E14-11 Scully Corporation\'s comparative balance sheets are presented below. SCU
ID: 2384720 • Letter: E
Question
E14-11Scully 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
$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 2011 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 2011. (Round ratios to 2 decimal places, e.g. 10.50. Round percentages to 1 decimal place, e.g. 10.5.)
(a) Current ratio : 1
(b) Acid-test ratio : 1
(c) Receivables turnover times
(d) Inventory turnover times
(e) Profit margin %
(f) Asset turnover times
(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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