Sample of a Comparable Balance Sheet Spence Resources Inc. Balance Sheet December 31 2020 2019 2018 Assets Current assets Cash ..................................................... $ 72,520 $ 98,434 $ 103,040 Accounts receivable, net .................... 261,520 176,316 137,760 Inventory .............................................. 312,200 231,000 148,400 Prepaid expenses ................................ 27,160 26,520 11,200 Total current assets ............................ 673,400 532,270 400,400 Plant assets, net ..................................... 777,000 714,000 642,600 Total assets .............................................. $1,450,400 $1,246,270 $1,043,000 Liabilities Accounts payable ................................... $ 360,920 $ 210,700 $ 137,900 Long-term notes payable ....................... 273,000 287,000 231,000 Total liabilities ........................................ 633,920 $ 497,700 $ 368,900 Equity Common shares 45,500 shares issued and outstanding 455,000 455,000 455,000 Retained earnings .................................. 361,480 293,570 219,100 Total equity ............................................. 816,480 748,570 674,100 Total liabilities and equity ........................ $1,450,400 $1,246,270 $1,043,000 2020 2019 Favourable or Unfavourable a. Return on common shareholders’ equity1 .... 12.2% 12.4% Unfavourable b. Price-earnings2 ............................................... 14.35 14.43 Unfavourable c. Dividend yield3 ................................................ 2.0% 1.07% Favourable Calculations: 1. Return on common shareholders’ equity: 2020: $95,210* × 100 = 12.2% ($816,480 + $748,570)/2 2019: $88,120** × 100 = 12.4% ($748,570 + $674,100)/2 *calculated as follows: 361,480 – 293,570 = 67,910 change in retained earnings from 2019 to 2020 plus dividends declared (45,500 X 0.60 = 27,300) equals profit of $95,210. ** calculated as follows: 293,570 – 219,100 = 74,470 change in retained earnings from 2018 to 2019 plus dividends declared (45,500 X 0.30 = 13,650) equals profit of $88,120. 2. Price earnings ratio, December 31: 2020: $30/$2.09* = 14.35 2019: $28/$1.94** = 14.43 *$95,210/45,500 shares = $2.09 EPS **$88,120/45,500 shares = $1.94 EPS 3. Dividend yield: 2020: ($.60/$30) x 100 = 2.0% 2019: ($.30/$28) x 100 = 1.07% Yemp Yoga Western Sports Current ratio 4.09 4.75 Debt ratio 20.36% 18.06% Gross profit ratio 67.24% 54.74% - Western Sport Clothing has a superior current ratio indicating that it is better able to meet its short-term obligations than Hemp Yoga Clothing. - - Hemp has a lower Current ratio, so not as good as Western, but certainly over the .

1. Sample of a Comparable Balance Sheet
Spence Resources Inc.
Balance Sheet
December 31
2020 2019 2018
Assets
Current assets
Cash ..................................................... $ 72,520 $
98,434 $ 103,040
Accounts receivable, net .................... 261,520 176,316
137,760
Inventory .............................................. 312,200 231,000
148,400
Prepaid expenses ................................ 27,160
26,520 11,200
Total current assets ............................ 673,400
532,270 400,400
Plant assets, net ..................................... 777,000
714,000 642,600

2. Total assets .............................................. $1,450,400
$1,246,270 $1,043,000
Liabilities
Accounts payable ................................... $ 360,920 $
210,700 $ 137,900
Long-term notes payable ....................... 273,000
287,000 231,000
Total liabilities ........................................ 633,920 $
497,700 $ 368,900
Equity
Common shares
45,500 shares issued and outstanding
455,000
455,000
455,000
Retained earnings .................................. 361,480
293,570 219,100
Total equity ............................................. 816,480
748,570 674,100

3. Total liabilities and equity ........................ $1,450,400
$1,246,270 $1,043,000
2020
2019
Favourable or
Unfavourable
a. Return on common shareholders’ equity1 .... 12.2% 12.4%
Unfavourable
b. Price-earnings2 ............................................... 14.35 14.43
Unfavourable
c. Dividend yield3 ................................................ 2.0%
1.07% Favourable
Calculations:
1. Return on common shareholders’ equity:
2020: $95,210* × 100 = 12.2%
($816,480 + $748,570)/2
2019: $88,120** × 100 = 12.4%

4. ($748,570 + $674,100)/2
*calculated as follows: 361,480 – 293,570 = 67,910 change in
retained earnings from
2019 to 2020 plus dividends declared (45,500 X 0.60 = 27,300)
equals profit of $95,210.
** calculated as follows: 293,570 – 219,100 = 74,470 change in
retained earnings from
2018 to 2019 plus dividends declared (45,500 X 0.30 = 13,650)
equals profit of $88,120.
2. Price earnings ratio, December 31:
2020: $30/$2.09* = 14.35
2019: $28/$1.94** = 14.43
*$95,210/45,500 shares = $2.09 EPS
**$88,120/45,500 shares = $1.94 EPS
3. Dividend yield:
2020: ($.60/$30) x 100 = 2.0%

5. 2019: ($.30/$28) x 100 = 1.07%
Yemp Yoga Western Sports
Current ratio 4.09 4.75
Debt ratio 20.36% 18.06%
Gross profit ratio 67.24% 54.74%
- Western Sport Clothing has a superior current ratio indicating
that it is better able
to meet its short-term obligations than Hemp Yoga Clothing.
-
- Hemp has a lower Current ratio, so not as good as Western,
but certainly over the
rule of thumb. The Inventory turnover for Hemp is better. This
may contribute to
the lower current ratio as they have less inventory in the
numerator on the
Current ratio. We don’t know the A/R turnover, but that could
be a ratio that
management wants to look at as an indicator if they were

