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Mandrake Motorcycles - Balance Sheets

	31-Dec-15	31-Dec-14
Assets
Current assets:
Cash and cash equivalents	$ 240,000	$ 425,000
Accounts receivable	$ 185,000	$ 200,000
Inventory	$ 850,000	$ 630,000
Other current assets	$ 200,000	$ 210,000
Total current assets	$ 1,475,000	$ 1,465,000
Property, plant and equipment, net	$ 1,075,000	$ 1,175,000
Total assets	$ 2,550,000	$ 2,640,000
Liabilities
Current liabilities:
Accounts payable	$ 260,000	$ 205,000
Short term debt payable	$ 370,000	$ 320,000
Other current liabilities	$ 285,000	$ 280,000
Total current liabilities	$ 915,000	$ 805,000
Long term debt	$ 195,000	$ 410,000
Total liabilities	$ 1,110,000	$ 1,215,000
Stockholders equity:
Common stock	$ 1,325,000	$ 1,325,000
Retained earnings	$ 115,000	$ 100,000
Total stockholders equity	$ 1,440,000	$ 1,425,000
Total liabilities and stockholders equity	$ 2,550,000	$ 2,640,000
Mandrake Motorcycles - Income Statements
	Year End 12/31/1	Year End 12/31/14
Nets sales	$ 1,590,000	$ 1,690,000
Cost of goods sold	$ 980,000	$ 1,175,000
Gross margin	$ 610,000	$ 515,000
Operating expenses:
Selling expenses	$ 300,000	$ 210,000
General and administrative expenses	$ 210,000	$ 200,000
Total operating expenses	$ 510,000	$ 410,000
Operating income	$ 100,000	$ 105,000
Interest expense	$ 48,000	$ 72,000
Income before taxes	$ 52,000	$ 33,000
Income taxes	$ 18,200	$ 11,550
Net income	$ 33,800	$ 21,450

Problem 14-10. Marty Monk Fisher owns the largest motorcycle dealership in southern Ohio. Recently, he was approached by Bob Sherman, founder of Mandrake Motorcycles, and offered the opportunity to be the sole distributor of Mandrake bikes in the state. Acceptance of the offer will require Monk to open a dedicated Mandrake showroom and repair facility and, obviously, stock Mandrake cycles and parts. Monk is quite impressed by the Mandrake product, but before making a major investment, he wants to be confident that the company will be around for the long haul. Accordingly, he has asked you to analyze the audited financial statements of Mandrake for the previous two years.
Required a. Prepare a horizontal and a vertical analysis of the 2015 and 2014 financial statements.
b. Calculate the following ratios for 2015 and 2014: return on assets, gross margin percentage, receivables turnover, days sales in receivables, inventory turnover, days sales in inventory, debt to equity, and times interest earned.
c. Based on your analysis in parts a and b, comment on any matters that Monk should probe in an upcoming meeting with Bob Sherman from Mandrake.

Problem 14-11. Additional Information Related to Problem 14-10. In 2016, Mandrake Motorcycles declared bankruptcy. Subsequently, it was determined that in fiscal 2015, the company produced more units than needed to fill pending orders. The result was a substan- tial decrease in production cost per unit. The company uses the LIFO inventory method. Required Discuss how (or if) this information is consistent with the results of the analysis conducted in Problem 14-10, parts a and b.

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