Question

Income statement and balance sheet data for Great Adventures, Inc., are provided belovw GREAT ADVENTURES, INC. Income Statement For the Year Ended December 31, 2020 Revenues: Service revenue (clinic, racing, TEAM) Sales revenue (MU watches) $529,000 104,000 Total revenues $633,000 Expenses: Cost of goods sold (MU watches) Operating expenses Depreciation expense Interest expense Income tax expense 63,000 303,576 43,000 29,024 52,800 Total expenses 491,400 Net income $141,600

Answer 1

Answer 1(a) - Calculate Receivables Turnover Ratio -

Receivables Turnover Ratio = Net Credit Sales/Average Net Accounts Receivable

= 633,000/(34,500+28,000/2)

= 633,000/31,250

= 20.25 times

Answer 1(b) - Calculate Average Collection period -

Average collection period = 365/Receivable turnover ratio

=365/20.25 = 18.02 days

Answer 1(c) - Calculate Inventory turnover ratio -

Inventory turnover ratio = Cost of Goods Sold/Average Stock

= 63,000/ (15,950+ 13,300/2)

= 63,000/14,625

= 4.30 times

Answer 1(d) - Calculate average days in inventory -

average days in inventory = 365/ Average inventory ratio

=365/4.30

= 84.88 days

Answer 1(e) - Calculate Current ratio = Current assets/Current Liabilities

=Current assets - 292,190+34,500+15,950+11,950 = 354,590

=Current Liabiliites - 10,950+680+52,800 = 64,430

Current Ratio = 354,590/64,430 = 5.50 times

Answer 1(f) - Acid test Ratio = Current Asset- inventory/Current Liabilities

= 354,590 - 15,950/64,430

= 338,640/64,430

=5.25 times

Answer 1(g)- Calculate debt to equity ratio = Debt/total equity

=Debt - 64,430+418,940= 483,370

=Equity - 130,000+1,106,000+134,720+(108,000) = 12,62,720

=483,370/12,62,720

=38.28%

Answer 1(h) - Calculate Times interest earned ratio = EBIT/ Interest expense

EBIT = 141,600 +29,024+52,800 = 223,424

=223424/29,024

= 7.69 times

Answer 2(a) - Calculate Gross Profit Ratio = Gross Profit/Net Sales X 100

= Gross Profit = Net Sales (of MU watches only) - COGS

= 104,000-63,000 = 41,000

= 41,000/104,000

=39.42%

Answer 2(b) - Calculate Return on Assets = Net income/ Average Total Assets X 100

=141,600/(1,746,090/2) X 100

= 141,600/873,045 X 100

= 16.21%

Answer 2(c) - Calcuate Profit Margin = Net income/ Net sales X 100

=141,600/633,000

= 22.36%

Answer 2(d) - Calculate Asset Turnover - Net Sales/Average Total assets

=633,000/(1,746,090/2)

= 0.72 times

Answer 2(e) - Calculate Return on Equity = Net income/ Shareholder's equity

=141,600/ (130,000+1,106,000+134,720+(108,000)

= 141,600/1,262,720

=11.21%