Account Name Amount Cost of goods sold $410,000 Notes payable due in 21 months $
ID: 2701314 • Letter: A
Question
Account Name Amount
Cost of goods sold $410,000
Notes payable due in 21 months $35,000
General expenses $140,000
Cash $35,000
Interest expense $60,000
Accounts receivable $71,000
Dividends paid $6,000
Inventory $60,000
Accounts payable $51,000
Selling expenses $70,000
Common stock $1 par $75,000
Marketable securities $40,000
Sales $825,000
Additional paid in capital common stock $40,000
Taxes payable $35,000
Administrative expenses $125,000
Retained earnings $20,000
Buildings and equipment $150,000
Acc depr-buildings and equipment$40,000
Income tax expense $6,000
Land $50,000
Bonds payable $110,000
Assume the market value of a share of common stock is.. $7.00
Based on the above accounts compute the following ratios:
a) Quick ratio
b) Inventory turnover
c) Average payment period (use cost of goods sold in lieu of purchases)
d) Times interest earned
e) Earnings per share
f) Operating profit margin
g) Return on total assets
f) Market to book ratio
Explanation / Answer
Tutorial note : 1) For all calculations below number of working days assumed to be 360 days
2) All figures rounded off to 2 decimel pplaces.
Working notes :
1 ) Calculation of income
Sales $825,000
less : COGS $410,000
less : General expenses $140,000
less : Selling expenses $70,000
less : Administrative expenses $125,000
EBIT / operating income $80000
less : Interest expense $60,000
EBT $20000
less : Income tax expense $6,000
NET INCOME $14000
2 ) Calcuation of total assets - intangible assets - liabilty per share
=(total assets - intangible assets - liabilty) / number of shares
={(35000+71000+6000+40000+150000+50000) - (35000+51000+35000+40000+110000)} / 75000
= $ 1.08
ANSWERS
a) Quick Ratio
= (Cash + Marketable Securities + Receivables) / Current Liabilities
= (35,000 +71,000+40,000)/(51,000+35,000)
= 1.70 (appx.)
b)Inventory Turnover
= Cost of Goods Sold / Inventory
=410000 / 60000
= 6.83 (appx.)
c)Average payment period
= (No. of working days x Accounts payble) / COGS
=(360 x 51000) / 410000
=44.78 days appx.
d)Times Interest Earned
= Earnings before Interest and Tax / Interest Expense
=80000 / 60000
=1.33 appx.
e) Earnings per share
=Earning available to common stockholders / number of shares
=14000 / 75000
= $ 0.19 appx.
f) Operating profit margin
=Operating Income / Revenue
=80000 / 825000
=9.70% appx.
g) Return on total assets
=Annual Net Income / Average Total Assets
=14000 / (35000+71000+6000+40000+150000+50000)
=3.98% appx.
f) Market to book ratio
=Share price / (total assets - intangible assets - liabilty) per share
=(total assets - intangible assets - liabilty) / number of shares
=7/ 1.08
= 6.48 appx.
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