Problem 14-6A The comparative statements of Corbin Company are presented below.

Question

Problem 14-6A The comparative statements of Corbin Company are presented below. CORBIN COMPANY Income Statement For the Years Ended December 31 2017 2016 Net sales (all on account) Expenses $595,000 $520,000 Cost of goods sold Selling and adminístrative Interest expense Income tax expense 415,000 120,800 7,800 15,000 558,600 36,400 354,000 114,800 6,000 14,000 488,800 $31,200 Total expenses Net income CORBIN COMPANY Balance Sheets December 31 Assets 2017 2016 Current assets Cash Short-term investments Accounts receivable (net) Inventory $21,000 18,000 91,000 85,000 215,000 423,000 $18,000 15,000 74,000 70,000 177,000 383,000 Total current assets Plant assets (net) Total aceate rivacyPolicy I ?2000-2018Johny?ley& Sons, Inc. All Rights Reserved. A Division of lohn Wiley 8 s

Explanation / Answer

1 Current ratio = Current assets / current liabilities Current assets 215000 Current Liabilities 145000 Current ratio 1.48 3 Acid test ratio = Acid test assets / current liabilities Acid test assets = current assets - prepaid expense - merchandise inventory Quick assets 130000 Current liabilities 145000 Acid test ratio 0.90 4 Accounts receivable turnover = net credit sales /Average accounts receivable Net sales 595000 Beginning accounts receivable 74000 Ending accounts receivable 91000 Average accounts receivable 82500 Accounts receivable turnover 7.2 5 Days sales outstanding = 365 / accounts receivable tunover Days sales outstanding 50.6 6 Inventory turnover = Cost of goods sold / Average inventory Cost of goods sold 415000 Beginning inventory 70000 Ending inventory 85000 Average inventory 77500 Average inventory = (Beginning + Ending )/2 Inventory turnover 5.4 7 Days sale in inventory = 365 / inventory turnover Days sales in inventory 68 8 Operating cycle = days sales in inventory + average collection period Operating cycle 118.8 8 Profit margin percentage = Net income / sales Net Income 36400 Sales 595000 Gross margin % 6.12%

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