Problem 14-6A The comparative statements of Corbin Company are presented below.
ID: 2414861 • Letter: P
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
CORBIN COMPANY
Balance Sheets
December 31
Assets
2017
2016
Liabilities and Stockholders’ Equity
Additional data:
The common stock recently sold at $19.32 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%.)
CORBIN COMPANY
Income Statement
For the Years Ended December 31
2017
2016
Net sales (all on account) $600,500 $519,600 Expenses Cost of goods sold 414,000 353,000 Selling and administrative 119,900 113,600 Interest expense 9,000 6,900 Income tax expense 18,100 13,300 Total expenses 561,000 486,800 Net income $ 39,500 $ 32,800Explanation / Answer
All the figures in the calculations shown below are taken from income statement and balance sheet of Corbin company given in the question :
a. current ratio = current assets / current liability = 213300 / 143700 = 1.48 = 1.5
b. acid - test ratio = current asset - inventory / current liability = (213300 - 89000) / 143700 = 0.86
c. account receivable turnover = net credit sales / average account receivable = 600500 / 79800 = 7.5 times
(average account receivable = 73300 + 86300 / 2 = 79800)
d. inventory turnover = cost of goods sold / average inventory = 414000 / 79550 = 5.2 times
(average inventory = 70100 + 89000 / 2 = 79550)
e. profit margin = net income / net sales = 39500 / 600500 = 0.06 = 6%
f. asset turnover = sales / average total assets = 600500 / 597350 = 1.005 times or 1 times
(average total assets = 558500 + 636200 / 2 = 597350)
g. return on assets = net income / total assets = 39500 / 636200 = 0.06 = 6%
h. return on common stockholders equity = net income - preferred dividend / average common stockhoders equity
= 39500 / 154200 = 0.25 = 25%
(preferred dividend is not given in the question hence we consider it as 0)
i. earning per share = net income - dividend on preferred stock / average outstanding shares
= 39500/ 30840 = $1.28 = $1.3
average outstanding share = value of common stock / par value of share = 154200 / 5 = 30840
dividend on preferred stock is not given in the question, hence considered as zero
j. price earning ratio = market value per share / earning per share
= 19.32 / 1.3 = $14.8 times
k. payout ratio = total dividend paid / net income * 100
dividend is not given in the question, hence considered as 0.
100% profit are retained by the company, hence payout ratio is zero.
l. debt to asset ratio = total debt / total assets = 263500 / 636200 = 0.4 = 40%
m. times interest earned = earnings before interest and tax / interest charges = 66600 / 9000 = 7.4 times
(earnings before interest and tax = net sales - cost of goods sold - selling and administrative )
= 600500 - 414000 - 119900 = 66600
(interest charges are the interest expenses)