The balance sheet for Stud Clothiers is shown next. Sales for the year were $2,4
ID: 2741760 • Letter: T
Question
The balance sheet for Stud Clothiers is shown next. Sales for the year were $2,400,000, with 90 percent of sales sold on credit.
Compute the following ratios: (Use a 360-day year. Do not round intermediate calculations. Round your answers to 2 decimal places. Input your debt-to-total-assets answer as a percent rounded to 2 decimal places.)
Balance Sheet 20XX Assets Liabilities and Equity Cash $ 60,000 Accounts payable $ 220,000 Accounts receivable 240,000 Accrued taxes 30,000 Inventory 350,000 Bonds payable (long-term) 150,000 Plant and equipment 410,000 Common stock 80,000 Paid-in capital 200,000 Retained earnings 380,000 Total assets $ 1,060,000 Total liabilities and equity $ 1,060,000
Explanation / Answer
Answer a.
Current Assets = Cash + Account Receivable + Inventory
Current Assets = 60,000 + 240,000 + 350,000
Current Assets = $650,000
Current Liabilities = Account Payable + Accrued Taxes
Current Liabilities = 220,000 + 30,000
Current Liabilities = $250,000
Current Ratio = Current Assets / Current Liabilities
Current Ratio = 650,000/250,000
Current Ratio = 2.60 times
Answer b.
Quick Assets = Cash + Account Receivable
Quick Assets = 60,000 + 240,000
Quick Assets = $300,000
Current Liabilities = Account Payable + Accrued Taxes
Current Liabilities = 220,000 + 30,000
Current Liabilities = $250,000
Quick Ratio = Quick Assets / Current Liabilities
Quick Ratio = 300,000/250,000
Quick Ratio = 1.20 times
Answer c.
Debt = Current liabilities + Bond Payable
Debt = 250,000 + 150,000
Debt = $400,000
Total Assets = $1,060,000
Debt-Total Assets Ratio = 400,000/1,060,000
Debt-Total Assets Ratio = 37.74%
Answer d.
Assets Turnover Ratio = Net Sales/Total Assets
Assets Turnover Ratio = 2,400,000/1,060,000
Assets Turnover Ratio = 2.26 times
Answer e.
Credit Sales = 2,400,000*90% = $2,160,000
Average Collection Period = 360*Account Receivable/Credit Sales
Average Collection Period = 360*240,000/2,160,000
Average Collection Period = 40 days
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