FE-15 Test Bank for Financial Accounting, Tenth Edition PART VI-RATIO ANALYSIS (
ID: 2592923 • Letter: F
Question
FE-15 Test Bank for Financial Accounting, Tenth Edition PART VI-RATIO ANALYSIS (14 points) The condensed financial statements of Howard Corporation for 2016 are presented below Howard Corporation Balance Sheet December 31, 2016 Howard Corporation Income Statement For the Year Ended December 31, 2016 Assets Revenues $2,000,000 Current assets Cash and short-term Cost of goods sold 1,020,000 730,000 investments Accounts receivable Inventories 40,000 Operating expenses 70,000 140,000 250,000 Income before income taxes Interest expense 1800,000 200,000 Total expenses Total current assets Income tax expense 80.000 Property, plant, and equipment (net) Total assets 750.000 Net income $1.000,000 $ 100,000 Current liabilities Long-term liabilities 350,000 Common stockholders' equity 550,000 $1,000.000 Total liabilities and stockholders' equity 100,000. Total assets-$800,000, Additional data as of December 31, 2014. Inventory Common stockholders' equity $450,000. Instructions: Compute the following listed ratios for 2016 showing supporting calculations. (a) Current ratio (b) Debt to assets ratio (c) Times interest earned = (d) Inventory turnover= (e) Profit margin= () Return on common stockholders' equity = (g) Return on assets =-Explanation / Answer
A :- Current Ratio = Current Assets/ Current Liabilities
we have been given current assets as 250000($) and current liabilities as 100000($)
Current ratio = 250000 /100000
= 2.5
B:- debt to assets ratio = (short tem debt + long term debt )/ total assets
= (100000 +350000 ) / 1000000
= 0.45
D:- Inventory turnover = Sales / Average inventory or COGS/ Average Inventory
second measure gives more accurate measure as it does not include mark up, therefore
= 1020000 /( 100000+140000)/2
= 8.5
F :- Return on Equity = Net income / Shareholder's equity
= 120000 / 550000
=0.22
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