Current ratio is the ratio which is used to measure a company’s liquidity and it considers current assets and current liabilities.
Acid test ratio:
Acid test ratio is a ratio which is measures the ability of a company to pay off its current obligations out of near cash or quick assets.
Day’s sales uncollected:
Day’s sales uncollected imply how much days a company takes to collect its accounts receivables.
Inventory turnover:
Frequency of a company’s inventory sold or returned is shown by inventory turnover.
Day’s sales in inventory:
Day’s sales inventory shows the average number of days the company not selling its inventory or holding it before selling.
Debt to equity ratio:
Debt to equity ratio is a solvency ratio which indicates relative proportion of total liabilities and total equity.
Time interest earned:
Time interest earned is the ratio which reflects risk of loan repayments of vendors or creditors of with interest.
Profit margin ratio:
Profit margin ratio shows net income as a percent of sales. This ratio reflects a company’s ability of earning.
Total assets turnover ratio:
Total assets turnover ratio is the measurement of a company’s revenue or sales to its value of total assets.
Return on total assets ratio:
Measurement of a company’s earnings against its net assets is known as return on total assets ratio.
Return on common
Return on common stockholder’s equity displays returns received on stockholder’s equity for a certain period of time.
To compute: (1) current ratio, (2) acid test ratio, (3) day’s sales uncollected, (4) inventory turnover (5) day’s sales in inventory (6) debt to equity ratio (7) time interest earned (8) profit margin ratio (9) total assets turnover ratio (10) return on total assets ratio (11) return on common stockholder’s equity of S Company.
Explanation of Solution
(1)
Given info,
Current assets are $43,600.
Current liabilities are $17,400.
Formula to calculate current ratio is,
Substitute $43,600 for current assets and $17,400 for current liabilities.
Working notes:
Thus, current ratio is 2.51 .
(2)
Given info,
Cash is $6,100.
Short term investments are $6,900.
Accounts receivables are $12,100
Current liabilities are $17,400.
Formula to calculate acid test ratio is,
Substitute $6,100 for cash, $6,900 for short term investments $12,100 for accounts receivable and $17,400 for current liabilities.
Thus, acid test ratio is 1.44 .
Working note:
Calculation of current liabilities,
(3)
Given,
Accounts receivable is $12,100.
Net sales are $315,500.
Formula to calculate day’s sales uncollected is,
Substitute $12,100 for accounts receivable and $315,500 for net sales.
Thus, day’s sales uncollected are 14 days .
(4)
Given,
Cost of goods sold is $236,100.
Inventory in the beginning of the year is $17,400.
Inventory at the end of the year is $13,500.
Formula to calculate inventory turnover is,
Substitute $236,100 for cost of goods sold and $17,400 for inventory in the beginning of the year and $13,500 at the end of the year.
Thus, inventory turnover is 15.3.
(5)
Given,
Inventory at the end of the year is $13,500.
Cost of goods sold is $236,100.
Formula to calculate day’s sales in inventory is,
Substitute $236,100 for cost of goods sold and $13,500 for inventory at the end of the year.
Thus, day’s sales inventory is 20.87 days.
(6)
Given,
Long term notes payable is $30,000.
Equity is $70,100.
Formula to calculate debt and equity ratio is,
Substitute $30,000 for debt and $70,100 for equity.
Thus, debt and equity ratio is 0.43.
Working notes:
(7)
Given,
Income before interest and tax is $30,200.
Interest expense is $2,200.
Formula to calculate time interest earned ratio is,
Substitute $30,200 for income before interest and tax and $2,200 for interest expense.
Thus, time interest earned ratio is 13.73.
(8)
Given,
Net income is $23,800.
Net sales are $315,500.
Formula to calculate profit margin ratio is,
Substitute $23,800 for net income and $315,500 for net sales.
Thus, profit margin ratio is 7.54%.
(9)
Given,
Net sales are $315,500.
