Selected year-end financial statements of McCord Corporation follow. (All sales
ID: 2375789 • Letter: S
Question
Selected year-end financial statements of McCord Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2010, were inventory, $50,900; total assets, $219,400; common stock, $80,000; and retained earnings, $52,348.)
Income Statement
For Year Ended December 31, 2011 Sales $ 451,600 Cost of goods sold 296,950 Gross profit 154,650 Operating expenses 98,700 Interest expense 4,300 Income before taxes 51,650 Income taxes 20,807 Net income $ 30,843
Explanation / Answer
1. Current Ratio
= Current Assets/Current Liabilities
= (Cash + Short Term Investments + Accounts receivable + Notes receivable + Merchandise Inventory + Prepaid Expenses) / (Accounts Payable + Accrued Wages Payable + Income Tax Payable)
= (20000+9400+29400+6000+32150+2850)/(24500+3600+3400)
= 99800 /31500
= 3.2 :1
2. Acid Test Ratio
= Quick Assets / Current Liabilities
= (Cash + Short Term Investments + Accounts receivable + Notes receivable) / (Accounts Payable + Accrued Wages Payable + Income Tax Payable)
= (20000+9400+29400+6000)/(24500+3600+3400)
= 2.1 :1
3. Days' Sales Uncollected (DSO)
= Rxables/(Sales/365)
= 29400/(451600/365)
= 23.8 days
4. Inventory Turnover Ratio
= Cost of Goods Sold / Average Inventory
where Average Inventory = (Opening Inventory + Closing Inventory) / 2
= (50900 +32,150) / 2
= 41,525
SO ITR = 296950 / 41525
= 7.2 times
5. Days' Sales in Inventory
= No. of days in a year / Inventory Turnover Ratio
= 365 / 7.2
= 50.7 days
6. Debt to Equity Ratio
= Total Debt (Long Term + Short Term) / Equity (Stock + Retained Earnings)
= Long Term Notes Payable / (Common Stock + Retained Earnings)
= 69400 / (80000 + 68200)
= 0.5 :1
7. Times Interest Earned
= Earnings before Interest and Taxes / Interest Charges
= (154650 - 98700) / 4300
= 13.0 times
8. Profit Margin Ratio
A) Gross Profit Margin Ratio
= Gross Profit / Sales
= 154650 / 451600
=34.2%
B) Net Profit Margin Ratio
= Net Profit / Sales
= 30483 / 451600
= 6.8%
9. Total Asset Turnover
= Net Sales / Avge Total Assets
= 451600 / ((219400+249100)/2)
= 1.9 times
10. Return on Total Assets
= Net Profit after Taxes / Total Assets
= 30483/((219400+249100)/2)
= 13.0%
11. Return on Common Shareholders equity
= Net Profit after interest, tax and preference dividend / (Common Stock + Retained Earnings)
= 30483/ (80000 + 68200)
= 20.6%
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