Instructor-created question Question Help * King Appliance Center- Nantucket has
ID: 2569630 • Letter: I
Question
Instructor-created question Question Help * King Appliance Center- Nantucket has just purchased a franchise from King Appliance Center (KAC) (Click the icon to view the additional information.) Following is the chart of accounts for King Appliance Center Nantucket. As a new business, all beginning balances are $O (Click the icon to view the chart of accounts.) King Appliance Center-Nantucket Income Statement Year Ended December 31, 2018 Net Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses 2,085,00 692,5 1.392.500! Franchise Fee Expense Salaries Expense Utilißies Expense Insurance Expense Supplies Expense Bad Debt Expense Bank Expense 83,400 140,000 12,500 1,063 8,800 1875 Choose from any list or enter any number in the input fields and then click Check Answer All parts showing Clear All Check AnswerExplanation / Answer
Current Ratio
Current Ratio is calculated using the formula,
Current Assets/Current Liabilities
Total Current Assets = $1,301,199
Total Current Liabilities = $167,500
Current Ratio = $1,301,199/$167,500 = 7.77 (Rounded off to 2 decimals)
Acid-Test Ratio
Acid-Test Ratio is calculated using the formula,
(Current Assets – Inventory – Prepaid Expenses)/Current Liabilities
Inventory = Merchandise Inventory + Office Supplies = $367,500 + $160 = $367,660
Prepaid Insurance = $1,300
Current Assets – Inventory – Prepaid Expenses = $1,301,199 - $367,600 - $1,300 = $932,299
Acid-Test Ratio = $932,299/$167,500 = 5.57 (Rounded off to 2 decimals)
Cash Ratio
Cash Ratio is calculated using the formula,
(Cash + Cash Equivalents) / Total Current Liabilities
Cash = $518,409
Petty Cash = $180
Cash + Cash equivalents = $518,409 + $180 = $518,589
Cash Ratio = $518,589/$167,500 = 3.10 (Rounded off to 2 decimals)
The Company has high liquidity ratios indicating the company ability to pay its current debts if it becomes due immediately.
AR Turnover Ratio
AR Turnover Ratio is calculated using the formula,
Net Credit Sales/Average Accounts Receivable
Assuming all sales are on credit, Net credit sales = $2,085,000
Beginning Accounts Receivable = $0
Ending Accounts Receivable = $211,200
Average Accounts Receivable = ($0+ $211,200)/2 = $105,600
AR Turnover Ratio = $2,085,000/$105,600 = 19.74 (Rounded off to 2 decimals)
Day’s Sales in receivables
Day’s Sales in receivables is calculated using the formula,
365/AR Turnover Ratio
Day’s Sales in receivables = 365/19.74 = 19 days (Rounded off to nearest whole dollar)
Asset Turnover Ratio
Asset Turnover ratio is calculated using the formula,
Net Sales / Average Total Assets
Beginning Total Assets = $0
Ending Total Assets = $2,163,499
Average Total Assets = ($0 + $2,163,499)/2 = $1,081,749.50
Asset Turnover ratio = $2,085,000/$1,081,749.50 = 1.93 (Rounded off to 2 decimals)
Rate of Return on Total Assets
Rate of return on Total assets is calculated using the formula,
Net Income/Average Total Assets
Net Income = $1,087,999
Rate of Return on Total Assets = $1,087,999/$1,081,749.50 = 1.01 (Rounded off to 2 decimals)
If we assume the company extends its customers credit terms of 30 days, then the accounts receivable turnover and days’ sales in receivables would be considered good. The asset turnover and the return on total assets indicate that the company good at using the assets to generate sales and profit, respectively, high compared to the industry average and other KAC franchises.
Note: I have put relevant words in the comments. You need to choose exact wordings from the drop down available.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.