Question

A condensed balance sheet for Bradford Corporation prepared at the end of the year appears as follows. Assets Liabilities & Stockholders' Equity Cash $ 119,000 Notes payable (due in 6 months) $ 48,000 Accounts receivable 120,000 Accounts payable 105,000 Inventory 290,000 Long-term liabilities 360,000 Prepaid expenses 60,000 Capital stock, $5 par 300,000 Plant & equipment (net) 570,000 Retained earnings 436,000 Other assets 90,000 Total $ 1,249,000 Total $ 1,249,000 During the year, the company earned a gross profit of $1,116,000 on sales of $2,950,000. Accounts receivable, inventory, and plant assets remained almost constant in amount throughout the year, so year-end figures may be used rather than averages. a. Compute the current ratio. (Round your answer to 2 decimal place.) b. Compute the quick ratio. (Round your answer to 2 decimal place.) c. Compute the working capital. d. Compute the debt ratio. (Round your percentage answers to nearest whole percent. i.e. 0.1234 as 12%.) e. Compute the accounts receivable turnover (all sales were on credit). (Round your answer to 2 decimal places.) f. Compute the inventory turnover. (Round your answer to 2 decimal places.) g. Compute the book value per share of capital stock. (Round your answer to 2 decimal places.)

Answer 1

Part - a:

Computation of current ratio is:

Current ratio = Current assets / Current liabilities

= $589,000 / $153,000

= 3.85

Hence, the current ratio is 3.85

Working Notes:

1.

Computation of Current assets is:

Current assets = Cash + Accounts receivable + Inventory + Prepaid expenses

= $119,000 + $120,000 + $290,000 + $60,000

= $589,000

Hence, the current assets is $589,000.

2.

Computation of current liabilities is:

Current liabilities = Notes payable + Accounts payable

= $48,000 + $105,000

= $153,000

Hence, the current liabilities is $153,000.

Part - b:

Computation of quick ratio is:

Quick ratio = Quick assets / Current liabilities

= $239,000 / $153,000

= 1.56

Hence, the quick ratio is 1.56

Working Notes:

1.

Computation of quick assets is:

Quick assets = Cash + Accounts receivable

= $119,000 + $120,000

= $239,000

Hence, the quick assets is $239,000.

2.

Computation of current liabilities is:

Current liabilities = Notes payable + Accounts payable

= $48,000 + $105,000

= $153,000

Hence, the current liabilities is $153,000.

Part - c:

Computation of working capital is:

Working capital = Current assets - Current liabilities

= $589,000 - $153,000

= $436,000

Hence, the working capital is $436,000.

Working Notes:

1.

Computation of Current assets is:

Current assets = Cash + Accounts receivable + Inventory + Prepaid expenses

= $119,000 + $120,000 + $290,000 + $60,000

= $589,000

Hence, the current assets is $589,000.

2.

Computation of current liabilities is:

Current liabilities = Notes payable + Accounts payable

= $48,000 + $105,000

= $153,000

Hence, the current liabilities is $153,000.

Part - d:

Computation of debt ratio is:

Debt ratio = Total debts / Total assets

= $513,000 / $1,249,000

= 41.07%

Hence, the debt ratio is 41.07%.

Working Notes:

Computation of total debts is:

Total debts = Notes payable + Accounts payable + Long-term liabilities

= $48,000 + $105,000 + $360,000

= $513,000

Hence, the total debts is $513,000.

Part - e:

Computation of accounts receivable turnover is:

Accounts receivable turnover = Sales / Accounts receivable

= $2,950,000 / $120,000

= 24.58 times

Hence, the accounts receivable turnover is 24.58 times.

Part - f:

Computation of inventory turnover is:

Inventory turnover = Cost of goods sold / Inventory

= $1,834,000 / $290,000

= 6.32 times

Hence, the inventory turnover is 6.32 times.

Working Notes:

Computation of cost of goods sold is:

Cost of goods sold = Sales - Gross profit

= $2,950,000 - $1,116,000

= $1,834,000

Hence, the cost of goods sold is $1,834,000.

g.

Computation of book value per share of capital stock is:

Book value per share of capital stock = Book value / Number of shares

= $736,000 / 60,000

= 12.27

Hence, the book value per share of capital stock is 12.27

Working Note:

1.

Computation of book value is:

Book value = Capital stock + Retained earnings

= $300,000 + $436,000

= $736,000

Hence, the book value is $736,000.

2.

Computation of number of shares is:

Number of shares = Capital stock / Per value of stock

= $300,000 / $5

= 60,000