 9,035
Decrease in Mechandise Inventory c. 10,830
Increase in Prepaid Expenses d. 525
Accumulated Depreciation g. 46,500
Decrease in Accounts Payable i. 3,820
Increase in Salries Payable l. 24,000
Net income o. 121,610
189,560
Investing Activities
Purchase of New Equipment e. 165,000
Sale of Old Equipment f. 19,500
Accumulated Depreciation of Sold Equipment
h.
7,950
(153,450)
Financing Activities
Retirement of Bonds Payable k. 60,000
Issuance of Stocks m. 30,000
Additional Paid-in Capital n. 10,500
Declaration of Dividends p. 64,000
(83,500)
Noncash Investing & Financing
Issuance of Bonds for acquired Equipment j. 75,000
75,000
337,940 310,330
Change in cash a. 27,610 27,610
337,940 337,940
Account
Balance
12/31/12
Account
Balance
12/31/13
Analysis of Transactions for Year
Ended 12/31/2013
CASHFLOW
Statement of Cash Flow
Prime Sports Gear, Inc.
Work Sheet for Statement of Cash Flows
For the Year Ended December 31, 2013
Kim Zairelle Bibal
BSA III


P14 Statement of Cashflows

Requirement No. 1


Requirement No. 2


What-if Analysis




Cash Flows from Operating Activities
Net Income 121,610
Add: Decrease in Merchandise Inventory 10,830
Increase in Salaries Payable 24,000
Depreciation Expense 46,500
Loss on Sale of Equipment 3,550
84,880
Less: Increase in Accounts Receivable 9,035
increase in Prepaid expenses 525
Decrease in accounts Payable 3,820
13,380
Net Cash flow in Operating Activities 193,110
Cash Flows from Investing Activities
Proceeds from sale of Equipment 8,000
Payment for acquired Equipment (90,000)
Net cash Flow from Investing Activities (82,000)
Cash Flows from Financing Activities
Proceeds from issuance of stocks 40,500
Payment of Dividends (64,000)
Retirement of Bonds (60,000)
Net cash flow from Financing Activities (83,500)
Net increase in cash 27,610
Cash balance, jan 1, 2013 39,600
Cash Balance, December 31, 2013 67,210
Prime Sports Gear, Inc.
Statement of Cash Flows
For the Year ended December 31, 2013
Cash Flows from Operating Activities
Net Income 117,110
Add: Decrease in Merchandise Inventory 15,330
Increase in Salaries Payable 4,000
Depreciation Expense 46,500
Loss on Sale of Equipment 3,550
69,380
Less: Increase in Accounts Receivable 9,035
increase in Prepaid expenses 525
Decrease in accounts Payable 3,820 13,380
Net Cash flow in Operating Activities 173,110
Cash Flows from Investing Activities
Proceeds from sale of Equipment 8,000
Payment for acquired Equipment (90,000)
Net cash Flow from Investing Activities (82,000)
Cash Flows from Financing Activities
Proceeds from issuance of stocks 40,500
Payment of Dividends (64,000)
Retirement of Bonds (60,000)
Net cash flow from Financing Activities (83,500)
Net increase in cash 7,610
Cash balance, jan 1, 2013 39,600
Cash Balance, December 31, 2013 47,210
Prime Sports Gear, Inc.
Statement of Cash Flows
For the Year ended December 31, 2013

