Comparative statement data for P Company and Q Company–competitors-appear on the following page. All balance sheet data are as of December 31. 2002 and December 31, 2001. P Company Q Company 2003 2002 2003 2002 Net sales $100,000 $80,000 Gross profi
Question:
Comparative statement data for P Company and Q Company (competitors) follow. All balance sheet data are as of December 31, 2002 and December 31, 2001.
| P Company | Q Company | |||
| 2003 | 2002 | 2003 | 2002 | |
| Net sales | $100,000 | $80,000 | ||
| Gross profit | 30,000 | 30,000 | ||
| Operating expenses | 15,000 | 20,000 | ||
| Amortization expense | 1,000 | 1,500 | ||
| Interest expense | 400 | 500 | ||
| Income tax expense | 1,000 | 2,000 | ||
| Net income | 12,600 | 6,000 | ||
| Cash | 1,000 | 1,000 | 4,000 | 0 |
| Accounts receivable | 10,000 | 11,000 | 24,000 | 22,000 |
| Other current assets | 40,000 | 30,000 | 8,000 | 7,000 |
| Capital assets (net) | 62,600 | 110,000 | 20,000 | 21,000 |
| Current liabilities | 30,000 | 92,000 | 4,000 | 5,000 |
| Long-term liabilities | 21,000 | 10,000 | 28,000 | 27,000 |
| Common stock | 40,000 | 40,000 | 1,000 | 1,000 |
| Retained earnings | 22,600 | 10,000 | 23,000 | 17,000 |
Required:
a) Prepare a vertical analysis of the 2003 income statement data for P and Q.
b) Compute the return on common shareholders’ equity for both companies for 2003.
c) Compare receivable collections between the two companies for 2003.
d) Compare the short-term liquidity of the two companies for 2003.
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Sherry April 5, 2023 в 17:23a. Customer Y can deduct 2% of the $4,500 invoice if it pays within 15 days. 2% of $4,500 = $90 So, Customer Y can deduct $90 from the bill if it pays on day 15. b. If customer Y passes up the cash discount, it will have to pay the full amount of $4,500 within the next 60 days. So, the extra days of credit that company Y can receive by passing up the cash discount will be: 60 days - 15 days = 45 days c. To calculate the effective annual rate of interest, we need to use the following formula: Effective annual rate = (1 + discount rate / (1 - discount rate) x (365 / credit period - discount period) x 100% Where, Discount rate = 2% / (100% - 2%) = 2.04% Credit period = 60 days Discount period = 15 days Putting these values in the formula, we get: Effective annual rate = (1 + 0.0204 / (1 - 0.0204) x (365 / (60 - 15)) x 100% Effective annual rate = 22.12% So, the effective annual rate of interest that customer Y would have to pay if it doesn't take the cash discount and pays on the due date is 22.12%.
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