3 The financial statements for Castile Products, Inc., are given below Castile P

Question

3 The financial statements for Castile Products, Inc., are given below Castile Products, Inc. Balance Sheet December 31 points Assets Current assets: Cash 19,0e0 190,000 320,000 10,000 539,000 830,000 $1,369,000 Accounts receivable, net Merchandise inventory Prepaid expenses Total current assets Property and equipment, net Total assets Liabilities and Stockholders Equity Liabilities: 270,0e0 310,000 580,000 Current liabilities Bonds payable, 10% Total liabilities Stockholders' equity: Common stock, $10 par value Retained earnings 190,00e 599,000 789,000 $1, 369,0ee Total stockholders' equity Total liabilities and stockholders' equity

Explanation / Answer

3) Acid Test Ratio = Liquid Assets/Current Liabilities

Liquid Assets = Current Assets - Merchandise Inventory - Prepaid Expenses

= $539,000 - $320,000 - $10,000 = $209,000

Acid Test Ratio = $209,000/$270,000 = 0.77

4) Debt to Equity Ratio = Total Liabilities/Stockholder's Equity

= $580,000/$789,000 = 0.74

6) Average Collection Period = 365 days/Accounts Receivable Turnover Ratio

Accounts Receivable Turnover Ratio = Net Credit Sales/Average Accounts Receivable

= Sales/[(Beg. Accounts Receivable+Ending Accounts Receivable)/2]

= $3,225,000/[($240,000+$190,000)/2]

= $3,225,000/$215,000 = 15 times

Average Collection Period = 365 days/15 times = 24.3 days

7) Inventory Turnover Ratio = Cost of goods sold/Average Inventory

= Cost of goods sold/[(Beg. Inventory+Ending Inventory)/2]

= $1,102,500/[($310,000+$320,000)/2]

= $1,102,500/$315,000 = 3.5 times

Average Sale Period = 365 days/Inventory Turnover Ratio

= 365 days/3.5 times = 104.3 days

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