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The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance sheet December 31 AssetsCastile Products, Inc. Income Statement For the Year Ended December 31 Sales $3,230,000 Cost of goods sold 1,332,000 Gross ma1. Working capital 2. Current ratio 3. Acid-test ratio 4. Debt-to-equity ratio 5. Times interest earned ratio 6. Average coll

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Answer #1

Answer 1.

Working Capital = Current Assets - Current Liabilities
Working Capital = $637,000 - $220,000
Working Capital = $417,000

Answer 2.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $637,000 / $220,000
Current Ratio = 2.90

Answer 3.

Acid-Test Ratio = (Current Assets - Merchandise Inventory - Prepaid Expenses) / Current Liabilities
Acid-Test Ratio = ($637,000 - $370,000 - $8,000) / $220,000
Acid-Test Ratio = 1.18

Answer 4.

Debt-to-Equity Ratio = Total Liabilities / Total Stockholders’ Equity
Debt-to-Equity Ratio = $600,000 / $887,000
Debt-to-Equity Ratio = 0.68

Answer 5.

Times Interest Earned Ratio = Net Operating Income / Interest Expense
Times Interest Earned Ratio = $1,298,000 / $38,000
Times Interest Earned Ratio = 34.16

Answer 6.

Average Accounts Receivable = ($140,000 + $240,000) / 2
Average Accounts Receivable = $190,000

Average Collection Period = 365 * Average Accounts Receivable / Sales
Average Collection Period = 365 * $190,000 / $3,230,000
Average Collection Period = 21.5 days

Answer 7.

Average Inventory = ($350,000 + $370,000) / 2
Average Inventory = $360,000

Average Sale Period = 365 * Average Inventory / Cost of Goods Sold
Average Sale Period = 365 * $360,000 / $1,332,000
Average Sale Period = 98.6 days

Answer 8.

Operating Cycle = Average Collection Period + Average Sale Period
Operating Cycle = 21.5 + 98.6
Operating Cycle = 120.1 days

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