The following income statement and balance sheets for Laser World are provided:
ID: 2441776 • Letter: T
Question
The following income statement and balance sheets for Laser World are provided:
Assuming that all sales were on account, calculate the following risk ratios for 2018
LASER WORLD
Income Statement
For the year-ended December 31, 2018 Sales revenue $ 2,250,000 Cost of goods sold 1,540,000 Gross profit 710,000 Expenses: Operating expenses 344,000 Depreciation expense 66,000 Loss on sale of land 4,100 Interest expense 21,000 Income tax expense 59,000 Total expenses 494,100 Net income $ 215,900
Explanation / Answer
(1) Receivable turnover ratio = Revenue / Average accounts receivables
= 2,250,000 / [(99,000 + 79,000) / 2] = 2,250,000 / (178,000 / 2) = 2,250,000 / 89,000 = 25.28 times
(2) Average collection period = 365** / Receivable turnover ratio = 365 / 25.28 = 14.44 days
[**If we assume 360 days a year, then average collection period = 360 / 25.28 = 14.24 days]
(3) Inventory turnover ratio (ITOR) = Cost of goods sold / Average inventory
= 1,540,000 / [(150,000 + 130,000) / 2] = 1,450,000 / (280,000/2) = 1,450,000 / 140,000 = 10.36 times
(4) Average days in inventory = 365** / ITOR = 365 / 10.36 = 35.23 days
[**If we assume 360 days a year, then average days in inventory = 360 / 10.36 = 34.75 days]
(5) Current ratio = Current assets / Current liabilities
= (121,000 + 99,000 + 150,000 + 15,000) / (58,000 + 8,900 + 15,600) = 385,000 / 82,500 = 4.67
(6) Acid-test ratio = (Cash + Accounts receivable) / Current liabilities
= (121,000 + 99,000) / (58,000 + 8,900 + 15,600) = 220,000 / 82,500 = 2.67
NOTE: As per Chegg Answering Policy, first 6 parts are answered.
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