Exercise 14-7 Frizell Company has the following comparative balance sheet data.
ID: 2472917 • Letter: E
Question
Exercise 14-7
Frizell Company has the following comparative balance sheet data.
FRIZELL COMPANY
Balance Sheets
December 31
2017 2016
Cash $14,700 $29,000
Accounts receivable (net) $70,700 $59,800
Inventory $59,700 $49,900
Plant assets (net) $198,500 $177,500
TOTAL $343,600 $316,200
Accounts payable $50,900 $60,600
Mortgage payable (6%) $105,500 $105,500
Common stock, $10 par $142,000 $121,000
Retained earnings $45,200 $29,100
TOTAL $343,600 $316,200
Additional information for 2017:
1. Net income was $25,100.
2. Sales on account were $411,500. Sales returns and allowances were $19,400.
3. Cost of goods sold was $197,800.
Compute the following ratios at December 31, 2017. (Round answers to 1 decimal place, e.g. 1.6 .)
(a) Current ratio ??? :1
(b) Acid-test ratio ??? :1
(c) Accounts receivable turnover ??? times
(d) Inventory turnover ??? times
Explanation / Answer
1. Current ratio = Current Assets / Current Laibilities
Current Assets = 14700 + 70700 + 59700 = $145,100
Current Liabilities = $50,900
Current ratio = 145,100/50,900 = 2.85:1
2. Acid test ratio = Quick assets / Current Laibilities
Quick assets = Current assets - inventory = 145100 - 59700 = $85,400
Acid test ratio = 85,400/50,900 = 1.68:1
3. Accounts receivable turnover ratio = Net sales / Average receivables
Net sales = 411,500 - 19,400 = $392,100
Average receivables = (70,700 + 59,800)/2 = $65,250
Accounts receivable turnover ratio = 392,100/65,250 = 6.01 times
4. Inventory Turnover ratio = Cost of goods sold / Average inventory
Average inventory = (59,700+49,900)/2 = $54,800
Inventory Turnover ratio = 197,800 / 54,800 = 3.61 times
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