Scully Corporation\'s comparative balance sheets are presented below. SCULLY COR
ID: 2371627 • Letter: S
Question
Scully Corporation's comparative balance sheets are presented below.SCULLY CORPORATION
Balance Sheets
December 31
2008 2007
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
$120,100
Accounts payable $ 12,370 $ 31,100
Common stock 75,000 69,000
Retained earnings
23,130
20,000
Total
$110,500
$120,100
Scully's 2008 income statement included net sales of $100,000, cost of goods sold of $60,000, and net income of $15,000.
Compute the following ratios for 2008. (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. (Round ratios to 2 decimal places, e.g. 10.50 and percentages to 1 decimal place, e.g. 10.5.)
(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 %
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Explanation / Answer
a) Computing the current ratio:
Total current assets = Cash + Receivables + Inventory
= $4,300 + $21,200 + $10,000
= $35,500
Total current liabilities = Accounts payable
= $12,370
Total equity = Common stock + Retained earnings
= $75,000 + $23,130
= $98,130
The formula for calculating the current ratio is
Current ratio = Current assets / Current liabilities
= $35,500 / $12,370
= 2.87 times
Therefore, the current ratio for 2010 is 2.87 times
b) Computing the acid-test ratio:
Acid-test ratio = (Current assets - Inventory ) / Current liabilities
= ($35,500 - $10,000) / $12,370
= $35,500 / $12,370
= 2.06 times
Therefore, the acid-test ratio for 2010 is 2.06 times
c) Receivables turnover ratio:
Receivables turnover ratio = Net sales / Average accounts receivables
= ($23,400 + $21,200) / 2
= $22,300
Receivables turnover ratio = Net sales / Average accounts receivables
= $100,000 / $22,300
= 4.48 times
Therefore, the receivables turnover ratio for 2010 is 4.48 times
d) Inventory turnover ratio = Cost of goods sold / Average inventory
Average inventory = (Beginning inventory + Ending inventory) / 2
= ($7,000 + $10,000) / 2
= $8,500
INventory turnover ratio = $60,000 / $8,500
= 7.06 times
Therefore, the inventory turnover ratio for 2010 is 7.06 times
e) Computing the profit margin ratio for 2010:
Profit margin ratio = Net income / Net sales
= $15,000 / $100,000
= 0.15 or 15%
Therefore, the profit margin ratio is 15%
f) Computing the asset turnover ratio for 2010:
Asset turnover ratio = Sales / Total assets
= $100,000 / $110,500
= 0.905 times
Therefore,the asset turnover ratio is 0.905 times
g) Computing the Return on assets for 2010:
Return on assets = Net income / Total assets
= $15,000 / $110,500
= 0.136 or 13.6%
Therefore, the return on assets is 13.6%
h) Computing the Return on equity for 2010:
Return on equity = Net income / Total equity
= $15,000 / $98,130
= 0.153 or 15.3%
Therefore, the return on equity is 15.3%
i) Debt-to -total assets ratio for 2010:
Debt-to-total assets = Total debt / Total assets
= $12,370 / $110,500
= 0.112 or 11.2%
Therefore, the debt-to-total assets ratio is 11.2%
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