Assets in the beginning of the year are $94,900.
Assets at the end of the year are $117,500.
Formula to calculate total assets turnover ratio is,
Substitute $315,500 for net sales, $94,900 for assets in the beginning of the year and $117,500 at the end of the year.
Thus, total assets turnover ratio is 2.97.
(10)
Given,
Net income is $23,800.
Assets in the beginning of the year are $94,900.
Assets at the end of the year are $117,500.
Formula to calculate return on total assets ratio is,
Substitute $23,800 for net income and $94,900 for assets in the beginning of the year and $117,500 at the end of the year.
Thus, return on total assets ratio is 0.22.
(11)
Given,
Net income is $23,800.
Common stock in the beginning of the year is $35,500.
Common stock at the end of the year is $35,000.
Formula to calculate return on common stockholder’s equity is,
Substitute $23,800 for net income and $35,500 for common stock in the beginning of the year and $35,000 at the end of the year.
Thus, return on common stockholder’s equity is 0.68%.
Want to see more full solutions like this?
Chapter 13 Solutions
FINANCIAL ACCOUNTING FUNDAMENTALS W/ CO
- Measures of liquidity, solvency, and profitability The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was 82.60 on December 31, 20Y2. Instructions Determine the following measures for 20Y2, rounding to one decimal place, including percentages, except for per-share amounts: 1. Working capital 2. Current ratio 3. Quick ratio 4. Accounts receivable turnover 5. Number of days sales in receivables 6. Inventory turnover 7. Number of days sales in inventory 8. Ratio of fixed assets to long-term liabilities 9. Ratio of liabilities to stockholders equity 10. Times interest earned 11. Asset turnover 12. Return on total assets 13. Return on stockholders equity 14. Return on common stockholders equity 15. Earnings per share on common stock 16. Price-earnings ratio 17. Dividends per share of common stock 18. Dividend yieldarrow_forwardMeasures of liquidity, solvency, and profitability The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was 82.60 on December 31, 20Y2. Instructions Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): 1. Working capital 2. Current ratio 3. Quick ratio 4. Accounts receivable turnover 5. Number of days sales in receivables 6. Inventory turnover 7. Number of days sales in inventory 8. Ratio of fixed assets to long-term liabilities 9. Ratio of liabilities to stockholders equity 10. Times interest earned 11. Asset turnover 12. Return on total assets 13. Return on stockholders equity 14. Return on common stockholders equity 15. Earnings per share on common stock 16. Price-earnings ratio 17. Dividends per share of common stock 18. Dividend yieldarrow_forwardReturn on assets The following data (in millions) were adapted from recent financial statements of Tootsie Roll Industries Inc. (TR): What is Tootsie Roll’s percent of the cost of sales to sales? Round to one decimal place.arrow_forward
- Five measures of solvency or profitability The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following: Income before income tax was 3,000,000, and income taxes were 1,200,000 for the current year. Cash dividends paid on common stock during the current year totaled 1,200,000. The common stock was selling for 32 per share at the end of the year. Determine each of the following: (a) times interest earned ratio, (b) earnings per share on common stock, (c) price-earnings ratio, (d) dividends per share of common stock, and (e) dividend yield. Round ratios and percentages to one decimal place, except for per-share amounts.arrow_forwardIncome Statement Ratio The income statement of Holly Enterprises shows operating revenues of $134,800, selling expenses of $38,310, general and administrative expenses of $36,990, interest expense of $580, and income tax expense of $13,920. Hollys stockholders equity was $280,000 at the beginning of the year and $320,000 at the end of the year. The company has 20,000 shares of stock outstanding at the end of the year. Required Compute Hollys profit margin. What other information would you need in order to comment on whether this ratio is favorable?arrow_forwardMultiple-step income statement and balance sheet The following selected accounts and their current balances appear in the ledger of Kanpur Co. for the fiscal year ended June 30, 20Y7: Instructions 1. Prepare a multiple-step income statement. 2. Prepare a statement of stockholders equity. Additional common stock of 7,500 was issued during the year ended June 30, 20Y7. 3. Prepare a balance sheet, assuming that the current portion of the note payable is 7,000. 4. Briefly explain how multiple and single-step income statements differ.arrow_forward
