accounting accounting accounting accounting BUS 201 Case Study Project #2 Spring
ID: 2546571 • Letter: A
Question
accounting accounting accounting accounting BUS 201 Case Study Project #2 Spring, 2018 Name Directions: The answers for both parts must be written legibly. If I cannot read your answer, I cannot give you any credit. Show all of your work, as you can get partial credit for wrong answers. This project is due in class on March 21. 1. (5points) for the Gray Wolf Corp. (parts b, c, d and e are on the next page). Below is the Income Statement and selected information from the Balance Sheet Income Statement 2018 $ 500,000 -350,000 Net sales Cost of Goods Sold Gross margin Operating expenses Net income 150,000 - 145,000 $5,000 Balance Sheet 2017 18,000 32,000 34,000 Cash Accounts receivable Inventory Supplies Plant, property & equipment Accounts payable Salaries Payable Long-term liabilities Stockholders' equity 2018 20,000 35,000 38,000 15,000 13,000 65,000 61,000 32,000 28,000 13,000 25,000 20,000 50,000 42,000 11,000 a. Calculate the current ratio as of 12/31/18.Explanation / Answer
1. a) Current Ratio as of 31/12/2018
Current Ratio = Current Assets/Current Liabilities
Current Assets = Cash + Accounts receivable + Inventory + Supplies
Current Assets = 20000 + 35000 + 38000 + 15000
Current Assets = 1,08,000
Current Liabilities = Accounts Payable + Salaries Payable
Current Laibilities = 32000 + 13000
Current Liabilities = 45000
Current Ratio = 108000/45000 = 2.4
1. b) Acid test Ratio as of 31/12/2018
Acid ratio (also known as Quick ratio) indicates company's ability to meet the short term immediate liabilities
Acid test Ratio = (Cash + Accounts receivables)/(Accounts payable + Salaries payable)
Acid test Ratio = (20000+35000)/(32000+13000)
Acid Test ratio = 55000/45000 = 1.2
Here, it is assumed that Salaries payable is due within one year (short term liability)
1. c) Profit Margin for 2018
Profit Margin = Net Income / Net Sales * 100
Profit Margin = 5000/500000*100
Profit Margin = 1%
1. d) Inventory Turnover for 2018
Inventory Turnover Ratio = Cost of Goods Sold/(Inventory as of 31/12/2017 + Inventory as of 31/12/2018)/2
Inventory Turnover Ratio = 350000/(34000+38000)/2
Inventory Turnover Ratio = 9.72 times
2. Cost of Goods Sold = Sales - Gross Profit
Cost of Goods Sold = 30000-18000 = 12000
Operating Expenses = Gross Profit - Income before taxes
Operating expenses = 18000 - 6000 = 12000
Net Income = Income before taxes - Tax expenses
Net income = 6000-1800 = 4200
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