Question

Presented below is information related to Oriole Inc.

ORIOLE INC. BALANCE SHEET DECEMBER 31, 2020
Cash				$44,700		Notes payable (short-term)		$49,600
Receivables		$110,700				Accounts payable		32,200
Less: Allowance		14,900		95,800		Accrued liabilities		5,000
Inventory				168,600		Common stock (par $5)		260,900
Prepaid insurance				8,000		Retained earnings		138,200
Land				19,800
Equipment (net)				149,000
				$485,900				$485,900

ORIOLE INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020
Sales revenue					$1,391,400
Cost of goods sold
Inventory, Jan. 1, 2020		$199,400
Purchases		784,400
Cost of goods available for sale		983,800
Inventory, Dec. 31, 2020		(168,600	)
Cost of goods sold					815,200
Gross profit on sales					576,200
Operating expenses					170,900
Net income					$405,300

Compute the following ratios or relationships of Oriole Inc. Assume that the ending account balances are representative unless the information provided indicates differently. (Round answers to 2 decimal places, e.g. 1.59 or 45.87%.)

(1)		Current ratio			times
(2)		Inventory turnover			times
(3)		Accounts receivable turnover			times
(4)		Earnings per share		$
(5)		Profit margin on sales			%
(6)		Return on assets on December 31, 2020			%

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Indicate for each of the following transactions whether the transaction would improve, weaken, or have no effect on the current ratio of Oriole Inc. at December 31, 2020.

(1)		Write off an uncollectible account receivable, $2,200.		No effectImproveWeaken
(2)		Purchase additional capital stock for cash.		No effectImproveWeaken
(3)		Pay $40,000 on notes payable (short-term).		No effectImproveWeaken
(4)		Collect $23,000 on accounts receivable.		No effectImproveWeaken
(5)		Buy equipment on account.		No effectImproveWeaken
(6)		Give an existing creditor a short-term note in settlement of account.		No effectImproveWeaken

Answer 1

1) Current Ratio:
Cash	$44,700
Receivables	$95,800
Inventory	$168,600
Prepaid Insurance	$8,000
Total Current Assets (a)	$317,100
Notes payable (short-term)	$49,600
Accounts Payable	$32,200
Accrued liabilities	$5,000
Total Current Liabilities (b)	$86,800
Current Ratio (a/b)	3.65	times
2) Inventory turnover:
Cost of Goods Sold (a)	$815,200
Average Inventory [($199,400 + $168,600)/2] (b)	$184,000
Inventory turnover (a/b)	4.43	times
3) Accounts receivable turnover:
Net credit sales (a)	$1,391,400
Ending Receivables (b)	$95,800
Accounts receivable turnover (a/b)	14.52	times
4) Earnings per share:
Net Income	$405,300
Less: Preferred dividends	$0
Earnings available to the common shareholders (a)	$405,300
Weighted average number of common shares (b) ($260,900/$5)	52,180
Earnings per share (a/b)	$7.77
5) Profit margin ratio:
Net Income (a)	$405,300
Net credit sales (b)	$1,391,400
Profit margin ratio (a/b*100)	29.13%
6) Return on assets on December 31, 2020:
Net Income (a)	$405,300
Total assets (b)	$485,900
Return on assets (a/b*100)	83.41%

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