Scully Corporation’s comparative balance sheets are presented below. SCULLY CORP

Question

Scully Corporation’s comparative balance sheets are presented below.

SCULLY CORPORATION
Balance Sheets
December 31
2011 2010

Cash $ 4,300 $ 3,700
Accounts receivable 21,200 23,400
Inventory 10,000 7,000
Land 20,000 26,000
Building 70,000 70,000
Accumulated depreciation (15,000) (10,000)
Total $110,500.00 $120,100.00


Accounts payable $ 12,370 $31,100
Common stock 75,000 69,000
Retained earnings 23,130 20,000
Total $110,500.00 $120,100.00



Scully’s 2011 income statement included net sales of $100,000, cost of goods sold $60,000, and net income of $15,000.
Show computation (equation) for the following:
(a) Current ratio
(b) Acid-test ratio
(c) Receivables turnover
(d) Inventory turnover
(e) Profit margin
(f) Asset turnover
(g) Return on assets
(h) Return on common stockholders’ equity
(i) Debt to total assets ratio

Explanation / Answer

a. current ratio = current assets/current liabilities = 35,500/12,370 = 2.87 b. acid-test ratio = (cash + AR = short term investments)/current liabilities = 25,500/12,370 = 2.06. c. receivables turnover = net credit sales/average AR = 100,000/((21,200+23,400)/2) = 100,000/22300 = 4.84 times d. inventory turnover = cost of goods sold/average inventory = 60,000/((10,000 + 7,000)/2) = 60,000/8,500 = 7.06 times e. profit margin = net income/net sales = 15,000/100,000 = 0.15 or 15% f. asset turnover = net sales/average total assets = 100,000/((110,500+120,100)/2) = 100,000/115,300 = 0.87 times g. return on assets = net incomes/average total assets = 15,000/115,300 = 0.130 or 13.0% (same figure for average total assets as in f) h. return on common stockholders’ equity = (net income – preferred dividends)/average common stockholders equity = 15,000/((75,000+69,000)/2) = 15,000/72,000 = 0.208 or 20.8% i. debt to total assets ratio = total liabilities/total assets = 12,370/110,500 = 0.112 or 11.2%

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