Problem 14-2A Your answer is partially correct. The comparative statements of Pa
ID: 2560925 • Letter: P
Question
Problem 14-2A Your answer is partially correct. The comparative statements of Painter Tool Company are presented below PAINTER TOOL COMPANY Income Statement For the Years Ended December 31 2015 2014 Net sales Cost of goods sold Gross profit Selling and administrative expense Income from operations Other expenses and losses $1,813,190 1,014,270 798,920 512,500 286,420 $1,751,610 973,110 778,500 478,200 300,300 Interest expense Income before income taxes Income tax expense Net income 18,110 268,310 81,110 $ 187,200 13,740 286,560 76,260 $ 210,300Explanation / Answer
Ratios for 2015 will be calculated as follow;
(a). Earning per share;
Net income / Number of shares
$187200 / 54300 = $3.45
(b). Return on common stockholders’ equity;
Net income / Average common stockholders’ equity
Net income = $187500
Average common stockholders’ equity = ($560680 + $459420) / 2 = $510050
Now let’s put the values in the formula;
$187500 / $510050 = 36.76%
(c). Return on Assets;
Net income / Average total assets
Net income = $187500
Average total assets = ($967850 + $850440) / 2 = $909145
Now let’s put the values in the formula;
$187500 / $909145 = 20.62%
(d). Current ratio;
Current assets / Current liabilities
Current assets = $367510
Current liabilities = $203070
Now let’s put the values in the formula;
$367510 / $203070 = 1.81 : 1
(e). Current ratio;
Quick or Acid assets / Current liabilities
Quick or Acid assets ($59820 + $68160 + $116530) = $244510
Current liabilities = $203070
Now let’s put the values in the formula;
$244510 / $203070 = 1.2 : 1
(f). Account receivable turnover;
Net credit sales / Average account receivable
Net credit sales = $1813190
Average account receivable ($116530 + $101450) / 2 = $108990
Now let’s put the values in the formula;
$1813190 / $108990 = 16.6 Times
(g). Inventory turnover;
Cost of goods sold / Average Inventory
Cost of goods sold = $1014270
Average Inventory ($123000 + $114520) / 2 = $118760
Now let’s put the values in the formula;
$1014270 / $118760 = 8.54 Times or 8.5 Times
(h). Times interest earned;
Earnings before interest and tax (EBIT) / Interest expense
Earnings before interest and tax (EBIT) = $286420
Interest expense = $18110
Now let’s put the values in the formula;
$286420 / $18110 = 15.8 Times
(i). Assets turnover;
Net sales / Average total assets
Net sales = $1813190
Average total assets ($967850 + $850440) / 2 = $909145
Now let’s put the values in the formula;
$1813190 / $909145 = 2 Times
(j). Debt to Assets ratio;
Total debts / Total assets
Total debts = $407170
Total assets = $967850
Now let’s put the values in the formula;
$407170 / $967850 = 42.069 % or 42.06 %