Problem 12-4A Calculate risk ratios (LO12-3) The following income statement and
ID: 2338549 • Letter: P
Question
Problem 12-4A Calculate risk ratios (LO12-3) The following income statement and balance sheets for Virtual Gaming Systems are provided. VIRTUAL GAMING SYSTEMS Income Statement For the year ended December 31, 2018 Net sales Cost of goods sold $3,031,000 1,949,000 Gross proft 1,082,00 Depreciation expense Loss on sale of land Interest expense Income tax expense S857,000 26,500 7,900 14,500 47,000 Total expenses 952,900 Net income S 129,100 VIRTUAL GAMING SYSTEMS Balance Sheets December 31 2018 2017 Assets Current assets: 185,000 $143,000 59,000 134,000 5,880 Cash 80,000 04,000 11,900 Prepaid rent Long-term assets: Investment in bonds Land Equipment Less: Accumulated depreciation 104,000 209,000 269,000 67,500 41,000) 239,000 209,000 Total assets $895.400 $748,880 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Interest payable Income tax payable S 65,000 80,000 2,900 13,900 5,800 14,500 284,000 299,000 Notes payable 224,000 Stockholders' equity: Common stock Retained earnings 299,000 129,080 227,100 Total liabilities and stockholders equity $895,400 $748,880Explanation / Answer
Type of Ratio
Formula
Workings
Ratio
Accounts receivable turnover ratio
Net credit sales/
Average Accounts receivable
3,031,000/{(80000+59000)/2}
=3,031,000/69500
43.6 times
Average collection Period
365/ Accounts receivable turnover ratio
365/43.61
8.4 days
Inventory turnover ratio
Cost of goods sold/
Average inventory
1,949,000/{(104000+134000)/2}
=1,949,000/119,000
16.4 times
Average days in inventory
365/ Inventory turnover ratio
365/ 16.38
22.3days
Current Ratio
Current Assets/
Current Liabilities
380,900/85,300
4.4 : 1
Acid test ratio
Liquid assets/
Current Liabilities
276,900/85,300
3.2 : 1
Debt to equity ratio
Total Liabilities/ Shareholder’s equity
369,300/ 526,100
70.2%
Times Interest earned ratio
EBIT/ Interest expenses
190,600/14,500
13.1 times
Type of Ratio
Formula
Workings
Ratio
Accounts receivable turnover ratio
Net credit sales/
Average Accounts receivable
3,031,000/{(80000+59000)/2}
=3,031,000/69500
43.6 times
Average collection Period
365/ Accounts receivable turnover ratio
365/43.61
8.4 days
Inventory turnover ratio
Cost of goods sold/
Average inventory
1,949,000/{(104000+134000)/2}
=1,949,000/119,000
16.4 times
Average days in inventory
365/ Inventory turnover ratio
365/ 16.38
22.3days
Current Ratio
Current Assets/
Current Liabilities
380,900/85,300
4.4 : 1
Acid test ratio
Liquid assets/
Current Liabilities
276,900/85,300
3.2 : 1
Debt to equity ratio
Total Liabilities/ Shareholder’s equity
369,300/ 526,100
70.2%
Times Interest earned ratio
EBIT/ Interest expenses
190,600/14,500
13.1 times