Question

Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash Accounts receivable, net Merchandise inventory Prepaid expenses Total current assets Property and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 10% Total liabilities Stockholders' equity: Common stock, $5 per value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 6,500 35,000 70,000 3,500 115,000 185,000 $300,000 $ 50,000 80,000 130,000 30,000 140,000 170,000 $300,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (308) Net income $ 420,000 292,500 127,500 89,500 38,000 8,000 30,000 9,000 $ 21,000

Answer 1

(1)

working capital = current assets - current liabilities

= 115000 - $50000

= $65000

(2)
current ratio = current assets/current liabilities
= $115000/$50000

= 2.3 times

(3)
acid-test ratio = (cash + accounts receivable)/current liabilities
= ($6500 + $35000)/$50000
= $41500/$50000
= 0.83 times

(4)

debt to equity ratio = total liabilities/total stockholders equity

= $130000/$170000

= 0.76 times

(5)

times interest earned ratio = net operating income/interest expenses

= $38000/$8000

= 4.75 times

(6)
Average collection period = 365 x (average accounts receivable/net credit sales)
= 365 x ($30000/$420000)
= 26.1 days

Where,

average accounts receivable = (beginning accounts receivable + ending accounts receivable)/2
= ($25000 + $35000)/2 = $30000

(7)

Average sales period = 365 x (average inventory/cost of goods sold)
= 365 x ($65000/292500)
= 81.1 days

Where,
Average inventory = (beginning inventory + entding inventory)/2
= ($60000 + $70000)/2 = $65000

(8)
Operating cycle = average sales period + average collection period
= 81.1 days + 26.1 days
= 107.2 days