Course: ACC 1201 - Principles of Accounting II Program Outcome: Understand the c
ID: 2579959 • Letter: C
Question
Course: ACC 1201 - Principles of Accounting II Program Outcome: Understand the components of financial statements The comparative statements of Corbin Company are presented below the Years Eaded December 31 Net sales (all on account) Expenses $600,500 $520,800 14,600 353,300 Selling and administrative 119,900 113,000 7,800 6,300 17.900 14,200 560,200 486,800 40,300 $ 34,000 Cost of goods sold Interest expense Income tax expense Total expenses Net income Current assets Cash 20,800 17,100 18,600 14,300 86,400 73,400 89,900 69,100 215,700 173,900 422,000 383,800 637,700 $557,700 Accounts receivable (net) InventonY Total current assets Plant assets (net) Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Income taxes payable $122,800 $109,800 22,100 20,300 144,900 130,100 Total current liabilities Long-term liabilities Bonds payable Total Eabilities Stockholders" equity 119,600 79,600 264,500 209,700 Common stock ($5 par) Retained earnings 145,600 145,600 227,600 202,400 373,200 348,000 Total liabilities and stockholders" equity $637,700 $557,700 Total stockholders' equity Additional data The common stock recently sold at $18.25 per share. Part I Compute the following ratios forExplanation / Answer
Part I
(a) Current ratio = Current assets / Current liabilities = 215700 / 173900 = 1.2:1
(b) Acid-test ratio = Quick assets / Current liabilities = (20800 + 18600 + 86400) / 173900 = 125800 / 173900 = 0.72:1
(c) Accounts receivable turnover = Sales / Average accounts receivable = 600500 / 79900 = 7.5 times
Average accounts receivable = (86400 + 73400) / 2 = 159800 / 2 = 79900
(d) Inventory turnover = Cost of goods sold / Average inventory = 414600 / 79500 = 5.2 times
Average inventory = (89900 + 69100) / 2 = 159000 / 2 = 79500
(e) Profit margin = Net income / Sales = 40300 / 600500 = 6.7%
(f) Asset turnover = Sales / Average total assets = 600500 / 597700 = 1.0 times
Average total assets = (637700 + 557700) / 2 = 1195400 / 2 = 597700
(g) Return on assets = Net income / Average total assets = 40300 / 597700 = 6.7%
(h) Return on common stockholders’ equity = Net income / Average common stockholders’ equity = 40300 / 360600 = 11.2%
Average common stockholders’ equity = (373200 + 348000) / 2 = 721200 / 2 = 360600
(i) Earnings per share = Net income / Number of outstanding common stock = 40300 / 29120 = $1.38
Number of outstanding common stock = 145600 / 5 = 29120
(j) Price-earnings ratio = Market price / Earnings per share = 18.25 / 1.38 = 13.2 times
(k) Payout ratio = Dividends paid / Net income = 15100 / 40300 = 37.5%
Dividends paid = Beginning retained earnings + Net income – Ending retained earnings = 202400 + 40300 – 227600 = 15100
(l) Debt to assets ratio = Total debt / Total assets = 264500 / 637700 = 41.5%
(m) Times interest earned = Profit before interest and tax / Interest = 66000 / 7800 = 8.5 times
Profit before interest and tax = 40300 + 17900 + 7800 = 66000
Part II
(a) Current ratio: It denotes that the current assets of Corbin Company are able to meet its current liabilities 1.2 times over.
(b) Acid-test ratio: The highly liquid assets such as cash, short-term investments and accounts receivable can meet the current liabilities 0.72 times.
(c) Accounts receivable turnover: The receivables turned over 7.5 times during the 2017.
(d) Inventory turnover: The inventory turned over 5.2 times its cost of sales during 2017.
(e) Profit margin: The earnings left for common stockholders of Corbin Company are 6.7% of its sales.
(f) Asset turnover: Corbin generated $1 of sales for every $1 invested in its total assets.
(g) Return on assets: = Corbin generated net income of $6.7 for every $100 invested in its total assets.
(h) Return on common stockholders’ equity: It denotes the profitability of equity invested in Corbin to be $11.2 for every $100 invested.
(i) Earnings per share: The net earnings attributable to each common share of Corbin is $1.38
(j) Price-earnings ratio: The market price of Corbin’s common stock is 13.2 times its earning per share.
(k) Payout ratio: 37.5% of Corbin’s net income is distributed to its common stockholders by way of dividends.
(l) Debt to assets ratio: 41.5% of Corbin’s total assets are financed by debt and not by stockholders’ equity. Thus, the balance 58.5% is financed by equity.
(m) Times interest earned: Corbin’s income is sufficient to cover its interest expense 8.5 times over.