M Chapter 15Q ttps-por.shr.nevada Foundational [LO15-2 Markus Company\'s common
ID: 2487808 • Letter: M
Question
M Chapter 15Q ttps-por.shr.nevada Foundational [LO15-2 Markus Company's common stock sold for $3.75 per share at the end of this year. The company paid a common stock dividend of $0.60 per share this year. It also provided the following data excerpts from this year's financial statements: Cash Accounts receivable Inventory Current assets Total assets Current liabilities Total liabilities Common stock, $1 par value Total stockholders' equity Total liabilities and stockholders' equity$590,000 Ending Beginning Balance Balance $ 41,000 36.200 $ 74,000 $ 58,700 $ 64,900 $ 74,000 $ 179,900 $168,900 $590,000 $624,000 $ 70,500 63,000 $ 160,000 144,000 $139,000 139,000 $ 430,000 $ 480,000 624,000 Sales (all on account Cost of goods sold Gross margin Net operating income Interest expense Net income This Year $ 865,000 $ 501,700 $ 363.300 $ 206,250 $ 11,000 $ 118,150Explanation / Answer
Acid test ratio:
Acid test ratio = (Cash+Account receivable+Short term investment)/Current liabilities
= (41000+74000)/70500
= 1.63
Account Receivable turnover ratio:
= Net Annual Credit Sales/(Beginning Accounts Receivable + Ending Accounts Receivable) / 2
= 865000/(58700+74000)/2
= 13.04
Average collection period = 365/13.04
= 28 days
Inventory turnover:
Generally, it is calculated as:
Inventory Turnover = Sales / Inventory
= 865000/64900
= 13.33
However, it may also be calculated as:
Inventory Turnover = Cost of Goods Sold / Average Inventory
= 501700/(74000+64900)/2
= 7.22
Average sales period = 365/13.33
= 27 days
Average sales period = 365/7.22
= 50 days
Company’s operating cycle:
In the absence of Account payable days information, we find operating cycle without it.
Operating cycle (days) = Days inventory outstanding +Days sales outstanding – Days payable outstanding
= 28+27/50+0
= 55/78 days
Total Asset Turnover Ratio:
Asset Turnover = Sales or Revenues / Total Assets
= 865000/590000
= 1.47 times
Times interest earned ratio:
Times interest earned ratio = EBIT/Interest
= 206250/11000
= 18.75 times
Debt equity ratio:
Debt - Equity Ratio = Total Liabilities / Shareholders' Equity
= 160000/430000
= 0.37 times
Equity Multiplier:
Equity multiplier = Total assets /Total stockholder’s Equity
= 590000/430000
= 1.37
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