Concept explainers
1 (a)
Receivables turnover ratio
1 (a)
Explanation of Solution
Receivables turnover ratio: Receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the
Determine receivables turnover ratio.
Working Notes:
Determine the amount of average accounts receivables.
1 (b)
Inventory turnover ratio
1 (b)
Explanation of Solution
Inventory Turnover Ratio:
This ratio is a financial metric used by a company to quantify the number of times inventory is used or sold during the accounting period.
Determine receivables turnover ratio.
Working Notes:
Determine the amount of average accounts receivables.
1 (c)
Current ratio
1 (c)
Explanation of Solution
Current Ratio:
Current ratio is used to determine the relationship between current assets and current liabilities. Current ratio is determined by dividing current assets and current liabilities. The ideal current ratio is 2:1
Determine current ratio.
Current assets and current liabilities are determined as follows:
1 (d)
Acid-test ratio
1 (d)
Explanation of Solution
Acid-Test Ratio:
This ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00. Use the following formula to determine the acid-test ratio:
Determine acid-test ratio.
Quick assets are determined as follows:
1 (e)
Debt-equity ratio
1 (e)
Explanation of Solution
Debt-equity Ratio:
The debt equity ratio measures the relationship between the capital contributed by creditors and the capital contributed by the stockholders or owners. It indicates the long term solvency position of the company.
Determine debt equity ratio.
Total liabilities and
2)
To compare: Weather on company can have higher return on assets while the other has a higher return on equity
2)
Explanation of Solution
Yes, one company can have higher current ratio because of higher prepaid expenses and Inventory comparing to other current asset. Inventory and prepaid expenses are less liquid and they are excluded in the calculation of acid-test ratio
Acid-test ratio will be always lower than the current ratio for the same company since the current ratio comprises of all current assets, while only cash, current investments and Accounts receivables are included in acid-test ration.
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Chapter 12 Solutions
FINANCIAL ACCOUNTING (LL+CONNECT)
- The comparative balance sheet of Prime Sports Gear, Inc., at December 31, the end of the fiscal year, is as follows: Additional data obtained from the records of Prime Sports Gear are as follows: a. Net income for 2013 was 121,610. b. Depreciation reported on income statement for 2013 was 46,500. c. Purchased 165,000 of new equipment, putting 90,000 cash down and issuing 75,000 of bonds for the balance. d. Old equipment originally costing 19,500, with accumulated depreciation of 7,950, was sold for 8,000. e. Retired 60,000 of bonds. f. Declared cash dividends of 64,000. g. Issued 1,500 shares of common stock at 27 cash per share. You have been asked to prepare a statement of cash flows for Prime Sports Gear for 2013. Review the worksheet called CASHFLOW that has been provided to assist you in preparing the statement. The worksheet has been designed so that as you make entries in columns D and F, column G will be automatically updated. For example, FORMULA1 should be entered as =B17+D17F17. Columns C and E are to be used to enter letter references for each of the debit and credit entries on the worksheet.arrow_forwardBalance sheets for Brierwold Corporation follow: Additional transactions were as follows: a. Purchased equipment costing 50,000. b. Sold equipment costing 60,000, with a book value of 25,000, for 40,000. c. Retired preferred stock at a cost of 110,000. (The premium is debited to Retained Earnings.) d. Issued 10,000 shares of common stock (par value, 4) for 10 per share. e. Reported a loss of 15,000 for the year. f. Purchased land for 50,000. Required: Prepare a statement of cash flows using the indirect method.arrow_forwardStatement of Cash Flows A list of Fischer Companys cash flow activities is presented here: a. Patent amortization expense, 3,500 b. Machinery was purchased for 39,500 c. At year-end, bonds payable with a face value of 20,000 were issued for 17,000 d. Net income, 47,200 k. Inventories increased by 15,400 e. Dividends paid, 16,000 f. Depreciation expense, 12,900 g. Preferred stock was issued for 13,600 h. Investments were acquired for 21,000 i. Accounts receivable increased by 4,300 j. Land was sold at cost, 11,000 k. Inventories increased by 15,400 l. Accounts payable increased by 2,700 m. Beginning cash balance, 19,400 Required: Prepare Fischers statement of cash flows.arrow_forward
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