Balance Sheet Assets: Cash and marketable securities $600,000 Accounts receivabl
ID: 2632071 • Letter: B
Question
Balance Sheet
Assets:
Cash and marketable securities
$600,000
Accounts receivable
900,000
Inventories
1,500,000
Prepaid expenses
75,000
Total current assets
$3,075,000
Fixed assets
8,000,000
Less: accum. depr.
(2,075,000)
Net fixed assets
$5,925,000
Total assets
$9,000,000
Liabilities:
Accounts payable
$800,000
Notes payable
700,000
Accrued taxes
50,000
Total current liabilities
$1,550,000
Long-term debt
2,500,000
Owner's equity (1 million shares of common stock outstanding)
4,950,000
Total liabilities and owner's equity
$9,000,000
Net sales (all credit)
$10,000,000
Less: Cost of goods sold
(3,000,000)
Selling and administrative expense
(2,000,000)
Depreciation expense
(250,000)
Interest expense
(200,000)
Earnings before taxes
4,550,000
Income taxes
(1,820,000)
Net income
$2,730,000
3a. Calculate the current ratio
3b. Calculate the average collection period.
3c. Calculate the debt ratio.
3d. Calculate the total asset turnover ratio.
3e. Calculate the operating profit margin
3f. Calculate the inventory turnover ratio
Explanation / Answer
Ratio a Current ratio Current assets/Current liabilities 3,075,000/1,550,000 1.984 b Average collection period 365 X Average amount of account receivable/credit sales 365X 900000/10000000 32.85 c Debt ratio Total debt/Total assets (1550000+2500000)/9000000 0.45 f Inventory Turnover ratio COGS/Inventory 3000000/1500000 2 d Assest Turnover Ratio Sales/Total assets 10000000/9000000 1.12 e Operating Margin Net income/Sales 2730000/10000000 0.273
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