Question

2. Carver Inc Presented below is information related to CARVER INC. BALANCE SHEET DECEMBER 31,2004 S 45,000 Notes payable (short-term) 50,000Ae Receivables S110,000 Accounts payable unpeit Less: Allowance 1.000 000Aceruad sabin 32.000 | ^^ 5,000 260,000 141,000 170,000 Capital stock (par $5 Prepaid insurance Land Equipment (net) Retained earnings 8,000 20,000 150,000 $488,000 $488,000 INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2004 S1,400,000 Sales Cost of goods sold Inventory, Jan. 1, 2004 $200,000 Purchases Cost of goods available for sale Inventory, Dec. 31, 2004 Cost of goods sold 790,000 990,000 170,000 820,000 580,000 170,000 Gross profit on sales Operating expenses Net income 410.000 Instructions (a) Compute the following ratios (D Current ratio. (2) Inventory turnover (3) Receivables turnover (4) Profit margin on sales 2nn4 (5) Rate of return on assets on Decemher

Answer 1

Solution :

Current ratio = Current assets / Current liabilities = ($45,000 + $95,000 + $170,000 + $8,000) / ($50,000 + $32,000 + $5,000)

= 3.66

Inventory turnover = Cost of goods sold / Average inventory = $820,000 / [($200,000 + $170,000)/2]

= 4.43 times

Receivables turnover = Sales / Net receivables = $1,400,000 / $95,000 = 14.74 times

Profit margin on sales = Net Income / Sales = $410,000 / $1,400,000 = 29.29%

Rate of return on assets = Net Income / Total assets = $410,000 / $488,000 = 84.02%