Question

Exercise 18-13 Partially correct answer. Your answer is partially correct. Try again. The condensed financial statements of Ness Company for the years 2019 and 2020 are presented below. Ness Company Balance Sheets December 31 (in thousands) 2020 2019 Current assets Cash and cash equivalents $330 $390 Accounts receivable (net) 440 430 Inventory 440 400 Prepaid expenses 150 180 Total current assets 1,360 1,400 Property, plant, and equipment (net) 430 400 Investments 1 10 Intangibles and other assets 530 560 Total assets $2,321 $2,370 Current liabilities $820 $780 Long-term liabilities 511 600 Stockholders’ equity—common 990 990 Total liabilities and stockholders’ equity $2,321 $2,370 Ness Company Income Statements For the Years Ended December 31 (in thousands) 2020 2019 Sales revenue $3,880 $3,400 Costs and expenses Cost of goods sold 970 880 Selling & administrative expenses 2,370 2,350 Interest expense 10 20 Total costs and expenses 3,350 3,250 Income before income taxes 530 150 Income tax expense 212 60 Net income $318 $90 Compute the following ratios for 2020 and 2019. Inventory on December 31, 2018, was $360. Assets on December 31, 2018, were $1,880. Equity on December 31, 2018, was $920. (Round current ratio and inventory turnover to 2 decimal places, e.g. 15.25. Round other answers to 1 decimal place, e.g. 15.2 or 15.2%.) 2020 2019 (a) Current ratio Entry field with correct answer 1.66 :1 Entry field with correct answer 1.79 :1 (b) Inventory turnover Entry field with correct answer 2.31 times Entry field with correct answer 2.32 times (c) Profit margin Entry field with incorrect answer 1.37 % Entry field with incorrect answer 3.80 % (d) Return on assets Entry field with correct answer 13.56 % Entry field with incorrect answer 42.35 % (e) Return on common stockholders’ equity Entry field with incorrect answer % Entry field with incorrect answer % (f) Debt to assets ratio Entry field with incorrect answer % Entry field with incorrect answer % (g) Times interest earned Entry field with incorrect answer times Entry field with incorrect answer times Click if you would like to Show Work for this question: Open Show Work

Answer 1

Current ratio and Inventory turnover ratio are correct.

c) Profit margin= Net income*100/Net sales

2020= $318*100/3880= 8.2%

2019= $90*100/3400= 2.6%

d) Return on assets for 2020 is correct

Return on assets= Net income/Average total assets

Average total assets for 2019= $(2370+1880)/2= $2125

2019= $90*100/2125= 4.23%

e) Return on common stockholders' equity= (Net income-Preferred dividend)/Average common stockholders' equity

Average common stockholders' equity for 2020= $(990+990)/2= $990

2020= $(318-0)*100/990= 32.1%

Average common stockholders' equity for 2019= $(990+920)/2= $ 955

2019= $(90-0)*100/955= 9.4%

f) Debt to assets ratio= Total debts/Total assets

2020= $(820+511)*100/2321= 57.3%

2019= $(780+600)*100/2370= 58.2%

g) Times interest earned= (Income before income tax+Interest expense)/Interest expense

2020= $(530+10)/10= 54 times

2019= $(150+20)/20= 8.5 times