Question

The balance sheet for Stud Clothiers is shown next. Sales for the year were $3,200,000, with 75 percent of sales sold on credit.

STUD CLOTHIERS Balance Sheet 20X1
Assets			Liabilities and Equity
Cash	$	25,000	Accounts payable	$	247,000
Accounts receivable		351,000	Accrued taxes		97,000
Inventory		251,000	Bonds payable (long-term)		136,000
Plant and equipment		423,000	Common stock		100,000
			Paid-in capital		150,000
			Retained earnings		320,000
Total assets	$	1,050,000	Total liabilities and equity	$	1,050,000

Compute the following ratios: (Use a 360-day year. Do not round intermediate calculations. Round your answers to 2 decimal places. Input your debt-to-total assets answer as a percent rounded to 2 decimal places.)

a.	Current ratio		times
b.	Quick ratio		times
c.	Debt-to-total-assets ratio		%
d	Asset turnover		times
e.	Average collection period		days

Answer 1

Answer a
Current ratio = Current assets / Current Liabilities
Current assets = Cash + AR + Inventory = $25000 + $351000 + $251000 =							$627,000.00
Current liabilities = Accounts Payable + accrued taxes = $247000 + $97000 =							$344,000.00
Current ratio = $627000 / $344000 = 1.82
Answer b
Quick ratio = Liquid current assets / Current liabilities
Liquid Current assets = Cash + AR = $25000 + $351000 =							$376,000.00
Current liabilities = Accounts Payable + accrued taxes = $247000 + $97000 =							$344,000.00
Quick ratio = $376000 / $344000 = 1.09
Answer c
Debt to total asset ratio = Total Liabilities / Total assets
Total assets = $1050000
Total Liabilities = Accounts Payable + accrued taxes + Bonds payable = $247000 + $97000 + $136000 = $480000
Debt to total asset ratio = $480000/$1050000 = 45.71%
Answer d
Asset turnover ratio = Net Sales / Average Total assets
Net Sales = $32,00,000
Let us assume average total assets equivalent to total assets = $10,50,000
Asset turnover ratio = $32,00,000 / $10,50,000 = 3.05 times
Answer e
Average collection period = 360 days / Accounts receivable turnover ratio
Accounts receivable turnover ratio = Credit sales in year / Average Accounts receivables
Let us assume average accounts receivables equivalent to accounts receivables = $3,51,000
Credit sales in year = $3200000 * 75% = $24,00,000
Accounts receivable turnover ratio = $24,00,000 / $3,51,000 = 6.84
Average collection period = 360 days / 6.84 = 52.65 days