16.07.2022 - 16:25

# 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.

a. 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%. Do you know the answer? Not sure about the answer? Find the right answer to the question 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 by subject Business, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.