Question

Whispering Winds Corporation has been operating for several years. On December 31, 2020, it presented the following SFP.

Whispering Winds CORPORATION Statement of Financial Position December 31, 2020
Cash		$38,400		Accounts payable		$71,200
Accounts receivable (net)		76,900		Mortgage payable		146,000
Inventory		94,500		Common shares		166,200
Equipment (net)		217,000		Retained earnings		43,400
		$426,800				$426,800

Cost of goods sold in 2020 was $416,800, operating expenses were $51,700, and net income was $25,100. Accounts payable suppliers provided operating goods and services. Assume that total assets are the same in 2019 and 2020.

Calculate each of the following ratios:

(a)		Current ratio			times
(b)		Acid-test ratio			times
(c)		Debt-to-total-assets ratio			%
(d)		Rate of return on assets			%
(e)		Days payables outstanding			days

Answer 1

Solution a) Current Ratio (Cash + Accounts Rec + Inventory)/(Accounts Payable) ($38,400 + $ 76,900 + $ 94,500) / $71,200 $ 2,09,800 / $ 71,200 2.95 times Solution b) Acid Test Ratio = (Cash + Accounts Rec )/(Accounts Payable) ( $38,400 + $ 76,900) / $71,200 $ 1,15,300 / $ 71,200 1.62 times II Solution c) Debt to Total Assets ratio = Mortgage Payable / Total Asset $ 1,46,000 / $ 426,800 34% = II Solution d) Rate of return on Assets ratio = Net Income / Total Assets $ 25,100 / $ 426,800 6% II Solution e) Days payables outstanding days = Avg Accounts payable / Cost of Goods sold x 365 $ 71,200 / $ 416,800 x 365 62.35 days =

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