Chapter 15.III, Problem 7TIE

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8th Edition

Robert Brechner + 1 other

ISBN: 9781305585447

Textbook Problem

Use the balance sheet and income statement on pages 487-488 and 499 to calculate the financial ratios for Royal Equipment Supply. Inc.

To determine

**To calculate:** The financial ratios for the company Royal Equipment Supply, Inc. using the balance sheet and income statement of the company.

Royal equipment supply, Inc. Balance Sheet June |
||

Assets |
($) |
($) |

Current Assets |
||

Cash | ||

Accounts receivables | ||

Merchandise inventory | ||

Prepaid insurance | ||

Supplies | ||

Total Current Assets | ||

Property, Plant and Equipment |
||

Land and building | ||

Fixtures | ||

Delivery Vehicles | ||

Forklift | ||

Total of Property, Plant and Equipment | ||

Investment and other Assets |
||

Goodwill | ||

Total investment and other assets |
||

Total Assets |
||

Liabilities and Owner’s Equity |
||

Current liabilities: |
||

Accounts payable | ||

Notes payable | ||

Total Current Liabilities | ||

Long-Term Liabilities: |
||

Mortgage payable | ||

Total Long-Term Liabilities | ||

Total Liabilities |
||

Owner’s Equity |
||

Common stock | ||

Retained earnings | ||

Total Owner’s equity |
||

Total Liabilities and Owner’s equity |

The income statement is,’

Royal equipment supply, Inc. Income Statement December |
||

Revenue |
($) |
($) |

Gross Sales | ||

Less: Sales Returns and Allowances |
||

Sales Discounts | ||

Net Sales |
||

Cost of goods sold |
||

Merchandise Inventory Jan. |
||

Net purchases | ||

Freight in | ||

Goods available for sale | ||

Less: Merchandise Inventory, Dec. 31 |
||

Cost of goods sold |
||

Gross Margin |
||

Operating Expenses |
||

Salaries | ||

Rents | ||

Utilities | ||

Advertising | ||

Insurance | ||

Administrative Expenses | ||

Miscellaneous Expenses | ||

Total Operating Expenses |
||

Income before Taxes |
||

Income tax | ||

Net-Income |

Explanation

**Given information:**

The provided balance sheet is,

Royal equipment supply, Inc. Balance Sheet June |
||

Assets |
($) |
($) |

Current Assets |
||

Cash | ||

Accounts receivables | ||

Merchandise inventory | ||

Prepaid insurance | ||

Supplies | ||

Total Current Assets | ||

Property, Plant and Equipment |
||

Land and building | ||

Fixtures | ||

Delivery Vehicles | ||

Forklift | ||

Total of Property, Plant and Equipment | ||

Investment and other Assets |
||

Goodwill | ||

Total investment and other assets |
||

Total Assets |
||

Liabilities and Ownerâ€™s Equity |
||

Current liabilities: |
||

Accounts payable | ||

Notes payable | ||

Total Current Liabilities | ||

Long-Term Liabilities: |
||

Mortgage payable | ||

Total Long-Term Liabilities | ||

Total Liabilities |
||

Ownerâ€™s Equity |
||

Common stock | ||

Retained earnings | ||

Total Ownerâ€™s equity |
||

Total Liabilities and Ownerâ€™s equity |

The income statement is,

Royal equipment supply, Inc. Income Statement December |
||

Revenue |
($) |
($) |

Gross Sales | ||

Less: Sales Returns and Allowances |
||

Sales Discounts | ||

Net Sales |
||

Cost of goods sold |
||

Merchandise Inventory Jan. |
||

Net purchases | ||

Freight in | ||

Goods available for sale | ||

Less: Merchandise Inventory, Dec. 31 |
||

Cost of goods sold |
||

Gross Margin |
||

Operating Expenses |
||

Salaries | ||

Rents | ||

Utilities | ||

Advertising | ||

Insurance | ||

Administrative Expenses | ||

Miscellaneous Expenses | ||

Total Operating Expenses |
||

Income before Taxes |
||

Income tax | ||

Net-Income |

**Formula used:**

The formula to compute working capital is:

The formula to compute current ratio is:

The formula to compute acid test ratio is:

The formula to compute average collection period is:

The formula to compute Average inventory:

The formula to compute inventory turnover is:

The formula to compute asset turnover ratio is:

The formula to compute debt to assets ratio is:

The formula to compute debt to equity ratio is:

The formula to compute gross profit margin is:

The formula to compute net profit margin is:

The formula to compute return on investment is;

**Calculation:**

Consider that Current assets are

Compute the working capital:

Substitute

Hence, working capital is

Consider that current assets are

Compute the current ratio:

Substitute

Hence, current ratio is

Consider that cash balance is

Sect-15.I P-1TIESect-15.I P-2TIESect-15.I P-3TIESect-15.I P-1RESect-15.I P-2RESect-15.I P-3RESect-15.I P-4RESect-15.I P-5RESect-15.I P-6RESect-15.I P-7RE

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