Question

Hyrkas Corporation's most recent balance sheet and income statement appear below:

Balance Sheet
December 31, Year 2 and Year 1
(in thousands of dollars)
	Year 2			Year 1
Assets
Current assets:
Cash	$	235		$	360
Accounts receivable, net		390			410
Inventory		360			330
Prepaid expenses		20			20
Total current assets		1,005			1,120
Plant and equipment, net		1,270			1,420
Total assets	$	2,275		$	2,540
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	330		$	360
Accrued liabilities		50			50
Notes payable, short term		40			40
Total current liabilities		420			450
Bonds payable		320			570
Total liabilities		740			1,020
Stockholders’ equity:
Common stock, $2 par value		200			200
Additional paid-in capital		330			330
Retained earnings		1,005			990
Total stockholders’ equity		1,535			1,520
Total liabilities & stockholders’ equity	$	2,275		$	2,540

Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
Sales (all on account)	$	1,590
Cost of goods sold		1,020
Gross margin		570
Selling and administrative expense		505
Net operating income		65
Interest expense		20
Net income before taxes		45
Income taxes (30%)		14
Net income	$	31

Dividends on common stock during Year 2 totaled $16 thousand. The market price of common stock at the end of Year 2 was $12.00 per share.

Required:

Compute the following for Year 2:

i. Working capital. (Input your answer in thousands of dollars.)

j. Current ratio. (Round your answer to 2 decimal places.)

k. Acid-test (quick) ratio. (Round your answer to 2 decimal places.)

l. Accounts receivable turnover. (Round your answer to 2 decimal places.)

m. Average collection period. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 1 decimal place.)

n. Inventory turnover. (Round your answer to 2 decimal places.)

o. Average sale period. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 1 decimal place.)

p. Times interest earned ratio. (Round your answer to 2 decimal places.)

q. Debt-to-equity ratio. (Round your answer to 2 decimal places.)

Answer 1

Hyrkas Corporation ($ in thousands)

	Formula	Calculation ($)	Year 2
Working capital	current assets - current liabilities	1,005-420	$ 585
Current ratio	current assets / current liabilities	1,005/420	2.39:1
Acid test ratio	(cash + accounts receivable)/ current liabilities	(239+390)/420	1.50:1
Accounts receivable turnover	sales / average receivables	1,590/(390+410)/2 = 1,590/400	3.98 times
Average collection period	365/ accounts receivable turnover	365/3.98	91.7 days
Inventory turnover ratio	cost of goods sold / average inventory	1020/(360+330)/2 = 1020/345	2.96 times
Average sale period	365/ inventory turnover ratio	365/2.96	123.3 days
Times interest earned ratio	EBIT / interest	65/20	3.25 times
Debt to equity ratio	total liabilities / total equity	740/1535	48.21%