Question

Exercise 14-7 Frizell Company has the following comparative balance sheet data. FRIZELL COMPANY Balance Sheets December 31 2017 2016 Cash $15,100 29,700 Accounts receivable (net) 70,300 59,000 Inventory 60,900 49,300 Plant assets (net) 195,000 178,500 $341,300 $316,500 Accounts payable $50,600 $60,900 Mortgage payable (6%) Common stock, $10 par 101,500 101,500 144,000 118,500 Retained earnings 45,200 35,600 $341,300 $316,500 Additional information for 2017 Net income was $25,800. 1 Sales on account were $407,000. Sales returns and allowances were $20,700. 2. Cost of goods sold was $199,400. 3. Compute the following ratios at December 31, 2017. (Round answers to 1 decimal place, e.g. 1.6 .) (a) Current ratio 1 (b) Acid-test ratio :1 (c) Accounts receivable turnover times (d) Inventory turnover times

Answer 1

Answer- a)-Current Ratio=Current Assets/ Current Liabilities

= ($15100+$70300+$60900)/$50600

= $146300/$50600

= 2.9 times

b)- Acid-test (Quick ratio):- Current assets-Inventory-Prepaid expenses/Current Liabilities

= $146300-$60900-0/$50600   

  = $85900/$50600

  = 1.7 times

c)-Accounts receivable turnover ratio = Net credit sales/Average accounts receivable

=($407000-$20700)/($59000+$70300)/2

= $386300/$64650

=6.0 times

d)- Average collection period = 365 days/ Accounts receivable turnover ratio

= 365 days/6.0

= 60.8 days

Answer- a)-Profit margin = (Net income/Net sales)*100

= ($47000/$755500)*100

= 6.2%

b)- Asset turnover =Net sales/Average Total assets

=$755500/($499800+$576500)/2

=$755500/$538150

=1.4 times

c)- Return on assets =(Net income/Average total assets)*100

={$47000/($499800+$576500)/2}*100

=($47000/$538150)*100

=8.7%

d)- Return on common stockholder’s equity=Net income-Preferred dividends/Average common stockholder’s equity

= {$47000/($325100+$434300)/2}

= ($47000/$379700)*100

= 12.4%