Question 2 The condensed financial statements of Marks Company for the years 201

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Question 2

The condensed financial statements of Marks Company for the years 2014-2015 are presented below:

Compute the following financial ratios by placing the proper amounts for numerators and denominators. (Round per unit answers to 2 decimal places, e.g. 52.75.)

Marks Company
Comparative Balance Sheets
As of December 31, 2014 and 2015 2015 2014 Cash $394,000 $150,000 Accounts receivable (net) 355,000 302,000 Inventories 381,000 341,000 Plant and equipment 1,845,000 1,113,000 Accumulated depreciation (265,000 ) (195,000 ) $2,710,000 $1,711,000 Accounts payable $341,000 $165,000 Dividends payable -0- 45,000 Bonds payable 401,000 -0- Common stock ($10 par) 1,523,000 1,220,000 Retained earnings 445,000 281,000 $2,710,000 $1,711,000

Explanation / Answer

A)Current Asset 2015 = Cash +Accounts reeivable +Inventories

             = 394000+355000+ 381000

             = 1130000

Current liabilities= Accounts payable+ dividend payable

     = 341000+0

       = 341000

Current Ratio =current asset /current liability

       = 1130000/341000

          =3.31

b)Acid test ratio = [Current asset -Inventory]/current liabilities

     = [1130000-381000]/341000

      = 749000/ 341000

       = 2.20

c)Accounts receivable turnover in 2015 = Sales /Average accounts receivable

      = 2428000 / 328500

         = 7.39

**Average receivable = [355000+302000]/2

            = 328500

d)Inventory turnover in 2015 = cost of sales /Average inventory

          = 1648000 / 361000

        = 4.57

**Average inventory =[381000+341000]/2

            = 361000

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