Note : The market price of BabyCakes Int’l, Inc. common stock was $20 on Decembe

Question

Note: The market price of BabyCakes Int’l, Inc. common stock was $20 on December 31, 2008.

Part A:Complete the calculations for the 19 items listed below.

Determine the following measures for the year 2008:

Inventory turnover

Number of days’ sales in inventory

Ratio of fixed assets to long-term liabilities

Ratio of liabilities to stockholders’ equity

Number of times interest charges earned

Retained Earnings December 31

$421,000

$375,000

Baby Cakes International Inc Statement of Retained Earnings for the Years ended December 31, 2008 and 2007 December 31, 2008 December 31, 2007 Retained Earnings, January 1 $375,000 $327,000 Net income for year 68,000 67,000 Total $443,000 $394,000 Dividends Paid          Preferred Stock $15,000 $12,000          Common Stock 7,000 7,000                     Total Dividends Paid $22,000 $19,000

Retained Earnings December 31

$421,000

$375,000

Explanation / Answer

Calculation of Ratios for 2008:

1. Inventory Turnover = Cost of Goods sold / Average Inventory

Cost of goods sold = $400,000

Average Inventory = Opening Inventory + Closing Inventory / 2

Average Inventory = 52,000 + 84,000 / 2 = $68,000

Inventory Turnover = 400,000 / 68,000 = 5.88

2. Days sales in Inventory = 365 / Inventory Turnover Ratio

Days sales in Inventory = 365 / 5.88 = 62 Days

3. Ratio of Fixed assets to long term liabilities:

Fixed Assets = $1,040,000 Long Term Liabilities= $900,000

Fixed Assets to Long Term Liabilities = 1,040,000 / 900,000 = 1.16

4. Ratio of Liabilities to Stockholder's Equity = Liabilities / Stockholder's Equity

Liabilities = $1,190,000 Stockholder's Equity = $1,021,000

Ratio of Liabilities to Stockholder's Equity = 1,190,000 / 1,021,000 = 1.17

5. Number of Times interest charges earned = EBIT / Interest Expenses

EBIT = 205,000 Interest Expenses = 96,000

Number of Times interest charges earned = 205,000 / 96,000 = 2.14

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