Ocean Marine Company Assignment 2

Oceanview Marine Company 2-2 Preliminary Analytical Procedures — Summary of Ratio Analyses December 31, 2015 Liquidity: Although the liquidity ratios do not indicate there are any serious problem areas, they do reveal some possible warning signs:  The current ratio has declined by over 7% during the year. However, it is still above the 2:1 level, which is a sign of good financial condition, and it is above the industry average.  They have enough current assets to cover their current liabilities  It is taking longer to collect money on accounts. Up by 2.21 days this year while national average went up 18 days.  The company is barely improved on turning over inventory from the previous year while the industry has increased significantly. Profitability : • Since the gross profit margin did not jump up by a big percentage that means general, selling, and administrative accounts are not being mishandled. • The return on resources contributed by stockholders has gone up by 42.86%. • The return on resources contributed by stockholders and creditors has also gone up by 50%. • A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenue. • The company is generating more money per assets used by 3.36%. • The company is generating a lot of sales compared to the money it uses to fund the sales. Solvency: The solvency ratios have deteriorated somewhat:  Long-term Assets to Owners’ Equity dropped nearly 15%.  Shareholder equity ratio has decreased so shareholders will not be making as much.  Stockholders’ equity is more than the fixed assets so the stockholders’ equity is financing not only the fixed assets but also a part of the working capital.

Oceanview Marine CompanyStatement of Income and Retained EarningsDecember 31, 2012PBC1-2SalesSales returns and allowances Net sales Cost of sales Gross profit201220112010$26,456,647$22,889,060$20,950,52137,55727,74028,75326,419,09022,861,32020,921,76819,133,29916,530,11415,176,4107,285,7916,331,2065,745,358EXPENSESAccounting and auditing48,25346,75044,610Advertising28,62427,94724,654Depreciation46,41546,57841,538Bad debts148,252162,344147,629Business publications1,231872115Cleaning services15,81712,80911,620Fuel64,16153,56641,593Garbage collection4,8704,6745,650Insurance16,41516,30316,144Interest427,362364,312356,829Legal69,75229,91422,654Licensing and certification fees33,58027,14224,148Linen service3,0441,9392,393Medical benefits4,1784,6244,287Miscellaneous47,73916,63125,430Office supplies26,39023,28921,462Payroll benefits569,110461,214430,688Pension expense40,77037,26318,900Postage and courier8,62320,96222,511Property taxes3,97827,94726,144Rent158,526120,000112,846Repairs and maintenance51,31626,43926,519Salaries and wages4,310,2813,970,0923,703,580Security96,980100,09893,800Telephone5,7077,0928,611Travel and entertainment21,63316,30314,952Utilities63,32941,91940,827Total Expenses6,316,3365,669,0235,290,134Net income before income tax969,455662,183455,224Income tax expense344,605239,406199,631NET INCOME624,850422,777255,593Retained earnings at beginning of year Less: DividendsRetained earnings at end of year6,518,413 6,195,636 6,040,043 100,000100,000100,000 $7,043,263 $6,518,413 $6,195,636The accompanying notes form an integral part of these financial statementsCurrent workpapers — audit planning ♦ Page 2

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