Great Adventures Problem 12-1 [The following information applies to the question

Question

Great Adventures Problem 12-1 [The following information applies to the questions displayed below.] Income statement and balance sheet data for Great Adventures, Inc., are provided below GREAT ADVENTURES, INC. Income Statement For the Year Ended December 31, 2017 Revenues: Service revenue (clinic, racing, TEAM) Sales revenue (MU watches) $527,000 102,000 Total revenues $629,000 Expenses: Cost of goods sold (MU watches) Operating expenses Depreciation expense Interest expense Income tax expense 62,000 303,476 42,000 28,924 52,200 Total expenses 488,600 Net income $140,400

Explanation / Answer

1. Calculate the following risk ratios for 2017 a. Receivable turnover ratio = Sales / Average Accounts receivable = $629,000 / (33,000 + 27,000)/2) 20.97 b. Average collection period = Number of days / Receivable turnover ratio = 365 / 20.97 17.41 Days c. Inventory turnover ratio = Cost of goods sold / Average Inventory = 62,000 / (15,800 + 13,200)/2) 1.07 d. Average days in inventory = Number of days / Inventory turnover ratio = 365 / 1.07 341.45 Days e. Current Ratio = Current Assets / Current Liabilities = 374,052 / 63670 5.87 f. Acid Test ratio = Quick Assets / Current Liabilities = 346,452 / 63670 5.44 g. Debt to equity ratio = Total Liabilites / Average Stockholder's Equity = 472,122 / ((1,293,680 + 145280)/2) 0.66 h. Times Interest earned ratio = Earnings before Interest and Income tax / Interest expense = 221,524 / 28,924 7.66 Times 2. Calculate the following profitabilty ratios for 2017 a. Gross Profit ratio = (Sales - Cost of goods sold) / Sales = (102,000 - 62,000) / 102000 39.22% b. Return on Assets = Net Income / Average Assets = $140,400 / (($1,765,802+214,150)/2 14.18% c, Profit Margin = Net Income / Sales = $140,400 / 629,000 22.26% d. Assets Turnover = Sales / Average Assets = $629,000 / (($1,765,802+214,150)/2 0.64 e. Return on Equity = Net Income / Average stockholder's equity = 140,400 / ((1,293,680 + 145280)/2) 19.51%

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