Question

Question 3 (25 marks) Unit 10 - Financial Statement Analysis Following is a comparative balance sheet for Summer Days Corporation: Summer Days Corporation Comparative Balance Sheet December 31, 2019 and 2018 20192018 Current assets: Cash$ 140,000$ 90,000 Short-term investments 90,00080,000 Accounts receivable, net350,000220,000 Inventory500,000130,000 Prepaid expenses 30.00030.000 Total current assets$1,110,000$ 850,000 Property, plant, and equipment, net750,000500,000 Other assets 280.000300.000 Total assets $2.140.000$1.650.000 Current liabilities: Short-term notes payable$650,000$670,000 Accounts payable200.000225.000 Total current liabilities$850,000$895,000 Non-current debt380.000220.000 Total liabilities$1.230.00051.115,000 Shareholders' equity: Common shares$500,000$500,000 Retained earnings 10,00035,000 Total shareholders' equity$ 910.0005535,000 Total liabilities and shareholders' equitys2.140,0001,650,000 Notes: Net sales (all on credit) and cost of goods sold for the year ended December 31, 2019, were $2,000,000 and $1,200,000, respectively. The number of common shares outstanding has been 50,000 since the company began operations.

Answer 1

Answer:

S.no.	Ratio	Formula	2019
a	Current ratio	current assets/current liabilities	1,110,000/850,000 =1.31:1
b	Acid test ratio	Quick assets/current liabilities	580,000/850,000 = 0.68:1
c	Inventory turnover ratio	cost of goods sold/average inventories	1,200,000/285,000 = 4.21times
d	Account receivable turnover ratio	Net credit sales/average account receivable	2,000,000/465,000 = 4.30 times
e	Debt ratio	Total liabilities/Total assets	1,230,000/2,140,000 =0.57
f	Book value per common shares of stock	Stockholders' equity/number of shares outstanding	910,000/50,000 =$18.20

Working note:

Quick assets= current assets-(Inventory+ Prepaid expense)	$1,110,000-$(500,000+30,000) = $580,000
Average Inventory	$(350,000+220,000)/2 =$285,000
Average account receivable	$(500,000+430,000)/2 = $465,000

Thank you :)