Recent financial statements for Madison Company follow: Account balances at the
ID: 2479730 • Letter: R
Question
Recent financial statements for Madison Company follow:
Account balances at the beginning of the company’s fiscal year were: accounts receivable, $220,000; and inventory, $310,000. All sales were on account.
Calculate the following:
1.Gross margin percentage
2. current ratio
3. Acid-test ratio
4. Average collection period (use 365 days a year)
5. Average sales period (use 365 days a year)
6. Debt-to-equity ratio
7. Times interest earned
8. Book value per share
Recent financial statements for Madison Company follow:
Account balances at the beginning of the company’s fiscal year were: accounts receivable, $220,000; and inventory, $310,000. All sales were on account.
Calculate the following:
1.Gross margin percentage
2. current ratio
3. Acid-test ratio
4. Average collection period (use 365 days a year)
5. Average sales period (use 365 days a year)
6. Debt-to-equity ratio
7. Times interest earned
8. Book value per share
Madison Company Balance Sheet June 30 Assets Current assets: Cash Accounts receivable, net Merchandise inventorv Prepaid expenses $ 23,000 210,000 310,000 12,000 Total current assets Plant and equipment, net 555,000 890,000 Total assets $1,445,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 10% $ 210,000 340,000 Total liabilities Stockholders' equity 550,000 Common stock, $5 par value Retained earnings $130,000 765,000 Total stockholders' equity 895,000 Total liabilities and stockholders' equity $1,445,000Explanation / Answer
1.Gross margin percentage= Gross Profit/ Sales x 100
= $1,770,000/$3,010,000 x 100
=58.80
2. current ratio= Current Assets/ Current Liabilities
=555,000/210,000
=2.65
3. Acid-test ratio =Current Assets/- Prepaid Expenses- Inventory Current Liabilities
=$555,000-$12,000-$310,000/210,000
=233,000/210,000
=1.11
4.
Avg Revceivables= Beginning Receivables + Ending Receivables/2
=$220,000+$210,000/2
=$430,000/2
=$215,000
Receivables Turnover= Net credit sales/ Avg Recevables
=$3,010,000/$215,000
=14
Average collection period (use 365 days a year)=365/ Receivables Turnover
=365/14
=26.07 days
5.
Avg Inventory= Beginning Inventory + Ending Inventory/2
=$310,000+$310,000/2
=$310,000
Inventory Turnover= COGS/ Avg Inventory
=$1,240,000/$310,000
=4
Average sales period (use 365 days a year)
=365/ Inventory Turnover
=365/4 =91.25 days
6. Debt-to-equity ratio
= Total Liabilities / Shareholder’s Equity
=$550,000/$895,000= 0.61
7. Times interest earned=EBIT/Interest expense
=$1,130,000/34,000
=33.23
8.
No of Outstanding share= Common stock par value/ Par value of share
=$130,000/5
=26,000 shares
Book value per share
= Total Shareholder Equity- Preferred Equity/Total outstanding Shares
=$895,000-0/26,000
=$34.42
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