Problem 14-6A CORBIN COMPANY Income Statement For the Years Ended December 31 20
ID: 2414101 • Letter: P
Question
Problem 14-6A
CORBIN COMPANY
Income Statement
For the Years Ended December 31
2017
2016
CORBIN COMPANY
Balance Sheets
December 31
Assets
2017
2016
Liabilities and Stockholders’ Equity
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) $600,500 $519,300 Expenses Cost of goods sold 414,600 354,800 Selling and administrative 120,500 113,900 Interest expense 9,000 6,600 Income tax expense 18,400 13,100 Total expenses 562,500 488,400 Net income $ 38,000 $ 30,900CORBIN COMPANY
Balance Sheets
December 31
Assets
2017
2016
Current assets Cash $ 22,000 $ 18,500 Short-term investments 19,000 15,500 Accounts receivable (net) 85,300 74,800 Inventory 89,700 70,900 Total current assets 216,000 179,700 Plant assets (net) 422,900 382,600 Total assets $638,900 $562,300Liabilities and Stockholders’ Equity
Current liabilities Accounts payable $122,400 $110,000 Income taxes payable 22,200 19,600 Total current liabilities 144,600 129,600 Long-term liabilities Bonds payable 120,000 80,600 Total liabilities 264,600 210,200 Stockholders’ equity Common stock ($5 par) 153,400 153,400 Retained earnings 220,900 198,700 Total stockholders’ equity 374,300 352,100 Total liabilities and stockholders’ equity $638,900 $562,300Additional data:
The common stock recently sold at $20.05 per share.
Compute the following ratios for 2017. (Round Acid-test ratio and Earnings per share to 2 decimal places, e.g. 1.65, and all other answers to 1 decimal place, e.g. 6.8 or 6.8%.)
(a) Current ratio. :1 (b) Acid-test ratio. :1 (c) Accounts receivable turnover. times (d) Inventory turnover. times (e) Profit margin. % (f) Asset turnover. times (g) Return on assets. % (h) Return on common stockholders’ equity. % (i) Earnings per share. $ (j) Price-earnings ratio. times (k) Payout ratio. % (l) Debt to assets ratio. % (m) Times interest earned. times
Explanation / Answer
(a) Current Ratio
Current Ratio = Total Current Assets / Total Current Liabilities
= $216,000 / 144,600
= 1.4
= 1.4 : 1
(b)Acid Test Ratio
Acid Test Ratio = [ Total Current Assets – Inventory ] / Total Current Liabilities
= [ $216,000 - 89700 ] / 144,600
= 0.87
= 0.87 : 1
(c)Accounts Receivable Turnover
Accounts Receivable Turnover = Sales / Average Accounts Receivables
= $600,500 / [ (85,300 + 74,800) / 2 ]
= 7.5 Times
(d)Inventory Turnover
Inventory Turnover = Cost of goods sold / Average Inventory
= $414,600 / [ (89,700 + 70,900) / 2 ]
= 5.2Times
(e)Profit Margin
Profit Margin = [ Net Income / Sales ] x 100
= [ $38,000 / 600,500 ] x 100
= 6.3%
(f)Asset turnover.
Asset Turnover = Sales / Average Total Assets
= $600,500 / (638900 + 562300)/2
=1.00 Times
(g) Return on assets
Return on Assets = [ Net Income / Average Total Assets ] x 100
= [ (38,000) / (638900 + 562300)/2 ] 100
= 6.3%
(h)Return on common stockholders Equity
Return on common stockholders Equity = [ Net Income / Average Common stockholders Equity ] x 100
= [ $38,000 / [ (374300 + 352100)/2 ] x 100
= 10.5%
(i) Earnings per share
Earnings per share = Net Income / Weighted average number of common shares
= $38,000 / 30,680 Common shares
= $1.24 per share
(j)Price Earning Ratio
Price Earning Ratio = Market price per share / Earnings per share
= $20.05 / $1.24
= 16.2 Times
(l) Debt to assets ratio
Debt to assets ratio = Total Liabilities / Total Assets
= [ $ 264,600 / $638,900 ] x 100
= 41.4%
(m) Times interest earned
Times interest earned. = [ Net Income + Income Tax + Interest Expenses ] / Interest Expenses
= [ $38,000 + 18400 + 9000 ] / 9000
= 7.3 Times