Question

294 Chapter 5 been operating for two in some insight into ments for the first Problem 21 The Mantle Inn commenced operations on January 1, 20X1, and has been ope years. Assume that you are the new assistant manager and desire to gain some the Inn's financial condition. Balance sheets and condensed income statements fe two years are as follows: Balance Sheets Mantle Inn December 31, 20X1 and 20X2 20X1 20X2 $ 10,000 $ 55,000 10,000 75,000 15,000 50,000 60,000 12,000 137,000 Assets Current Assets: Cash Marketable Securities Accounts Receivable Inventories Total Current Assets Property and Equipment: Land Building (net) Furniture & Equipment (net) Total Property & Equipment Total Assets 100,000 1,950,000 240,000 2,290,000 $2,365,000 100,000 1,900,000 200,000 2,200,000 $2,337,000 $ 55,000 1,300,000 1,355,000 $ 60,000 1,250,000 1,310,000 Liabilities and Owners' Equity Current Liabilities Long-Term Debt Total Liabilities Owners' Equity Common Stock Retained Earnings Total Owners' Equity Total Liabilities and Owners' Equity 1,000,000 10,000 1,010,000 $2,365,000 1,000,000 27,000 1,027,000 $2,337,000 Condensed Income Statements Mantle Inn For the years ended December 31, 20X1 and 20X2 20X1 20X2 Sales $1,200,000 $1,400,000 Operated Department Expense 620,000 700,000 Operated Department Income 580,000 700,000 Undistributed Operating Expenses 380,000 400,000 Gross Operating Profit 200,000 300,000 Non-Operating Expenses 185,000 200,000 Income Taxes 5,000 45,000 Net Income $ 10,000 $ 55,000

Answer 1

1.

			Calculation		Answer
		Formula	20X1	20X2	20X1	20X2
a	Current ratio	Current Assets ÷ Current Liabilities	75000/55000	137000/60000	1.363636	2.283333
b	Solvency ratio	(Net income+Depreciation)÷ All liabilities	10000/1355000	55000/1310000	0.73%	4.19%
c	Profit margin	Net income÷sales	10000/1200000	55000/1400000	0.83%	3.92%
d	Operating efficiency	Operating Expense÷Sales	1000000/1200000	1100000/1400000	83.33%	78.57%

Note: Operating Expense = Operated department expense + Undistributed operating expense

2.

		Formula	Calculation	Answer
a	Property and equipment turnover ratio	Sales÷ Average property and equipment	1400000/2245000	62.36%
b	Total asset turnover ratio	Sales÷ Average Total Assets	1400000/2351000	59.54%
c	Accounts receivable turnover ratio	Credit Sales÷ Average accounts receivables	1400000/57500	24.34 times
d	Number of days accounts receivable outstanding	Average accounts receivable÷Average credit sales per day	57500/3836	15 days
e	Return on total assets	Net income÷Average Total Assets	55000/2351000	2.33%
f	Return on owners' equity	Net income ÷ Net worth	55000/1027000	5.35%

Average Property and equipment = (2290000+2200000)/2 = $2,245,000

Average Total Assets = (2365000+2337000)/2 = $2,351,000

Average Accounts receivable = (55000+60000)/2 = $57,500

Average sales per day = (1400000/365) = $3,836