241
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
$
Cost of goods sold
Gross margin
Selling and administrative expenses
Interest
Net income
$
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:
Cash
$
5
$
20
Accounts receivable, net
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.
245
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, net
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
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
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 ratio 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?
261) Walker Corporation has provided the following financial data:
Year 2
Year 1
Current assets:
Cash
$
195,000
$
150,000
Accounts receivable, net
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 ratio 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, net
$
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, net
$
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:
252
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, net
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
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
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 for Year 2?
c. What is the company’s inventory turnover for Year 2?
d. What is the company’s average sale period 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?
265) Data from Dalpiaz Corporation’s most recent balance sheet and income statement appear
below:
This Year
Last Year
Accounts receivable, net
$
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:
266) Kestner Corporation has provided the following financial data:
Year 2
Year 1
Accounts receivable, net
$
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 for Year 2?
c. What is the company’s inventory turnover for Year 2?
d. What is the company’s average sale period 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 ratio.
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 ratio 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?
269) Babbitt Corporation has provided the following data from its most recent income statement:
Net operating income
$
94,000
Interest expense
$
62,000
Net income before taxes
$
32,000
Income taxes
$
10,000
Net income
$
22,000
Required:
Compute the times interest earned ratio. Show your work!