Question

Write a one- to two-page memo explaining the following:

• Analyze the company’s 2018 balance sheet, including an evaluation of the current ratio and the debt to equity ratio.
• State the differences between balance sheet reporting according to U.S. Generally Accepted Accounting Principles (GAAP) versus those prepared using International Financial Reporting Standards (IFRS).

  GANDER, INC.
  Balance Sheet
  As of December 31, 2018
  ASSETS
  Current assets:
  Prepaid Interest	$          3,070
  Cash	$      122,106
  Accounts receivable	$        44,948
  Inventories	$      180,360
  Total current assets			$      350,484
  Property, plant, and equipment:
  Plant Assets (net)	$      300,000
  Less: Accumulated depreciation	$     (170,000)
  Net Plant Assets			$      130,000
  TOTAL ASSETS			$      480,484
  LIABILITIES
  Current Liabilities:
  Accounts payable	$        34,616
  Interest payable	$              -
  Notes payable	$        46,200
  Total Current Liabilities			$        80,816
  STOCKHOLDERS' EQUITY
  Common Stock	$      250,000
  Retained Earnings	$      149,668
  Total Stockholders' Equity			$      399,668
  TOTAL LIABILITIES AND			$      480,484
  STOCKHOLDERS' EQUITY

Answer 1

Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay its short-term obligations. Current asset ratio is calculated by dividing current assets to current liabilities.

For Gander Inc. , Current Ratio = 350,484/80,816, which is 4.34.

This indicates that Gander Inc has the ability to pay its current liabilities for 4.34 times. The current ratio of the firm is financially well and is higher than the healthy ratio which ranges within 1.5 - 3.

Debt to equity ratio

A debt to equity ratio indicates the company's ability to pay its loans and borrowings. The debt-to-equity ratio shows the proportion of equity and debt a company is using to finance its assets and the extent to which shareholder's equity can fulfill obligations to creditors in the event of a business decline.

For Gander Inc. , the ratio cannot be calculated as the entity is debt free. And the same gives the organisation a higher credibility than others. This would reduce the interest expense of the organisation, the related compliances and thus would result in increased profit available for the shareholders.

Major differences of Balance sheet Reporting under US GAAP and IFRS

1. Under IFRS, deferred taxes has to be treated as non-current. But under US GAAP, the same be treated either as current or non-current.

2. Under IFRS, future expectations of change in assets and liabilities is to be shown in the footnote along with the accounting policies. Whereas US GAAP requires the accounting policies of the organisation to be disclosed in footnote.

3. Under IFRS, even after the financial statements are authorized, subsequent events has to be disclosed. Under US GAAP, the same may differ.

4. The amount of pension asset is limited under IFRS and the reason of such limitation is to be a part of footnote. Under US GAAP, the same is not limited.