P15 Ratio Analysis

Requirement No. 1







2013 2012
Net Sales 3,753,000 3,516,075
Cost of Merchandise Sold 3,102,000 2,820,000
Gross Profit 651,000 696,075
Selling Expense 132,000 123,000
General Expense 84,750 81,600
Total Operating Expenses 216,750 204,660
Operating Income 434,250 491,415
Other Expenses (Interest) 36,000 36,000
Income Before Income Tax 398,250 455,415
Income Tax 135,300 164,400
Net Income 262,950 291,015
2013 2012
Retained Earnings, January 1 1,628,610 1,420,095
Net Income for Year 262,950 291,015
Total 1,891,560 1,711,110
Common Stock Dividends 102,000 82,500
Retained Earnings, December 31 1,789,560 1,628,610
Assets 2013 2012
Cash 41,700 34,830
Accounts Receivable 206,400 232,500
Merchandise Inventory 814,500 825,480
Prepaid Expenses 4,500 22,500
Plant Assets (net) 2,025,000 1,800,000
Total Assets 3,092,100 2,915,310
Liabilities & Stockholders' Equity
Accounts Payable 342,240 326,400
Bonds Payable, 10% due 2010 360,000 360,000
Total Liabilities 702,240 686,400
Common Stock 600,300 600,300
Retained Earnings 1,789,560 1,628,610
Total Stockholders' Equity 2,389,860 2,228,910
Total Liabilities and Stockholders' Equity 3,092,100 2,915,310
Global Technology
Comparative Balance Sheet
December 31, 2013 and 2012
Global Technology
Comparative Income Statement
For Year Ended December 31, 2013 and 2012
Global Technology
Comparative Retained Earnings Statement
For Years Ended December 31, 2013 and 2012

Requirement No. 2





Computation for 2012:
A. Liquidity Ratio
Acid Test = 34,840 + 232500 Current Ratio = 1,115,310
326,400 326, 400
= 267,330 = 3.42
326, 400
= 0.82
B. Activity Ratio
Accounts Receivable = 3,516,075 Inventory Turnover = 2,820, 000
Turnover 232,500 + 298,575 825,480 + 637,500
2 2
= 3,516,075 = 2,820,000
265,537.5 731, 490
= 13.24 = 3.86
C. Profitability Ratio
Gross Profit = 696,075 Net Income to Sales = 291,015
3,516,075 3,516,075
= 19.79% = 8.28%
Return on Assets = 291, 015 Return on Equity = 291, 015
2,733,942.5 2,124, 652.5
= 10.64% = 13.70%
D. Coverage Ratio
Debt to Total Asset = 686,400 Time Interest Earned = 491,415
2,915,310 36,000
= 0.23 = 13.65


2013 2012 2011
0.72 0.82 1.07
3.12 3.42 3.02
17.10 13.24 11.05
3.78 3.86 4.00
17.35% 19.80% 22.73%
7.01% 8.28% 8.91%
8.75% 10.64% 11.51%
11.39% 13.70% 14.55%
0.23 0.24 0.21
12.06 13.65 27.40
Gross Profit Ratio
Net income to Sales
Liquidity Ratios:
Acid-test(quick) ratio
Accounts Receivable turnover
Current Ratio
Activity Ratios:
Inventory Turnover
Profitability Ratios:
Rate earned on Total Assets
Rate earned on Common Stock Equity
Leverage Ratios:
Debt to Total Assets
Times Interest Earned
Requirement No. 3

a. What information does comparison of the current ratio and acid test ratio provide?

The current ratio and quick ratio are both designed to estimate the ability of a business to pay
for its current liabilities. The difference between the two ratios is the use of inventory.

Current ratio measures the short-term liquidity of a business; it gives an indication of the ability
of a business to pay its bills. A declining ratio can specify a deteriorating financial condition while an
increasing ratio states an improving financial situation. On the other hand, quick or acid test ratio is
used to see if a business has sufficient assets that are immediately convertible to cash to pay its bills.
Inventory is not included in the quick ratio, since it can be quite difficult to sell off in the short term.
Because of the exclusion of inventory from the formula, the quick ratio is a better indicator than the
current ratio of the ability of a company to pay its obligations.


b. Is the company using leverage to its advantage? Explain.

