Question

Zeppelin Corporation's comparative balance sheets are presented below.

	Zeppelin CORPORATION
	Balance Sheets
	December 31
		2018		2017
	Cash	$ 8,000		$ 9,000
	Accounts receivable	35,000		38,000
	Inventory	25,500		22,500
	Land	15,000		15,000
	Building	100,000		90,000
	Accumulated depreciation	(27,000)		(25,000)
	Total	$156,500		$149,500
	Accounts payable	$ 50,000		$ 46,000
	Common stock	63,000		60,000
	Retained earnings	43,500		43,500
	Total	$156,500		$149,500

Zeppelin's 2018 income statement included net credit sales of $200,000, cost of goods sold of $120,000, and net income of $30,000.

Instructions:
Compute the following ratios for 2018. (a) Current ratio. (b) Acid-test ratio. (c) Receivables turnover. (d) Profit margin. (e)Return on assets. (Round ratios to 2 decimal places and percentages to 1 decimal place.)

Question 3: 10 points Compute: Current Ratio Answer: Show calculations below: Acid-test ratio Receivables turnover = Profit margin = Return on assets =

Answer 1

Answer-a)- Current Ratio=Current Assets/ Current Liabilities

= $(8000+$35000+$25500)/$50000

= $68500/$50000

= 1.37 times

b)- Acid-test (Quick ratio):- Current assets-Inventory-Prepaid expenses/Current Liabilities

= ($68500-$25500-0)/$50000

= $43000/$50000

= 0.86 times

c)- Receivable turnover ratio= Net credit sales/Average accounts receivable

= $200000/($38000+$35000)/2

= $200000/$36500

= 5.48 times

d)- Profit margin = (Net income/Total sales)*100

= ($30000/$200000)*100

= 15%

e)- Return on assets =(Net income/Average total assets)*100

={$30000/($149500+$156500)/2}*100

=($30000/$153000)*100

=19.6%