Hey guys! Having a problem with this homework and starting to think that it is a
ID: 2794424 • Letter: H
Question
Hey guys! Having a problem with this homework and starting to think that it is a system error.
In regards to the ACP, yes I did plug in simply 159 & 128, it still claims that it is incorrect.
Windswept Woodworks, Inc. Input Data (millions of dollars) Year 2 Year 1 472 1,316 6,782 260 1,220 1,500 414 860 6,662 158 1,150 n.a n.a n.a n.a 1,056 n.a 766 380 10,000 2,506 n.a 96 n.a $ 17.50 payable Accounts receivable Accumulated depreciation Cash & equivalents Common stock Cost of goods sold Depreciation expense Common stock dividends paid Interest expense Inventory Addition to retained earnings Long-term debt Notes payable Gross plant& equipment Retained earnings Sales Other current liabilities Tax rate Market price per share - year end Number of shares outstandin 140 1,050 602 848 230 10,260 3,098 3,018 116 34% $ 19.80 500 million 500 million a. Interest coverage ratio (Assume that year 1 EBIT was 1,297 and year 1 interest expense was 120.) Year 2 interest coverage ratio Year 1 interest coverage ratio 10.84 10.81 b. Average collection period (Assume that the accounts receivable balance was 950 on December 31 of the previous year and that year 1 sales were 2,700.) Year 2 ACP Year 1 ACP 159.16 days 128.43 days c. Current ratio Year 2 current ratio Year 1 current ratio 3.21 2.32Explanation / Answer
Answer a.
Year 2:
Depreciation Expense = Accumulated Depreciation Year 2 - Accumulated Depreciation Year 1
Depreciation Expense = $6,782 - $6,662
Depreciation Expense = $120
EBIT = Sales - Cost of Goods Sold - Depreciation Expense
EBIT = $3,018 - $1,500 - $120
EBIT = $1,398
Interest Coverage Ratio = EBIT / Interest Expense
Interest Coverage Ratio = $1,398 / $140
Interest Coverage Ratio = 9.99
Answer b.
Year 2:
Accounts Receivable Year 2 = $1,316
Accounts Receivable Year 1 = $860
Average Accounts Receivable = (Accounts Receivable Year 2 + Accounts Receivable Year 1) / 2
Average Accounts Receivable = ($1,316 + $860) / 2
Average Accounts Receivable = $1,088
Average Collection Period = 365 * Average Accounts Receivable / Sales
Average Collection Period = 365 * $1,088 / $3,018
Average Collection Period = 131.58 days
Year 1:
Average Accounts Receivable = (Accounts Receivable Year 2 + Accounts Receivable Year 1) / 2
Average Accounts Receivable = ($860 + $950) / 2
Average Accounts Receivable = $905
Average Collection Period = 365 * Average Accounts Receivable / Sales
Average Collection Period = 365 * $905 / $2,700
Average Collection Period = 122.34 days