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259. M. K. Berry is the managing director of CE Ltd. a small, family-owned company which
manufactures cutlery. His company belongs to a trade association which publishes a monthly
magazine. The latest issue of the magazine contains a very brief article based on the analysis of
the accounting statements published by the 40 companies which manufacture this type of
product. The article contains the following table:
Average for all
companies in the industry
Return on equity 33%
Return on total assets 29%
Gross margin percentage 30%
Current ratio 1.9:1
Average sale period 37 days
Average collection period 41 days
CE Ltd's latest financial statements are as follows:
CE Ltd.
Income Statement
for the year ended 31 October
(in thousands)
Sales £900
Cost of goods sold 720
Gross margin 180
Selling and administrative expenses 55
Interest 15
Net income £110
The country in which the company operates has no corporate income tax. No dividends were
paid during the year. All sales are on account.
CE Ltd.
Balance Sheets
as of 31 October
(in thousands)
This Year Last Year
Current assets:
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Cash £5 £20
Accounts receivable 120 110
Inventories 96 80
Noncurrent assets 500 460
Total assets £721 £670
Current liabilities:
Accounts payable £147 £206
Noncurrent liabilities:
Bonds payable 150 150
Common stock 100 100
Retained earnings 324 214
Total liabilities and stockholders’ equity £721 £670
Required:
a. Calculate each of the ratios listed in the magazine article for this year for CE, and comment
briefly on CE Ltd's performance in comparison to the industrial averages.
b. Explain why it could be misleading to compare CE Ltd's ratios with those taken from the
article.
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260. Neiger Corporation has provided the following financial data:
Balance Sheet
Assets Year 2 Year 1
Current assets:
Cash $216,000 $160,000
Accounts receivable 131,000 120,000
Inventory 104,000 120,000
Prepaid expenses 12,000 10,000
Total current assets 463,000 410,000
Plant and equipment, net 858,000 870,000
Total assets $1,321,000 $1,280,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $109,000 $100,000
Accrued liabilities 59,000 60,000
Notes payable, short term 58,000 60,000
Total current liabilities 226,000 220,000
Bonds payable 120,000 120,000
Total liabilities 346,000 340,000
Stockholders' equity:
Common stock, $2 par value 100,000 100,000
Additional paid-in capital-common stock 60,000 60,000
Retained earnings 815,000 780,000
Total stockholders' equity 975,000 940,000
Total liabilities & stockholders' equity $1,321,000 $1,280,000
Income Statement
Sales (all on account) $1,320,000
Cost of goods sold 750,000
Gross margin 570,000
Operating expenses 507,571
Net operating income 62,429
Interest expense 11,000
Net income before taxes 51,429
Income taxes (30%) 15,429
Net income $36,000
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Required:
a. What is the company's working capital at the end of Year 2?
b. What is the company's current ratio at the end of Year 2?
c. What is the company's acid-test (quick) ratio at the end of Year 2?
d. What is the company's times interest earned for Year 2?
e. What is the company's debt-to-equity ratio at the end of Year 2?
f. What is the company's equity multiplier at the end of Year 2?
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261. Walker Corporation has provided the following financial data:
Year 2 Year 1
Current assets:
Cash $195,000 $150,000
Accounts receivable 186,000 180,000
Inventory 165,000 170,000
Prepaid expenses 29,000 30,000
Total current assets $575,000 $530,000
Total current liabilities $254,000 $270,000
Total liabilities $434,000 $450,000
Total stockholders' equity $988,000 $960,000
The company's net operating income for Year 2 was $63,615 and its interest expense was
$15,000.
Required:
a. What is the company's working capital at the end of Year 2?
b. What is the company's current ratio at the end of Year 2?
c. What is the company's acid-test (quick) ratio at the end of Year 2?
d. What is the company's times interest earned for Year 2?
e. What is the company's debt-to-equity ratio at the end of Year 2?
f. What is the company's equity multiplier at the end of Year 2?
262. Data from Ben Corporation's most recent balance sheet and income statement appear
below:
This Year Last Year
Accounts receivable $104,000 $124,000
Inventory $159,000 $188,000
Sales on account $825,000
Cost of goods sold $660,000
Required:
Compute the average sale period for this year:
263. Dilisio Corporation has provided the following data:
This Year Last Year
Accounts receivable $126,000 $116,000
Inventory $226,000 $194,000
Sales on account $659,000
Cost of goods sold $417,000
Required:
Compute the inventory turnover for this year:
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264. Hagle Corporation has provided the following financial data:
Balance Sheet
December 31, Year 2 and Year 1
Assets Year 2 Year 1
Current assets:
Cash $279,000 $170,000
Accounts receivable 136,000 150,000
Inventory 141,000 150,000
Prepaid expenses 69,000 60,000
Total current assets 625,000 530,000
Plant and equipment, net 789,000 870,000
Total assets $1,414,000 $1,400,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $186,000 $190,000
Accrued liabilities 29,000 30,000
Notes payable, short term 74,000 70,000
Total current liabilities 289,000 290,000
Bonds payable 130,000 130,000
Total liabilities 419,000 420,000
Stockholders' equity:
Common stock, $4 par value 200,000 200,000
Additional paid-in capital-common stock 90,000 90,000
Retained earnings 705,000 690,000
Total stockholders' equity 995,000 980,000
Total liabilities & stockholders' equity $1,414,000 $1,400,000
Income Statement
For the Year Ended December 31, Year 2
Sales (all on account) $1,280,000
Cost of goods sold 750,000
Gross margin 530,000
Operating expenses 489,429
Net operating income 40,571
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Interest expense 12,000
Net income before taxes 28,571
Income taxes (30%) 8,571
Net income $20,000
Required:
a. What is the company's accounts receivable turnover for Year 2?`
b. What is the company's average collection period (age of receivables) for Year 2?
c. What is the company's inventory turnover for Year 2?
d. What is the company's average sale period (turnover in days) for Year 2?
e. What is the company's operating cycle for Year 2?
f. What is the company's total asset turnover for Year 2?
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265. Data from Dalpiaz Corporation's most recent balance sheet and income statement appear
below:
This Year Last Year
Accounts receivable $104,000 $114,000
Inventory $157,000 $165,000
Sales on account $647,000
Cost of goods sold $438,000
Required:
Compute the average collection period for this year:
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266. Kestner Corporation has provided the following financial data:
Year 2 Year 1
Accounts receivable $195,000 $200,000
Inventory $97,000 $100,000
Total assets $1,432,000 $1,410,000
Sales (all on account) $1,360,000
Cost of goods sold $870,000
Required:
a. What is the company's accounts receivable turnover for Year 2?
b. What is the company's average collection period (age of receivables) for Year 2?
c. What is the company's inventory turnover for Year 2?
d. What is the company's average sale period (turnover in days) for Year 2?
e. What is the company's operating cycle for Year 2?
f. What is the company's total asset turnover for Year 2?
267. Wyand Corporation's net operating income last year was $212,000; its interest expense
was $26,000; its total stockholders' equity was $1,000,000; and its total liabilities were $370,000.
Required:
Compute the following for Year 2:
a. Times interest earned.
b. Debt-to-equity ratio.
268. Fraction Corporation has provided the following financial data:
Year 2 Year 1
Total assets $1,447,000 $1,430,000
Total liabilities $310,000 $310,000
Total stockholders' equity $1,137,000 $1,120,000
Net operating income $38,571
Interest expense $10,000
Required:
a. What is the company's times interest earned for Year 2?
b. What is the company's debt-to-equity ratio at the end of Year 2?
c. What is the company's equity multiplier at the end of Year 2?
