Question : 9) Ken’s Kandy prepared the following preliminary balance sheet a : 1253350

 

9) Ken’s Kandy prepared the following preliminary balance sheet a few days before its December 31 yearend:

 

Ken’s Kandy

Preliminary Balance Sheet

December 27, 2011

Cash$1,000Accounts payable$4,000

Accounts receivable2,000                           

Inventory500Common stock3,000

Equipment5,500Retained earnings2,000

Total liabilities &

Total assets$9,000shareholders’ equity$9,000

Ken is concerned about the size of the accounts payable in relation to the company’s cash and other current assets. He asks the accountant to reclassify $3,000 of the accounts payable as long-term notes payable before releasing the annual report on December 31.

a. What is the company’s current ratio now, based on the preliminary balance sheet?

The formula for calculating the current ratio is current assets / current liabilities.

b. What will the company’s current ratio be if $3,000 of the accounts payable are reclassified as long-term notes payable?

c. Will reclassifying the accounts payable have any effect on the debt-to-equity ratio? Explain.

d. Is it ethical to reclassify current liabilities as long-term liabilities, as long as total liabilities are correct?

 

 

10) Team instructions: Provide students with copies of real merchandising companies’ annual reports, or give students the Web addresses of real merchandising companies and ask them to print out the annual reports.

 

Divide the class into teams of three or four people. All team members should work with the same company’s annual report. Give the students time in class to answer the following questions for their company. Each team should turn in only one copy of the answers for grading, along with a copy of the annual report that they used. All team members will receive the same grade.

 

1.

What is the name of your company?

 

2.

Calculate the debt-to-equity ratio for the most recent year.

 

3.

Which financial statement(s) do you need…?

 

4.

Calculate the debt-to-equity ratio for the previous year.

 

5.

Has the company’s financial leverage increased?

 

6.

Which footnote … describes the company’s long-term debt?

 

7.

Has the company issued any bonds in years past?

 

8.

What interest rate is the company paying on its bonds?

 

9.

When do the bonds mature?

 

10.

Did the company make any payments on its long-term debt in the most recent year shown?

 

11.

Which financial statement shows you this information?

 

12.

Has the company taken on any additional long-term debt in the most recent year shown?

 

13.

Which financial statement shows you this information?

 

 

 

11) Team instructions: Provide students with copies of the financial statements for Team Shirts for June and July. Divide the class into teams of three or four people. Give the students time in class to answer the following questions. Each team should turn in only one copy of the answers for grading. All team members will receive the same grade.

 

1.

Does Team Shirts have any estimated liabilities?

If yes, then name them.

 

 

2.

Calculate the debt-to-equity ratio for July.

$151,654 / ($5,000 + 75,856)

 

 

3.

Which financial statement(s) do you need to calculate this ratio?

 

4.

Calculate the debt-to-equity ratio for June.

$42,750 / ($5,000 + 22,072)

 

 

5.

Has the company’s financial leverage increased?

 

6.

What business event explains the change in the debt-to-equity ratio?

 

7.

Has the company issued any bonds?

 

8.

Did the company make any payments on its long-term debt in July?

 

9.

Which financial statement shows you this information?

 

10.

Has the company taken on any additional long-term debt in July?

 

 

11.

Which financial statement shows you this information?