Question

can you answer part (a)? Only 1- Average collection period. 2- Total assest turnover. 3- Total Debt Ratio.

CHAPTER 3: WORKING WITH FINANCIAL STATEMENTS Assignment 1: 1. Michigan Corp. has prepared the following financial statements: Michigan Corp. Balance Sheet Michigan Corp. lacome Statement Year Endrd Dec. 31 2017 ,074,000 2,557,000 Cash 2088.000 1.711000 Ascounts Receivable Sales Cost of Goods Seld 03,000 365,000 289.000 300,000 223,000 1.004,000 4,669,000 4,322000 986,000 856,000Invenories Gress Prefit Selling and G&A Expenses 294,000 Fixed Expenses Depreciation Exponse ERIT Interest Expense Earnings Before Taxes Taxes Net Income Total 295,000 Current Asset 35,000 35,000 Gross Fixed Assets 239.000 223,000 Accumelated Depeeciation 18,090 303,000 Net Faxed Assets 91,000 91,000 325,000 212,000 2,295,000 Total Assets 382,000 270,000 79,000 99,000 159 000 114,000 620,000 483,000 023,000 967.000 1,643,000 1450.000 19,000 808,000 1,135,000 1012.000 954 000 1820.000 31,00048,000 Short-term Notes Payable Aocrued Expenses Total Carrent Liabilnies Long-lerm Debt Total Liabdines Common Stock Retained Eamings Total Shareholder's Equity Tetal Liahilinies and Owners Equity 3,597,000 3,270,000 Calculate all of the ratios (given below) for Michigan Corp. for the year 2017 a) Using the following 2017 industry averages, evaluate Michigan Corp.'s financial situation. b) 2.50 0.60x 6.50x 8.00s Current Ratio Quick Ratio Inventory Turnover Ratio Accounts Receivable Tunover Ratio Average Collection Period (Day's sales in receivables) Total Asset Turnover Total Debt Ratio Times Interest Earned 2 50x Profis Margin Rcturn on Total Assets 5.00% 500% 4000 days 2.00x 5000% Return on Common Equity 10.00%

Answer 1

1. First we will find out the accounts receivable turnover ratio. And then we will use this accounts receivable turnover ratio for finding the average collection perid.

Accounts receivable turnover ratio = Net sales / Average accounts receivable

Net sales = $3074000

Average accounts receivable in 2017 = Beginning accounts receivable + Ending accounts receivable / 2

Beginning accounts receivable = Accounts receivable in 2016 = $365000

Ending accounts receivable = Accounts receivable in 2017 = $503000

So, Average accounts receivable = $365000 + $503000 / 2 = $868000 / 2 = $434000

Putting the value of sales & average accounts receivable in accounts receivable turnover ratio, we get,

Accounts receivable turnover ratio = Net sales / Average accounts receivable

Accounts receivable turnover ratio = $3074000 / $434000 = 7.08

Next, we will calculate the average collection period:

Average collection period = 365 / Accounts receivable turnover ratio

Average collection period = 365 / 7.08 = 51.55 days

2. Total assets turnover ratio = Sales / Average Total assets

Sales in 2017 = $3074000

Average total assets in 2017 = Beginning total assets + Ending total assets / 2

Beginning total assets = Total assets in 2016 = $3270000

Ending total assets = Total assets in 2017 = $3597000

Average total assets = $3270000 + $3597000 / 2 = $6867000 / 2 = $3433500

Putting the value of sales and average total assets in the total assets turnover ratio, we get

Total assets turnover ratio = Sales / Average Total assets

Total assets turnover ratio = $3074000 / $3433500 = 0.8953

3. Total debt ratio = Total liabilities / Total assets

Total liabilities in 2017 = $1643000

Total assets in 2017 = $3597000

Total debt ratio = $1643000 / $3597000 = 0.4567 = 45.68%