Financial leverage is favorable when the uses to which debt can be put generate returns greater
than the interest expense associated with the debt. Therefore, the answer is yes because the rate of
return of equity is higher than the rate of return of equity where you can classify that the company
used its leverage in an efficient way.


c. What other observations can be made comparing Global Technologys ratios to the following
industry norms:

Acid Test Ratio 1.0
Current Ratio 2.0
Account Receivable Turnover 12.0
Inventory Turnover 4.0
Gross Profit Ratio 40%
Net Income to Sales 7%
Rate Earned on Total Assets 12%
Rate Earned on Common Stock Equity 20%
Debt to Total Assets .35
Times Interest Earned 8


The results in the 2012 acid test ratio of the company seems to have a least danger that the
company wouldnt be able to meet its obligations without having to liquidate or depend to heavily
on its inventory since it has a less than one result unlike to the other industry norm which had a
equal to one result. When it comes to the current ratio, the company has a better financial condition
during 2012 than the other industry because it has an above one result. The high value of accounts
receivable turnover in 2012 is more favorable compared to the other industry. Increase in accounts
receivable turnover overtime generally indicates improvement in the process of cash collection on
credit sales. Inventory turnover measures efficiency of the firm in managing and selling inventory
and the industry fallouts into a higher inventory turnover that indicates a better liquidity, but it can
also indicate a shortage or inadequate inventory levels, which may lead to a loss in business. The
gross profit ration is much lower than the ration states above and it means that the company has a
less ability to control costs and inventories to pass along price through the sales to customer.
Companys 2012 net income to sales is slightly higher than the other industry which indicates a
more profitable company that has better control over its costs compared to its competitors. Both
the return on assets and equity are lower than the percentage stated above because the company
do not rely that much on its debt in financing matters. And lastly, the Global Technologys time
interest earned ratio is higher than the industry which specifies that the company has a greater
ability to cover its annual interest expense from operating earnings.





2013 2012 2011
0.72 0.82 1.07
3.12 3.42 3.02
17.10 13.24 11.05
3.78 3.86 4.00
17.35% 19.80% 22.73%
7.01% 8.28% 8.91%
8.75% 10.64% 11.51%
11.39% 13.70% 14.55%
0.23 0.24 0.21
12.06 13.65 27.40
Gross Profit Ratio
Net income to Sales
Liquidity Ratios:
Acid-test(quick) ratio
Accounts Receivable turnover
Current Ratio
Activity Ratios:
Inventory Turnover
Profitability Ratios:
Rate earned on Total Assets
Rate earned on Common Stock Equity
Leverage Ratios:
Debt to Total Assets
Times Interest Earned
What-if Analysis


Computation for 2013:
A. Liquidity Ratio
Acid Test = 41,700 + 206, 400 Current Ratio = 1,067,100
342,240 342, 240
= 248,100 = 3.11
342, 240
= 0.72
B. Activity Ratio
Accounts Receivable = 3,753,000 Inventory Turnover = 3,102, 000
Turnover 232,500 + 206,400 825,480 + 814,500
2 2
= 3,753,000 = 3,102,000
219,450 1,232,480
= 17.10 = 3.78
C. Profitability Ratio
Gross Profit = 651,000 Net Income to Sales = 262,950
3,753,000 3,753,000
= 17.34% = 7.00%
Return on Asset = 262, 015 Return on Equity = 262, 950
3,003,705 2,309, 385
= 8.75% = 11.39%
D. Coverage Ratio
Debt to Total Asset = 702,240 Time Interest Earned = 434,250
3,092,100 36,000
= 0.23 = 12.06






From the two set of ratios, what conclusions can be drawn concerning changes from 2012 and 2013?


As you observe, most of the ratios resulted between 2012 and 2013 declines except to the
Accounts Receivable Turnover which is a good effect because the companys extension of credit and
collection of accounts receivable are efficient. It also means that high ratio reflects a short lapse of
time between sales and the collection of cash. The decrease in current ratio and acid or quick test
ratio point out that Global Technology was having some deterioration in their short-term liquidity.
The ratios related to the profitability of the company decreases that causes to some failures in
generating profits from its investment and management strategies. The debt to total asset
decreased which is an advantage to the company because has a minor reliance on debt.


TICKLERS
Compute for the two additional activity ratios: Number of days sales in receivables and number of
days sales in merchandise inventory. Use the 2012 and 2013 data and assume a 365-day year.
For 2013:

Average Collection Period = 365 Average Sales Period = 365
17.10 3.78
= 21 days = 96.56 days
For 2012:
Average Collection Period = 365 Average Sales Period = 365
13.24 3.85
= 27 days = 94.68 days