6. collecting the Accounts
Receivable faster. Both would result in lower current ratio as
they are selling
inventory faster and collecting accounts receivable faster.
-
- Western Sport Clothing has a stronger balance sheet because it
has a lower debt
ratio; a lower debt ratio means Western Sport Clothing is
exposed to lower risk
associated with debt—that of having sufficient resources
available to make interest
and principal payments.
- Hemp Yoga Clothing’s gross profit ratio indicates that it
generated $0.67 of gross
profit for each $1.00 of sales which is more favourable Western
Sport Clothing’s
which showed that it generated $0.55 of gross profit for each
$1.00 of sales. A
healthy gross profit is necessary to cover selling and
administrative expenses along
with other expenses such as interest and income tax.
-
DRINKWATER INC.
Income Statement

7. For Year Ended March 31, 2020
(in thousands of Canadian dollars)
Revenues:
2020 2019
Net sales ....................................................................
$929,000 $787,000
Investment income ....................................................
9,000 7,000
Total revenues ...........................................................
$938,000 $794,000
Expenses:
Cost of goods sold ....................................................
$424,000 $335,000
Other operating expenses ........................................ 141,000
103,000
Interest expense ........................................................ 5,700
6,500
Income tax expense ..................................................
73,000 69,000
Total expenses .......................................................
$643,700 $513,500
Profit ...............................................................................
$294,300 $280,500

8. DRINKWATER INC.
Statement of Changes in Equity
For Years Ended March 31, 2019 and 2020
(in thousands of Canadian dollars)
Preferred
Shares
Common
Shares
Retained
Earnings
Total
Equity
Balance, April 1, 2018 $100,000 $250,000 $ 491,550 $
841,550
Issuance of shares -0- -0- -0-
Profit (loss) 280,500 280,500
Dividends -0- -0-
Balance, March 31, 2019 $100,000 $250,000 $ 772,050
$1,122,050
Issuance of shares -0- -0- -0-

9. Profit (loss) 294,300 294,300
Dividends -0- -0-
Balance, March 31, 2020 $100,000 $250,000 $1,066,350
$1,416,350
DRINKWATER INC.
Balance Sheet
March 31, 2020
(in thousands of Canadian dollars)
2020 2019
Assets
Current assets: ...................................................
Cash ................................................................. $
136,000 $ 98,000
Accounts receivable ...................................... $
238,000 $ 219,000
Less: Allowance for doubtful accounts ...... 2,300
235,700 2,100 216,900
Inventory ......................................................... 84,000

10. 71,000
Prepaid insurance .......................................... 50 30
Notes receivable, due in six months ............ 600
400
Total current assets ....................................... $
456,350 $ 386,330
Property, plant and equipment:
Property, plant and equipment assets ......... $1,621,100
$1,234,670
Less: Accumulated depreciation .............. 325,000
1,296,100 208,000 1,026,670
Total assets ..............................................................
$1,752,450 $1,413,000
Liabilities
Current liabilities:
Accounts payable .......................................... $
219,000 $ 174,000
Unearned sales ..............................................
3,100 750
Total current liabilities ..................................
$222,100 $174,750
Non-Current liabilities:

11. Notes payable, due in 2022 ............................ 114,000
116,200
Total liabilities .................................................... $
336,100 $ 290,950
Equity
Contributed capital
Preferred shares; $1 non-cumulative;
20,000 shares issued and outstanding .....
$ 100,000
$ 100,000
Common shares
50,000 shares issued and outstanding .....
250,000
250,000
Total contributed capital................................ $
350,000 $ 350,000

12. Retained earnings ..............................................
1,066,350 772,050
Total equity .........................................................
1,416,350 1,122,050
Total liabilities and equity ......................................
$1,752,450 $1,413,000
Solution
s Manual to accompany Fundamental Accounting Principles,
15th Canadian Edition. © 2019 McGraw-Hill Ryerson Ltd.
17-5
Calculate the ratio for 2020: Calculate the ratio for 2019:
F* or U*
Change
from

13. Previous
Year
F or U Relative to
Industry Average for
2020
Industry
Average
F*
or
U*
a. Current
ratio

14. b.
456,350 = 2.05
222,100
386,330 = 2.21
174,750
U 1.96:1 F
b. Quick ratio 372,300 = 1.68
222,100
315,300 = 1.80
174,750
U 1.42:1 F
c. Accounts
receivable
turnover

15. 929,000 = 4.11
226,300
787,000 = 3.74
210,450
F 4.35 U
d. Days’ sales
uncollected
235,700 x 365 = 92.61
929,000
216,900 x 365 = 100.60
787,000
F 95.12 F
e. Inventory
turnover
424,000 = 5.47

16. 77,500
335,000 = 5.63
59,500
U 5.20 F
f. Days’ sales in
inventory
84,000 x 365 = 72.31
424,000
71,000 x 365 = 77.36
335,000
F* 75.08 F*
g. Total asset
turnover
929,000 = 0.59
1,582,725

17. 787,000 = .64
1,238,908
U 1.8 U
h. Accounts
payable turnover
424,000 = 2.16
196,500
335,000 = 2.10
159,500
F 8.45 U**
i. Debt ratio
336,100 x 100 = 19.18
1,752,450
290,950 x 100 = 20.59

18. 1,413,000
F** 21% F***
j. Equity ratio
100 – 19.18 = 80.82 100 – 20.59 = 79.41 F 79% F
k. Times interest
earned
373,000 = 65.44
5,700
356,000 = 54.77
6,500
F 50.16 F