III.(15 points) Use the data from Problem V. For the most recent year (2014) cal
ID: 2471731 • Letter: I
Question
III.(15 points)
Use the data from Problem V. For the most recent year (2014) calculate the following ratios.
1.Current ratio
2.Inventory turnover
3.Rate of return on total assets
4.Accounts receivable turnover (assume all sales are on account)
5.Debt ratio.
BALANCE SHEETS
Assets 2014 2013
Cash $ 200 $ 285
Accounts receivable 350 300
Allowance for bad debts (40) (25)
Inventory 100 135
Land 600 500
Buildings 275 255
Accumulated depreciation-buildings (75) (80)
Total assets $1,410 $1,370
Liabilities & Owners’ Equity
Liabilities
Accounts payable $ 300 $ 305
Wages payable 70 60
Dividends payable 30 25
Taxes payable 50 45
Long-term Bonds payable 100 100
Premium on bonds payable 7 10
Total liabilities 557 545
Owners’ Equity
Common stock 650 600
Retained earnings 203 225
Total owners’ equity 853 825
Total liabilities & owners’ equity $1,410 $1,370
INCOME STATEMENT (2014)
Revenue $1,500
Cost of goods sold 850
Gross margin 650
Operating expenses
Wage expense $171
Depreciation expense 40
Bad debt expense 15
Bond interest expense 14
Total operating expenses 240
Net operating income 410
Gain on sale of building 60
Net income before tax 470
Income tax 141
Net income after tax $ 329
BALANCE SHEETS
Assets 2014 2013
Cash $ 200 $ 285
Accounts receivable 350 300
Allowance for bad debts (40) (25)
Inventory 100 135
Land 600 500
Buildings 275 255
Accumulated depreciation-buildings (75) (80)
Total assets $1,410 $1,370
Liabilities & Owners’ Equity
Liabilities
Accounts payable $ 300 $ 305
Wages payable 70 60
Dividends payable 30 25
Taxes payable 50 45
Long-term Bonds payable 100 100
Premium on bonds payable 7 10
Total liabilities 557 545
Owners’ Equity
Common stock 650 600
Retained earnings 203 225
Total owners’ equity 853 825
Total liabilities & owners’ equity $1,410 $1,370
INCOME STATEMENT (2014)
Revenue $1,500
Cost of goods sold 850
Gross margin 650
Operating expenses
Wage expense $171
Depreciation expense 40
Bad debt expense 15
Bond interest expense 14
Total operating expenses 240
Net operating income 410
Gain on sale of building 60
Net income before tax 470
Income tax 141
Net income after tax $ 329
Explanation / Answer
Current Ratio = Current Assets / Current Liabilities (200+350-40+100) / (300+70+30+50) = 1.36 Inventory turnover = Cost of goods sold / Average Inventory 850/((100+135)/2) = 7.23 Rate of return on total Assets = Net income / Average total Assets 329 / ((1,410+1,370)/2) = 23.67% Accounts Receiveble turnover = Credit Sales / Average Accounts Receiveble 1,500 / ((350+300)/2) = 4.62 Debit Ratio = Total Liabilities / Total Assets 557/1,410 = 39.50%