Question 1 (a-d) Question 1 Crane Medical manufactures hospital beds and other i

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Question 1

(a-d)

Question 1

Crane Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.
Crane Medical
Comparative Balance Sheet
As of December 31 2016 2015 Assets Current assets   Cash $377,000 $417,400   Accounts receivable, net 1,048,000 776,450   Inventory 729,000 681,100   Other current assets 381,300 247,100 Total current assets 2,535,300 2,122,050 Property, plant, & equipment, net 8,706,535 8,440,045   Total assets $11,241,835 $10,562,095 Liabilities and Stockholders’ Equity Current liabilities $3,181,000 $2,846,100 Long-term debt 3,702,700 3,892,650   Total liabilities 6,883,700 6,738,750 Preferred stock, $5 par value 59,000 59,000 Common stock, $0.25 par value 104,650 103,900 Retained earnings 4,194,485 3,660,445   Total stockholders’ equity 4,358,135 3,823,345   Total liabilities and stockholders’ equity $11,241,835 $10,562,095 Crane Medical
Comparative Income Statement and Statement of Retained Earnings
For the Year 2016 2015 Sales revenue (all on account) $10,177,200 $9,613,900 Cost of goods sold 5,612,450 5,298,750   Gross profit 4,564,750 4,315,150 Operating expenses 2,840,250 2,634,150 Net operating income 1,724,500 1,681,000 Interest expense 300,300 308,650 Net income before taxes 1,424,200 1,372,350 Income taxes (30%) 427,260 411,705 Net income $996,940 $960,645 Dividends paid   Preferred dividends 29,500 29,500   Common dividends 433,400 413,050   Total dividends paid 462,900 442,550 Net income retained 534,040 518,095 Retained earnings, beginning of year 3,660,445 3,142,350 Retained earnings, end of year $4,194,485 $3,660,445

(a-d)

Calculate the following liquidity ratios for 2016. (If working capital is negative then enter with a negative sign preceding the number or parentheses, e.g. -15,000 or (15,000). Round all answers except working capital to 2 decimal places, e.g. 2.55.)
a. Working capital $

b. Current ratio

c. Acid-test ratio

d. Accounts receivable turnover

times

Explanation / Answer

a. Working Capital = Current assets - Current liabilities
= $2,535,300 - $3,181,000
= ($645,700)

b. Current ratio = Current assets/ Current liabilities
= $2,535,300 / $3,181,000
= 79.70%

c. Acid-test ratio = Quick assets / Current liabilities
= (Current assets - Inventory) / Current liabilities
   = ($2,535,300 - 729,000) / $3,181,000
= 56.78%

d. Accounts receivable turnover = Net credit sales / Average account receivable
= {$10,177,200 / ($1,048,000+$776,450)/2}
= 11.16 times

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