For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover
Required:
1a. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover, (e) days' sales in inventory, and (f) days' sales uncollected. (Do not round intermediate calculations.)
1b. Identify the company you consider to be the better short-term credit risk.
Homework Answers
Answer -
1a. Answer -
(a) Current ratio:
Current ratio = Current assets / Current liabilities
Here,
Current assets = Cash + Accounts receivable, net + Merchandise inventory + Prepaid expenses
1. Barco Company:
Current assets = $22500 + $34400 + $84340 + $5200 = $146440
Therefore,
Current ratio = $146440 / $70340
Current ratio = 2.0819:1
2. Kyan Company:
Current assets = $34000 + $58400 + $142500 + $7800 = $242700
Therefore,
Current ratio = $242700 / $97300
Current ratio = 2.4943:1
(b) Acid-test ratio:
Acid-test ratio = [Cash + Accounts receivable + Short-term investment] / Current liabilities
1. Barco Company:
Acid-test ratio = [$22500 + $34400 + $0] / $70340
Acid-test ratio = 0.8089:1
2. Kyan Company:
Acid-test ratio = [$34000 + $58400 + $0] / $97300
Acid-test ratio = 0.9496:1
(c) Accounts receivable turnover:
Accounts receivable turnover = Net sales / Average accounts receivable, net
Here,
Average accounts receivable, net = [Beginning accounts receivable, net + Ending accounts receivable, net] /2
1. Barco Company:
Now,
Average accounts receivable, net = [$27800 + $34400] / 2 = $31100
Therefore,
Accounts receivable turnover = $810000 / $31100
Accounts receivable turnover = 26.0450 times
2. Kyan Company:
Now,
Average accounts receivable, net = [$55200 + $58400] / 2 = $56800
Therefore,
Accounts receivable turnover = $895200 / $56800
Accounts receivable turnover = 15.7606 times
(d) Inventory turnover:
Inventory turnover = Cost of goods sold / Average inventory
Here,
Average inventory = [Beginning merchandise inventory + Ending merchandise inventory] / 2
1. Barco Company:
Now,
Average inventory = [$65600 + $84340] / 2 = $74970
Therefore,
Inventory turnover = $592100 / $74970
Inventory turnover = 7.8978 times
2. Kyan Company:
Now,
Average inventory = [$117400 + $142500] / 2 = $129950
Therefore,
Inventory turnover = $632500 / $129950
Inventory turnover = 4.8673 times
(e) Day’s sales in inventory:
Day’s sales in inventory = [Merchandise inventory / Cost of goods sold] * 365 days
1. Barco Company:
Day’s sales in inventory = [$84340 / $592100] * 365 days
Day’s sales in inventory = 51.99 days
2. Kyan Company:
Day’s sales in inventory = [$142500 / $632500] * 365 days
Day’s sales in inventory = 82.23 days
(f) Day’s sales uncollected:
Day’s sales uncollected = [Accounts receivable, net / Net sales] * 365 days
1. Barco Company:
Day’s sales uncollected = [$34400 / $810000] * 365 days
Day’s sales uncollected = 15.50 days
2. Kyan Company:
Day’s sales uncollected = [$58400 / $895200] * 365 days
Day’s sales uncollected = 23.81 days
1b. Answer -
As per the above ratio current ratio and acid-test ratio of Kyan Company is slightly higher than Barco Company’s ratio. But in terms of days sales in inventory and days sales uncollected Barco Company far better than Kyan Company.
Therefore, Barco Company having better short-term credit risk than Kyan Company.
Add Answer to:
For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover
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Summary information from the financial statements of two companies competing in the same industry follows. ...
Summary information from the financial statements of two companies
competing in the same industry follows.
Barco
Company
Kyan
Company
Barco
Company
Kyan
Company
Data from the current year-end balance
sheets
Data from the current year’s income
statement
Assets
Sales
$
770,000
$
880,200
Cash
$
19,500
$
34,000
Cost of goods sold
585,100
632,500
Accounts receivable, net
46,500
64,600
Interest expense
7,900
13,000
Merchandise inventory
84,440
132,500
Income tax expense
14,800
24,300
Prepaid expenses
5,000
6,950
Net income
162,200...
Summary information from the financial statements of two companies competing in the same industry follows. Barco...
Summary information from the financial statements of two companies competing in the same industry follows. Barco Kyan Company Company Data from the current year and balance sheets Assets Cash $ 21,000 $31.000 Accounts receivable, et 37.400 54,400 Current notes receivable (trade) 9,800 3.200 Merchandise inventory 84,840 134,500 Prepaid expenses 6,200 2,850 Plant annets, net 290,000 306,400 Total assets $449,240 $542,350 Barco Kyan Company Coepany Data from the current year's income statement Sales $800,000 $920,200 cost of goods sold 587,100 634.500...
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Summary information from the financial statements of two companies competing in the same industry follows Data che crester $80,000 $1,200 223.00Coutofel Recounts receivable at 290, 1 ,100 1. 0 306,00 ,150 Basie earnings per share Cash dividende per share Begini -year balance sheet dat 29.0 56.00 61.0 99,90 Current notes receivable (trade) Current liabilities Long-tembotes payable COLOR, 5 para Stained earnings Total liabilities and equity 99.500 39.000 200,00 15.00 40 2,500 236,000 Comon stock. 55 per value Required: ta. For...
Summary information from the financial statements of two companies
competing in the same industry follows.
Barco
Company
Kyan
Company
Barco
Company
Kyan
Company
Data from the current year-end balance
sheets
Data from the current year’s income
statement
Assets
Sales
$
770,000
$
880,200
Cash
$
19,500
$
34,000
Cost of goods sold
585,100
632,500
Accounts receivable, net
46,500
64,600
Interest expense
7,900
13,000
Merchandise inventory
84,440
132,500
Income tax expense
14,800
24,300
Prepaid expenses
5,000
6,950
Net income
162,200...
Summary information from the financial statements of two companies competing in the same industry follows. Barco Kyan Company Company Data from the current year and balance sheets Assets Cash $ 21,000 $31.000 Accounts receivable, et 37.400 54,400 Current notes receivable (trade) 9,800 3.200 Merchandise inventory 84,840 134,500 Prepaid expenses 6,200 2,850 Plant annets, net 290,000 306,400 Total assets $449,240 $542,350 Barco Kyan Company Coepany Data from the current year's income statement Sales $800,000 $920,200 cost of goods sold 587,100 634.500...
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Barco Company Data from the current year-end balance sheets Kyan Company kyan Company Cash Accounts receivable, net Current notes receivable (trade) Merchandise Inventory Prepaid expenses Plant assets, net Total assets $ 21,000 $31.000 37,400 54,40 9,800 54,840 134,500 6,200 1,050 290.000 100.400 9443,2405542,350 Barco Company Data from the current year's Income statement Sales 600,000 Cost of goods sold 507,100 Interest expense ,300 Income tax expense 15,373 Net Income 139,223 Basic earnings per share Cash dividends per share 3.50 $920,200 63450...
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