Question

Presented below is information related to Pronghorn Inc.

PRONGHORN INC. BALANCE SHEET DECEMBER 31, 2020
Cash				$44,900		Notes payable (short-term)		$50,000
Receivables		$109,800				Accounts payable		32,000
Less: Allowance		15,100		94,700		Accrued liabilities		5,100
Inventory				171,200		Common stock (par $5)		261,800
Prepaid insurance				8,100		Retained earnings		141,000
Land				20,200
Equipment (net)				150,800
				$489,900				$489,900

PRONGHORN INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020
Sales revenue					$1,401,600
Cost of goods sold
Inventory, Jan. 1, 2020		$199,600
Purchases		796,000
Cost of goods available for sale		995,600
Inventory, Dec. 31, 2020		(171,200	)
Cost of goods sold					824,400
Gross profit on sales					577,200
Operating expenses					170,500
Net income					$406,700

Compute the following ratios or relationships of Pronghorn Inc. Assume that the ending account balances are representative unless the information provided indicates differently. (Round answers to 2 decimal places, e.g. 1.59 or 45.87%.)

(1)		Current ratio			times
(2)		Inventory turnover			times
(3)		Accounts receivable turnover			times
(4)		Earnings per share		$
(5)		Profit margin on sales			%
(6)		Return on assets on December 31, 2020			%

  

  

Indicate for each of the following transactions whether the transaction would improve, weaken, or have no effect on the current ratio of Pronghorn Inc. at December 31, 2020.

(1)		Write off an uncollectible account receivable, $2,200.		No effectImproveWeaken
(2)		Purchase additional capital stock for cash.		No effectImproveWeaken
(3)		Pay $40,000 on notes payable (short-term).		No effectImproveWeaken
(4)		Collect $23,000 on accounts receivable.		No effectImproveWeaken
(5)		Buy equipment on account.		No effectImproveWeaken
(6)		Give an existing creditor a short-term note in settlement of account.		No effectImproveWeaken

Answer 1

(1) Current Ratio current Assests Current liabilities 4 eppot 44700 + 171200 + 810o 50000 + 32000 + 5100 3. 66 times 318900 87100 (2) Inventory than aver fatio Cost of goods sold Average Inventory 824400 199 600 +171200 > 4.45 times 2

Accounts Receivables tumour Net credit sales Average Account Recivables १५०० 1.72 times N 10 1800 to Il (1) Earning per share Net Income outstanding shares 406700 7.77 a 26 1800 5 Net sales COGS sale X100 (5) Profit margin on neet sales 140lboo $24400 X 100 1 401 600 11 41,1871 Dec, 31 X 100 (6) Return on Assests on ( Meet Income Total Assests 1401600 X 100 4899.00 286,091,

( 3) (1) write off 2200 on Account Receivables 318900 - 2200 3.63 current Ratio 87100 Current Ratio will weaken (2) Purchase of additional capital stock will і increase cash eie current Assesits and current liabilities will remain Remain same se Current Ratio will Improve. 1 (3) Pay 4oooo on plotes Payable Current Ratio 318900 - 40000 5.92 87900 YODD current fatio will Improve collect 23000 Accounts Receivable (4 ) current fatio 31890.0 - 23000 23001 87100 3,86 => current fatio will remain same (5) This Entry will raise current liabities therefore current Ratio will Weaken

because (6) This futty will no effect in current ratio one current liability is increased and the other will reduce by the Arout, sare 1