Freiman Corporation\'s most recent balance sheet and income statement appear bel
ID: 2493710 • Letter: F
Question
Freiman Corporation's most recent balance sheet and income statement appear below:
Balance Sheet
December 31, Year 2 and Year 1
(in thousands of dollars)
Assets
Year 2
Year 1
Current assets:
Cash
$160
$120
Accounts receivable
220
240
Inventory
120
130
Prepaid expenses
40
40
Total current assets
540
530
Plant and equipment, net
700
700
Total assets
$1,240
$1,230
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$130
$150
Accrued liabilities
90
90
Notes payable, short term
60
70
Total current liabilities
280
310
Bonds payable
280
290
Total liabilities
560
600
Stockholders’ equity:
Common stock, $2 par value
100
100
Additional paid-in capital-common stock
200
200
Retained earnings
380
330
Total stockholders’ equity
680
630
Total liabilities & stockholders’ equity
$1,240
$1,230
Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
Sales (all on account)
$1,310
Cost of goods sold
780
Gross margin
530
Selling and administrative expense
359
Net operating income
171
Interest expense
35
Net income before taxes
136
Income taxes (30%)
41
Net income
$95
The inventory turnover for Year 2 is closest to:
0.92
6.50
1.08
6.24
Balance Sheet
December 31, Year 2 and Year 1
(in thousands of dollars)
Assets
Year 2
Year 1
Current assets:
Cash
$160
$120
Accounts receivable
220
240
Inventory
120
130
Prepaid expenses
40
40
Total current assets
540
530
Plant and equipment, net
700
700
Total assets
$1,240
$1,230
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$130
$150
Accrued liabilities
90
90
Notes payable, short term
60
70
Total current liabilities
280
310
Bonds payable
280
290
Total liabilities
560
600
Stockholders’ equity:
Common stock, $2 par value
100
100
Additional paid-in capital-common stock
200
200
Retained earnings
380
330
Total stockholders’ equity
680
630
Total liabilities & stockholders’ equity
$1,240
$1,230
Explanation / Answer
Inventory Turnover ratio = Cost of goods sold / Average inventory
= 780 / 125
= 6.24
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