- Financial statements The assets and liabilities of Global Travel Agency on December 31, 20Y5, and its revenue and expenses for the year are as follows: Common stock was 525,000 and retained earnings was 1,250,000 as of January 1, 20Y5. During the year, additional common stock of 50,000 was issued for cash, and dividends of 90,000 were paid. Instructions 1. Prepare an income statement for the year ended December 31, 20Y5. 2. Prepare a statement of stockholders equity for the year ended December 31, 20Y5. 3. Prepare a balance sheet as of December 31, 20Y5. 4. What items appears on both the statement of stockholders equity and the balance sheet?arrow_forwardMultiple-Step and Single-Step In coin Statements The following items were derived from Gold Companys December 31 adjusted trial balance: Additional data: 1. Screen thousand share of common stock have been outstanding the entire year. 2. The income tax rate is 30% on all items of income. Required: 1. Prepare a multiple-st income statement. 2. Prepare a single step income statement. 3. Next Level Discuss how Gold Companys income statement in Requirement I might be different if it used IFRSarrow_forwardSingle-step income Statement and balance sheet Selected accounts and related amounts for Kanpur Co. for the fiscal year ended June 30. 20Y7. arc presented in Problem 5-5B. Instructions 1.Prepare a single-step income statement in the format shown in Exhibit 13. 2.Prepare a statement of stockholders equity. Additional common stock of 7.500 was issued during the year ended June 30. 20Y7. 3.Prepare a balance sheet, assuming that the current portion of the note payable is 7,000. 4.Prepare closing entries as of June 30, 20Y7.arrow_forward
- Multiple-step income statement and balance sheet The following selected accounts and their current balances appear in the ledger of Clairemont Co. for the fiscal year ended May 31, 20Y2: Instructions 1. Prepare a multiple-step income statement. 2. Prepare a statement of stockholders equity. Additional common stock of 75,000 was issued during the year ended May 31, 20Y2. 3. Prepare a balance sheet, assuming that the current portion of the note payable is 50,000. 4. Briefly explain how multiple and single-step income statements differ.arrow_forwardRATIO ANALY SIS OF COMPARATI VE FIN ANCIAL STATE MENT S Refer to the financial statements in Problem 24-8A. REQUIRED Calculate the following ratios and amounts for 20-1 and 20-2 (round all calculations to two decimal places): (a) Return on assets (Total assets on January 1, 20-1, were 175,750.) (b) Return on common stockholders equity (Total common stockholders equity on January 1, 20-1, was 106,944.) (c) Earnings per share of common stock (The average numbers of shares outstanding were 8,400 shares in 20-1 and 9,200 in 20-2.) (d) Book value per share of common stock (e) Quick ratio (f) Current ratio (g) Working capital (h) Receivables turnover and average collection period (Net receivables on January 1, 20-1, were 39,800.) (i) Merchandise inventory turnover and average number of days to sell inventory (Merchandise inventory on January 1, 20-1, was 48,970.) (j) Debt-to-equity ratio (k) Asset turnover (Assets on January 1, 20-1, were 175,750.) (l) Times interest earned ratio (m) Profit margin ratio (n) Assets-to-equity ratio (o) Price-earnings ratio (The market price of the common stock was 100.00 and 85.00 on December 31, 20-2 and 20-1, respectively.)arrow_forwardReturn on assets The following data (in millions) were adapted from recent financial statements of Tootsie Roll Industries Inc. (TR): The percent a company adds to its cost of sales to determine selling price is called a markup. What is Tootsie Roll’s markup percent? Round to one decimal place.arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning