Question

Financial statements for Franklin Company follow. FRANKLIN COMPANY Balance Sheets As of December 31 2019 2018 $ 19,500 28,780 48,00 133,000 27,000 248,200 22,eee 290, eee 33,000 $593,200 $ 15,5ee 6,700 40,000 141,600 12,000 215,280 15,00 275,000 28,eee $533,280 Assets Current assets Cash Marketable securities Accounts receivable (net) Inventories Prepaid itens Total current assets Investments Plant (net) Land Total assets Liabilities and Stockholders' Equity Liabilities Current liabilities Notes payable Accounts payable Salaries payable Total current liabilities Noncurrent liabilities Bonds payable Other Total noncurrent liabilities Total liabilities Stockholders' equity Preferred stock, (par value $12, 5% cumulative, non-participating; 7,882 shares authorized and issued) Connon stock (no par: 50,eee shares authorized; 18,eee shares issued) Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 31,280 133,800 22,eee 187, eee 18,280 120,000 16,000 154,200 118,eee 31, eee 141,00 328, eee 118, eee 26, eee 136, eee 290, 280 70,000 70,000 125,200 265,280 $593,280 70,eee 70,000 183, eee 243,00 $533, 288

Answer 1

Requirement a: Working Capital:

Formula,

Working Capital = Total current Assets – Total current Liabilities

Working Capital of 2019 = $248,200 – $187,000 = $61,200

Working Capital of 2018 = $215,200 – $154,200 = $61,000

Requirement b: Current Ratio:

Formula,

Current Ratio = Total current Assets / Total current Liabilities

2019 = $248,200 / $187,000 = 1.33

2018 = $215,200 / $154,200 = 1.39

Requirement c: Quick Ratio:

Formula,

Quick Ratio = Quick Assets /Quick Liabilities

2019 = $88,200 / $187,000 = 0.47

2018 = $62,200 / $154,200 = 0.40

Working Note:

1. Quick Assets = Cash + Marketable Securities + Accounts Receivable

2019 = $19,500 + $20,700 + $48,000 = $88,200

2018 = $15,500 + $6,700 + $40,000 = $62,200

2. Quick Liabilities = Current Liabilities – Bank Overdraft

As there is no Bank overdraft for this total current liability is equal to quick liability.

2019 = $187,000

2018 = $154,200

Requirement d: Receivable Turnover Ratio:

Formula,

Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

2019 = $300,000 / $44,000 = 6.82 times

2018 = $280,000 / $40,500 = 6.91 times

Working Note:

1. It is assumed that all the sales given is on credit.

2. Average Accounts Receivable = (Beginning accounts receivables + Ending accounts receivables) / 2

2019 = (Ending accounts receivable of 2018 + Ending accounts receivable of 2019) / 2

= ($40,000 + $48,000) / 2 = $44,000

2018 = (Begining accounts receivable of 2018 + Ending accounts receivable of 2018) / 2

= ($41,000 + $40,000) / 2 = $40,500

Requirement e: Average Days to Collect Accounts Receivable:

Formula,

Average Days to Collect Accounts Receivable= Number of Days in a year / Accounts Receivable Turnover Ratio

2019 = 365 days / 6.82 times = 53.52 = 54 days

2018 = 365 days / 6.91 times = 52.82 = 53 days

Requirement f: Inventory Turnover Ratio:

Formula,

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

2019 = $150,000 / $137,000 = 1.09 times

2018 = $124,000 / $144,000 = 0.86 times

Working Note:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2

2019 = ($141,000 + $133,000) / 2 = $137,000

2018 = ($147,000 + $141,000) / 2 = $144,000

Requirement g: Number of Days to Sell Inventory:

Formula,

Number of Days to Sell Inventory = Number of Days in a year / Inventory Turnover Ratio

2019 = 365 days / 1.09 times = 334.86 = 335 days

2018 = 365 days / 0.86 times = 424.42 = 424 days

Requirement h: Debt to Asset Ratio:

Formula,

Debt to Asset ratio = (Total liabilities / Total assets) × 100

2019 = ($328,000 / $593,200) × 100 = 55%

2018 = ($290,200 / $533,200) × 100 = 54%

Requirement i: Debt to Equity Ratio:

Formula,

Debt to Equity Ratio = Total Liabilities / Total Stockholders’ Equity

2019 = $328,000 / $265,200 = 1.24

2018 = $290,200 / $243,000 = 1.19

Requirement j: Number of Times Interest Earned:

Formula,

Number of times interest earned = Earnings before interest and taxes / Interest expenses

2019 = $97,400 / $10,100 = 9.64 times

2018 = $105,400 / $9,300 = 11.33 times

Working Note:

Earnings before interest and taxes = Net income + Interest expenses + Income tax expenses

2019 = $29,300 + $10,100 + $58,000 = $97,400

2018 = $39,100 + $9,300 + $57,000 = $105,400

		2019	2018
a.	Working capital	$ 61,200		$ 61,000
b.	Current ratio	1.33		1.39
c.	Quick ratio	0.47		0.40
d.	Receivable turnover	6.82	times	6.91	times
e.	Average days to collect accounts receivable	54	days	53	days
f.	Inventory turnover	1.09	times	0.86	times
g.	Average days to sell inventory	335	days	424	days
h.	Debt to assets ratio	55	%	54	%
i.	Debt to equity ratio	1.24		1.19
j.	Number of times interest earned	9.64	times	11.33	times

Note: As it is a long question with so many ratios, I have answered the first 10 ratios i.e., a to j. Please upload the question again for the remaining parts.