DILLON COMPANY Income Statement For Year Ended December 31 2009 2008 Net sales (
ID: 2435023 • Letter: D
Question
DILLON COMPANYIncome Statement
For Year Ended December 31
2009 2008
Net sales (all on account) $600,000 $520,000
Expenses
Cost of goods sold 415,000 354,000
Selling and administrative 120,800 114,800
Interest expense 7,800 6,000
Income tax expense 18,000 14,000
Total expenses 561,600 488,800
Net income $ 38,400 $ 31,200
DILLON COMPANY
Balance Sheets
December 31
Assets 2009 2008
Current assets
Cash $ 21,000 $ 18,000
Short-term investments 18,000 15,000
Accounts receivable (net) 86,000 74,000
Inventory 90,000 70,000
Total current assets 215,000 177,000
Plant assets (net) 423,000 383,000
Total assets $638,000 $560,000
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $122,000 $110,000
Income taxes payable 23,000 20,000
Total current liabilities 145,000 130,000
Long-term liabilities
Bonds payable 120,000 80,000
Total liabilities 265,000 210,000
Stockholders’ equity
Common stock ($5 par) 150,000 150,000
Retained earnings 223,000 200,000
Total stockholders’ equity 373,000 350,000
Total liabilities and stockholders’ equity $638,000 $560,000
Additional data:
The common stock recently sold at $19.50 per share.
The year-end balance in the allowance for doubtful accounts was $3,000 for 2009 and $2,400 for 2008.
Instructions
Compute the following ratios for 2009.
(a) Current. (h) Return on common stockholders’ equity.
(b) Acid-test. (i) Earnings per share.
(c) Receivables turnover. (j) Price-earnings.
(d) Inventory turnover. (k) Payout.
(e) Profit margin. (l) Debt to total assets.
(f) Asset turnover. (m) Times interest earned.
(g) Return on assets.
Explanation / Answer
Current Ratio Current Assets Current Liabilities 215000 145000 = 1.48:1 Acid Test Ratio Liquid Assets Current Liabilities 125000 145000 = 0.86:1 Receivable turnover ratio Net Credit sales Average net receivables 600000 80,000 = 7.5 times Inventory turnover ratio Cost of goods sold Average Inventory 415000 80,000 = 5.19 times Profit Margin ratio Net Income Net Sales 38,400 X 100 600,000 = 6.4% Assets turnover ratio Net sales Average total assets 600000 638000 = 0.94 times Return on Assets Net income X 100 Average Total assets 38,400 X100 599000 6.41% Return on common stockholders’ equity ratio Net Income – Preferred dividend Average common stock holders equity 38,400 X 100 361,750 10.62% Earnings per share Net income – Preferred stock dividends Average common share outstanding 38,400 30000 = $1.28 per share Price Earnings ratio Stock price per share Earnings per share 19.50 1.28 = 15.23 times Payout ratio Cash dividends paid on common stock X 100 Net income 15400 X 100 38,400 = 40.10% Debt to total assets ratio Total Liabilities X 100 Total assets 26500 X 100 638000 = 39.38% Times interest earned ratio Net Income + interest expense + Income Tax expense Interest expense 38,400+7,800+18,000 7,800 = 8.23 times
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