Accounts payable $ 30,150 $ 46,800 $(16,650) (35.6)
Long-term liabilities:
Stockholders’ equity:
Common stock 144,000 144,000 0 0
Problem 12-4A (LO12.3)
Risk Ratios Calculations
1. Receivables turnover ratio $3,086,000
2. Average collection period 365
3. Inventory turnover ratio $1,960,000
4. Average days in inventory 365
5. Current ratio $415,000
6. Acid-test ratio $196,000 + $91,000
7. Debt to equity ratio $399,000
8. Times interest earned ratio $139,000 + $20,000 + $58,000
Problem 12-5A (LO12.4)
Profitability Ratios Calculations
1. Gross profit ratio $1,126,000
2. Return on assets $139,000
3. Profit margin $139,000
4. Asset turnover $3,086,000
5. Return on equity $139,000
6. Price-earnings ratio $28.30
Problem 12-6A (LO12.3, 12.4)
Requirement 1
Risk Ratios Calculations
Receivables turnover ratio
2015 $3,086,000
2016 $3,560,000
Inventory turnover ratio
2015 $1,960,000
2016 $2,490,000 = 19.5 times
Current ratio
2015 $415,000
2016 $461,000
Debt to equity ratio
2015 $399,000
2016 $636,000
Requirement 2
Profitability Ratios Calculations
Gross profit ratio
2015 $1,126,000
2016 $1,070,000
Return on assets
2015 $139,000
2016 $33,000
Profit margin
2015 $139,000
2016 $33,000
Asset turnover
2015 $3,086,000
2016 $3,560,000
Requirement 3
The risk ra”os are mixed. The receivables and inventory turnover ra”os improved
Pro,tability decreased as indicated by the lower gross pro,t ra”o and return on
Problems: Set B
Problem 12-1B (LO12.1)
Requirement 1
Game-On Sports
Income Statements
For the Year Ended December 31, 2015
Athletic Equipment Accessories
Amount % Amount %
Net sales $3,050,000 100.0 $3,500,000 100.0
Cost of goods sold 1,350,000 44.3 1,670,000 47.7
Gross profit 1,700,000 55.7 1,830,000 52.3
Operating expenses 750,000 24.6 800,000 22.9
Operating income 950,000 31.1 1,030,000 29.4
Requirement 2
The athle”c equipment segment is more pro,table. Net income is 26.1% of sales
in that segment compared to only 23.0% of sales in the accessories segment. If
Problem 12-2B (LO12.2)
Requirement 1
Galaxy Tennis
Income Statements
For the Years Ended December 31
Increase (Decrease)
2015 2014 Amount %
Net sales $ 6,150,000 $ 6,250,000 $ (100,000) (1.6)
Cost of goods sold 2,850,000 2,920,000 (70,000) (2.4)
Gross profit 3,300,000 3,330,000 (30,000) (0.9)
Operating expenses 1,510,000 1,390,000 120,000 8.6
Operating income 1,790,000 1,940,000 (150,000) (7.7)
Requirement 2
Sales and gross pro,t decreased 1.6% and 0.9% respec”vely. However, even
Problem 12-3B (LO12.1, 12.2)
Requirement 1
Fantasy Football
Balance Sheet
December 31
Assets 2015 2014
Amount % Amount %
Current assets:
Cash $ 208,000 5.2 $ 262,200 6.9
Accounts receivable 856,000 21.4 999,400 26.3
Long-term assets:
Equipment 1,292,000 32.3 1,292,000 34.0
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 168,000 4.2 $ 129,200 3.4
Long-term liabilities:
Stockholders’ equity:
Common stock 786,600 19.7 786,600 20.7
Requirement 2
Fantasy Football
Balance Sheet
December 31
Year Increase (Decrease)
Assets 2015 2014 Amount %
Current assets:
Cash $ 208,000 $ 262,200 (54,200) (20.7)
Accounts receivable 856,000 999,400 (143,400) (14.3)
Long-term assets:
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 168,000 $ 129,200 38,800 30.0
Long-term liabilities:
Stockholders’ equity:
Common stock 786,600 786,600 0 0
Problem 12-4B
Risk Ratios Calculations
1. Receivables turnover ratio $8,900,000
2. Average collection period 365
3. Inventory turnover ratio $5,450,000
4. Average days in inventory 365
5. Current ratio $2,469,000
6. Acid-test ratio $164,000 + $790,000
7. Debt to equity ratio $755,000
8. Times interest earned ratio $1,230,000 + $50,000 + $360,000 = 32.8 times
Problem 12-5B (LO12.4)
Profitability Ratios Calculations
1. Gross profit ratio $3,450,000
2. Return on assets $1,230,000
3. Profit margin $1,230,000
4. Asset turnover $8,900,000
5. Return on equity $1,230,000
6. Price-earnings ratio $22.42
Problem 12-6B (LO12.3, 12.4)
Requirement 1
Risk Ratios Calculations
Receivables turnover ratio
2015 $8,900,000
2016 $10,400,000
Inventory turnover ratio
2015 $5,450,000
2016 $6,800,000
Current ratio
2015 $2,469,000
2016 $3,070,000
Debt to equity ratio
2015 $755,000
2016 $719,000
Requirement 2
Profitability Ratios Calculations
Gross profit ratio
2015 $3,450,000
2016 $3,600,000
Return on assets
2015 $1,230,000
2016 $1,360,000
Profit margin
2015 $1,230,000
2016 $1,360,000
Asset turnover
2015 $8,900,000
2016 $10,400,000
Requirement 3
Regarding risk, the receivables turnover slightly improved, but the inventory
Pro,tability ra”os are mixed. While net income increased $130,000 in 2016, the
ADDITIONAL Perspec”veS
Con”nuing Problem: Great Adventures
AP12-1
Requirement 1
Note: Assume all sales and services are on credit.
Risk Ratios Calculations
a. Receivables turnover ratio $661,000
b. Average collection period 365
c. Inventory turnover ratio $70,000
d. Average days in inventory 365 = 81.1 days
e. Current ratio $397,362
f. Acid-test ratio $322,362 + $45,000
g. Debt to equity ratio $562,112
h. Times interest earned ratio $150,000 + $29,724 + $57,000
Requirement 2
Profitability Ratios Calculations
a. Gross profit ratio $118,000 − $70,000
b. Return on assets $150,000
c. Profit margin $150,000
d. Asset turnover $661,000
e. Return on equity $150,000