AUTOMOTIVE SOLUTIONS INC.

Assume you are a mid-level executive at Automotive Solutions Inc., and you have been assigned to analyze the company’s financial statements for 20Y7 and 20Y8 and prepare a report for upper-level organizational leaders. The following tables show the comparative financial statements for Automotive Solutions Inc. The market price of Automotive Solutions Inc. common stock was $119 on December 31, 20Y8. The market price of Automotive Solutions Inc. common stock was $103 on December 31, 20Y7. AUTOMOTIVE SOLUTIONS INC. Comparative Statement of Stockholders' Equity For the Years Ended December 31, 20Y8 and 20Y7 20Y8 20Y7 Preferred stock Common stock Retained Earnings Preferred stock Common stock Retained Earnings Balances, Jan. 1 $500,000 $500,000 $5,375,000 $500,000 $500,000 $4,545,000 Net income 900,000 925,000 Dividends: Preferred stock (45,000) (45,000) Common stock _______ _______ (50,000) ________ _______ (50,000) Balances, Dec. 31 $500,000 $500,000 $6,180,000 $500,000 $500,000 $5,375,000   AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 2018 and 20Y7 20Y8 20Y7 Sales $10,000,000 $ 9,400,000 Cost of goods sold (5,350,000) 4,950,000) Gross profit $ 4,650,000 $ 4,450,000 Selling expenses $(2,000,000) $(1,880,000) Administrative expenses (1,500,000) (1,410,000) Total operating expenses $ (3,500,000) $(3,290,000) Operating income $ 1,150,000 $ 1,160,000 Other revenue and expense: Other revenue 150,000 140,000 Other expense (interest) (170,000) (150,000) Income before income tax $ 1,130,000 $ 1,150,000 Income tax expense (230,000) (225,000) Net income $ 900,000 $ 925,000 AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7 Dec. 31, 20Y8 Dec. 31, 20Y7 Assets Current assets: Cash $ 500,000 $ 400,000 Marketable securities 1,010,000 1,000,000 Accounts receivable (net) 740,000 510,000 Inventories 1,190,000 950,000 Prepaid expenses 2,50,000 229,000 Total current assets $3,690,000 $3,089,000 Long-term investments 2,350,000 2,300,000 Property, plant, and equipment (net) 3,740,000 3,366,000 Total assets $9,780,000 $8,755,000 Liabilities Current liabilities $ 900,000 $ 880,000 Long-term liabilities: Mortgage note payable, 10% $ 200,000 $ 0 Bonds payable, 10% 1,500,000 1,500,000 Total long-term liabilities $1,700,000 $1,500,000 Total liabilities $2,600,000 $2,380,000 Stockholders' Equity Preferred $0.90 stock, $10 par $ 500,000 $ 500,000 Common stock, $5 par 500,000 500,000 Retained earnings 6,180,000 5,375,500 Total stockholders' equity $7,180,000 $6,375,000 Total liabilities and stockholders' equity $9,780,000 $8,755,000 In your report to upper management, analyze the company’s financial statements for 20Y7 and 20Y8: • Discuss the purpose of the report and the role of accounting in business. o What are the two major objectives of accounting and how are they achieved? o What kind of information do these financial statements provide to internal stakeholders, such as organizational leaders within the company, and to external stakeholders, such as lenders and current or potential investors? o How do internal and external stakeholders use financial accounting information?