Problem 14-6A CORBIN COMPANY Income Statement For the Years Ended December 31 20
ID: 415213 • Letter: P
Question
Problem 14-6A
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
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Problem 14-6A
The comparative statements of Corbin Company are presented below.CORBIN COMPANY
Income Statement
For the Years Ended December 31
2017
2016
Net sales (all on account) $599,900 $519,600 Expenses Cost of goods sold 414,900 353,000 Selling and administrative 119,900 114,800 Interest expense 7,200 6,100 Income tax expense 18,600 14,500 Total expenses 560,600 488,400 Net income $ 39,300 $ 31,200CORBIN COMPANY
Balance Sheets
December 31
Assets
2017
2016
Current assets Cash $ 20,100 $ 17,800 Short-term investments 17,400 14,000 Accounts receivable (net) 85,400 74,600 Inventory 89,400 70,200 Total current assets 212,300 176,600 Plant assets (net) 422,000 382,300 Total assets $634,300 $558,900Liabilities and Stockholders’ Equity
Current liabilities Accounts payable $123,000 $109,600 Income taxes payable 23,300 20,400 Total current liabilities 146,300 130,000 Long-term liabilities Bonds payable 120,400 80,500 Total liabilities 266,700 210,500 Stockholders’ equity Common stock ($5 par) 149,000 149,000 Retained earnings 218,600 199,400 Total stockholders’ equity 367,600 348,400 Total liabilities and stockholders’ equity $634,300 $558,900Additional data:
The common stock recently sold at $20.16 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%.)
(a) Current ratio. :1 (b) Acid-test ratio. :1 (c) Accounts receivable turnover. times (d) Inventory turnover. times (e) Profit margin. % (f) Asset turnover. times (g) Return on assets. % (h) Return on common stockholders’ equity. % (i) Earnings per share. $ (j) Price-earnings ratio. times (k) Payout ratio. % (l) Debt to assets ratio. % (m) Times interest earned. times
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Explanation / Answer
(a). Current Ratio = Current Assets / Current Liabilities
= $212,300/$146,300 = 1.4:1
(b). Acid Ratio = (Cash + Short-term investments + Accounts receivable) / Current Liabilities
= ($20100 + 17,400 + 85,400) / $146,300 = 0.84 : 1
(c). Accounts Receivable turnover = Net credit sales / Average net receivables
Average net receivables = ($85,400 + $74,600) / 2 = $80,000
= $599,900 / $80,000 = 7.5 times
(d). Inventory turnover = Cost of goods sold / Average inventory
Average inventory = ($89,400 + $70,200) / 2 = $79,800
= $414,900 / $79,800 = 5.2 times
(e). Profit Margin = Net income / Net Sales
= $39,300 / $599,900 = 6.5%
(f). Asset turnover = Net sales / Average total assets
Average total assets = ($634,300 + $558,900) / 2 = $596,600
= $599,900 / $596,600 = 1 times
(g). Return on assets = Net income / Average total assets
Average total assets = ($634,300 + $558,900) / 2 = $596,600
= $39,300 / $596,600 = 6.6%
(h). Return on common stockholder's equity = Net income / Average common stockholder's equity
Average common stockholder's equity = ($367,600 + $348400) / 2 = $358,000
Return on common stockholder's equity = $39,300 / $358,000 = 10.9%
(i). Earning per share = Net income / Weighted average common shares outstanding
= $39,300 / (149,000 / 5) = $1.32
(j). Price- earning ratio = Market value price per share / Earning per share
$20.16 / $1.32 = 15.3 times
(k). Payout ratio = Dividend paid / Net income
Dividend paid = Retained earning at the beginning - Retained earning at the end + Net income
= ( $199,400 - 218,600 + 39,300) / $39,300
= $20,100 / $39,300 = 51%
(l). Debt to asset ratio = Total liabilities / Total assets
= $266,700 / $634,300 = 42%
(m). Times interest earned = Income before income taxes and interest expense / Interest expense
Income before income taxes and interest expense = Net income + Income taxes + Interest expense
= ($39,300 + $18,600 + $7,200) / $7,200
= $65,100/ $7,200 = 9 times