Markus Company’s common stock sold for $2.25 per share at the end of this year.

Question

Markus Company’s common stock sold for $2.25 per share at the end of this year. The company paid a common stock dividend of $0.45 per share this year. It also provided the following data excerpts from this year’s financial statements:     

     

15. What is the equity multiplier? (Round your answer to 2 decimal places.)

11. What is the company’s operating cycle? (Round your intermediate and final answers to 2 decimal places.)

Ending
Balance Beginning
Balance Cash $ 29,000 $ 44,800 Accounts receivable $ 50,000 $ 43,800 Inventory $ 48,100 $ 50,000 Current assets $ 127,100 $ 138,600 Total assets $ 375,000 $ 360,000 Current liabilities $ 51,000 $ 36,000 Total liabilities $ 100,000 $ 90,000 Common stock, $1 par value $ 108,000 $ 108,000 Total stockholders’ equity $ 275,000 $ 270,000 Total liabilities and stockholders’ equity $ 375,000 $ 360,000

Explanation / Answer

15. Equity multiplier = Average Total Assets / Average Stockholders equity

Average Total Assets = (Beginning Balance of Total Assets + Ending Balance of Total Assets )/2

= (360,000+375,000) /2

= 367,500

Average Stockholders equity= (Beginning Balance of Stockholders equity+ Ending Balance of Stockholders equity)/2

= (270,000+ 275,000)/2

= 272,500

Equity Multiplier = 367,500/272,500 = 1.35 (rounded off)

11. Operating Cycle= 365 * (Average Inventories/ Cost of Goods Sold) + 365 * (Average Accounts Receivable/Credit Sales)

Average Inventories= (Beginning Balance of Inventory+ Ending Balance of Inventory)/2

= (50,000+ 48,100)/2 = 49050

Average Accounts Receivable= (Beginning Balance of Accounts Receivable+ Ending Balance of Accounts Receivable)/2

= (43800+50000)/2 = 46900

Operating Cycle = 365 * (49050/31900) + 365 * (46900/550,000)

= 56.12 +31.12

= 87.24 days

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