The balance sheet for stud clothiers is show below. Sales for the Year was $2,40

Question

The balance sheet for stud clothiers is show below. Sales for the
Year was $2,400,000 with 90 percent of sales sold on credit.


STUD CLOTHIERS
Balance Sheet 200x

Assets Liabilities and Equity

Cash…………………………………….. $60,000 Accounts payable……..$220,000
Accounts receivable $240,000 Accrued taxes……………………& 30,000
Inventory…………………… 350,000 Bonds payable(long-term)150,000
Plant and equipment 410,000 Common stock 80,000
Paid-in-capital 200.000
Retained earnings 380,000

Total assets……………..$1,060,000 Total liabilities and equity $1,060,000

a. compute the following rations:

a. current ratio
b. Quick ratio
c. Debt-to-total-assets ratio.
d. Asset turnover
e. Average collection period

Explanation / Answer

a) current ratio = current assets / currebt liabilites here current assets are cash 60000 + accounts recieveble $ 240000 + inventory 350000=$650000 current liabilites are accounts payble $220000 + acrued tax $30000 =$400000 there fore current ratio = $650000 / $250000 =2.6 b quick ratio = [current assts - inventory ] / current liabilites = [$650000 - $350000] / $250000 =1.2 c. Debt to total asset ratio : = debt / total assets here debt = bonds payable $150000 = 150000 / 1060000 =0.1415 = 14.15% is provided by debt.. d) asset turnover ratio = sales / total assets =   2400000/1060000 = 2.26 e) Avarage collection period = 365 days / accounts receiveble turn over ratio receiveble turnover ratio = net credit sales / accounts receivebel 2400000*90% = 2160000 accounts receiveble = $ 240000 = 9 Therefore Avarage collection period = 365 / 9 = 40.56 days days required...to collect

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