The following information applies to the questions displayed below] Income state

Question

The following information applies to the questions displayed below] Income statement and balance sheet data for Virtual Gaming Systems are provided below. VIRTUAL GAMING SYSTEMS Income Statement For the year ended December 31 2016 2015 Net sales Cost of goods sold 2,490,000 1960,000 Gross proft Expenses: 1,070,000 1126,000 965,000 40,000 Depreciation expense Loss on sale of land Interest expense Income tax expense 868,000 32,000 9,000 20,000 23,000 1037000 98000 $33,000 $139,000 Total expenses Net income VIRTUAL GAMING SYSTEMS Balance Sheet 2016 2015 Assets Current assets: Cash Accounts receivable Inventory Prepaid rent $216,000 $196,000 $154,000 90,000 40,000 145,000 13,000 7.200 0 220,000 Long-term assets: Investment in bonds Land 115,000 115,000 220,000 280,000 310,000 Less: Accumulated depreciation Total assets $1,072,000 $946,000 $794,200 Liabilities and Stockholders' Equity Current liabilities Accounts payable Interest payable s 161,000 12,000 13,000 $137200 $76,000 8,000 20,000 4,000 Income tax payable 15,000 Long-term liabilities: Notes payable 450,000 295,000 235,000 Stockholders' equity Common stock Retained earnings 310,000 237,000 310,000 93,000 126,000 Total liabillties and stockholders' equity 1,072,000 $946,000 $794,200

Explanation / Answer

1 Risk ratios: 2015 2016 Receivables turnover ratio 38.3 times 39.3 times Inventory turnover ratio 15.1 times 19.5 times Current ratio 4.0 to 1 2.5 to 1 Debt to equity ratio 72.9 % 145.9 % Workings: 2015 2016 Receivables turnover ratio 38.3 39.3 Net sales/Average receivables 3086000/80500 3560000/90500 Average receivables (70000+91000)/2 (91000+90000)/2 80500 90500 Inventory turnover ratio 15.1 19.5 Cost of goods sold/Average inventory 1960000/130000 2490000/127500 Average inventory (145000+115000)/2 (115000+140000)/2 130000 127500 Current ratio 4.0 2.5 Current assets/Current liabilities 415000/104000 461000/186000 Current assets = Cash + Accounts receivable + Inventory + Prepaid rent Current liabilities = Accounts payable + Interest payable + Income tax payable Debt to equity ratio 72.9% 145.9% Total debt / Total stockholders' equity 399000/547000 636000/436000 Total debt = Current liabilities + Long-term liabilities Total stockholders' equity = Common stock + Retained earnings 2 Profitability ratios: 2015 2016 Gross profit ratio 36.5 % 30.1 % Return on assets 16.0 % 3.3 % Profit margin 4.5 % 0.9 % Asset turnover 3.5 times 3.5 times Workings: 2015 2016 Gross profit ratio 36.5% 30.1% Gross profit/Net sales 1126000/3086000 1070000/3560000 Return on assets 16.0% 3.3% Net income/ Average total assets 139000/870100 33000/1009000 Average total assets (794200+946000)/2 (946000+1072000)/2 870100 1009000 Profit margin 4.5% 0.9% Net income/Net sales 139000/3086000 33000/3560000 Asset turnover 3.5 3.5 Net sales/Average total assets 3086000/870100 3560000/1009000

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