As loan analyst for Pearl Bank, you have been presented the following informatio
ID: 2535838 • Letter: A
Question
As loan analyst for Pearl Bank, you have been presented the following information.
Toulouse Co.
Lautrec Co.
Assets
Liabilities and Stockholders’ Equity
Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.
Compute the various ratios for each company. (Round answer to 2 decimal places, e.g. 2.25.)
Toulouse Co.
Lautrec Co.
Toulouse Co.
Lautrec Co.
Assets
Cash $122,000 $318,000 Receivables 231,000 316,000 Inventories 549,000 493,000 Total current assets 902,000 1,127,000 Other assets 516,000 608,000 Total assets $1,418,000 $1,735,000Liabilities and Stockholders’ Equity
Current liabilities $308,000 $357,000 Long-term liabilities 402,000 516,000 Capital stock and retained earnings 708,000 862,000 Total liabilities and stockholders’ equity $1,418,000 $1,735,000 Annual sales $890,000 $1,453,000 Rate of gross profit on sales 30 % 40 %Explanation / Answer
Solution:
Toulouse Co
Lautrec Co.
1)
Current Ratio
Total Current Assets (A)
$902,000
$1,127,000
Total Current Liabilities (B)
$308,000
$357,000
Current Ratio (A/B)
2.93
3.16
2)
Acid Test Ratio
Quick Assets
Cash
$122,000
$318,000
Receivables
$231,000
$316,000
Total Quick Assets (A)
$353,000
$634,000
Total Current Liabilities (B)
$308,000
$357,000
Acid Test Ratio (A/B)
1.15
1.78
3)
Accounts Receivable Turnover
Net Credit Sales (A)
$890,000
$1,453,000
Accounts Receivable (B)
$231,000
$316,000
Accounts Receivable Turnover (A/B)
3.85
4.60
4)
Inventory Turnover
Cost of Goods Sold
Net Credit Sales
$890,000
$1,453,000
Less: Gross Profit (Sales * GP Ratio)
$267,000
$581,200
Cost of Goods Sold (A)
$623,000
$871,800
Inventories (B)
$549,000
$493,000
Inventory Turnover (A/B)
1.13 Times
1.77 Times
5)
Cash to Current Liabilities
Cash (A)
$122,000
$318,000
Total Current Liabilities (B)
$308,000
$357,000
Cash to Current Liabilities (A/B)
0.40
0.89
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Toulouse Co
Lautrec Co.
1)
Current Ratio
Total Current Assets (A)
$902,000
$1,127,000
Total Current Liabilities (B)
$308,000
$357,000
Current Ratio (A/B)
2.93
3.16
2)
Acid Test Ratio
Quick Assets
Cash
$122,000
$318,000
Receivables
$231,000
$316,000
Total Quick Assets (A)
$353,000
$634,000
Total Current Liabilities (B)
$308,000
$357,000
Acid Test Ratio (A/B)
1.15
1.78
3)
Accounts Receivable Turnover
Net Credit Sales (A)
$890,000
$1,453,000
Accounts Receivable (B)
$231,000
$316,000
Accounts Receivable Turnover (A/B)
3.85
4.60
4)
Inventory Turnover
Cost of Goods Sold
Net Credit Sales
$890,000
$1,453,000
Less: Gross Profit (Sales * GP Ratio)
$267,000
$581,200
Cost of Goods Sold (A)
$623,000
$871,800
Inventories (B)
$549,000
$493,000
Inventory Turnover (A/B)
1.13 Times
1.77 Times
5)
Cash to Current Liabilities
Cash (A)
$122,000
$318,000
Total Current Liabilities (B)
$308,000
$357,000
Cash to Current Liabilities (A/B)
0.40
0.89
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