Question

The balance sheets for Plasma Screens Corporation and additional information are provided below PLASMA SCREENS CORPORATION Balance Sheets December 31, 2018 and 2017 2018 2017 Assets Current assets: Cash Accounts rece Inventory Investments $128,500 76,000 94,000 3,900 119,000 91,000 79,000 1,900 ivable Long-term assets: Land Equipment Less: Accumulated depreciation 470,000 780,000 (418,000) 470,000 660,000 (258,000) $ 1,134,400$ 1,162,900 Total assets Liabilities and Stockholders' Equity Current liabilities Accounts paya Interest payable Income tax payable $98,000 $84,000 11,900 4,900 ble 6,000 8,000 120,000 690,000 Long-term liabilities 240,000 Notes payable Stockholders' equity: Common stock Retained earnings 690,000 132,100 212,400 $ 1,134,400$ 1,162,900 Total liabilities and stockholders' equity Additional information for 2018 1. Net income is $80,300 2. Sales on account are $1,486,300 3. Cost of goods sold is $1,141,800 Required 1. Calculate the following risk ratios for 2018: (Round your answers to 1 decimal place.) Risk Ratios a. Receivables turnover ratio b. Inventory turnover ratio C. Current ratio d. Acid-test ratio times times to 1 to 1 Debt to equity ratio 2. When we compare two companies, can one have a higher current ratio while the other has a higher acid-test ratio? O Yes O No

Answer 1

a. GP Ratio=(Gross Profit/Sales)*100

Gross Profit=Sales-Cost of goods sold

=1521500-1163750

=357750

GP Ratio=(357750/1521500)*100=23.5%

B. Return on asset= (Net income/Average Asset)*100

Average asset=(Opening asset+Closing asset)/2

=(1176000+1135800)/2=1155900

Return on asset=(69000/1155900)*100=5.9%

c. Profit margin=(Net income/Sales)*100

=(69000/1521500)*100=4.5%

d. Asset Turnover ratio=Sales/Total Asset

=1521500/1135800=1.34 times

e. Return on equity=(Net income/Average stockholder equity)/2

Average stockholder equity=(874000+922800)/2=898400

Return on equity=(69000/898400)*100=7.7%

2. Yes, Acid test ratio higher or low besed on Inventory Value. If Inventory Value is Higher that Acid test ratio is low.

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