Question

The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $60 on December 31, 20Y8.

AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7
	20Y8		20Y7
Sales	$3,057,970		$2,817,460
Cost of goods sold	(1,131,500)		(1,040,980)
Gross profit	$1,926,470		$1,776,480
Selling expenses	$(688,120)		$(821,780)
Administrative expenses	(586,180)		(482,630)
Total operating expenses	(1,274,300)		(1,304,410)
Operating income	$652,170		$472,070
Other revenue and expense:
Other revenue	34,330		30,130
Other expense (interest)	(216,000)		(119,200)
Income before income tax	$470,500		$383,000
Income tax expense	(56,500)		(45,600)
Net income	$414,000		$337,400

AUTOMOTIVE SOLUTIONS INC. Comparative Statement of Stockholders' Equity For the Years Ended December 31, 20Y8 and 20Y7
	20Y8									20Y7
	Preferred Stock			Common Stock			Retained Earnings			Preferred Stock			Common Stock			Retained Earnings
Balances, Jan. 1		$400,000			$460,000			$1,950,300			$400,000			$460,000			$1,647,500
Net income								414,000									337,400
Dividends:
Preferred stock								(7,000)									(7,000)
Common stock								(27,600)									(27,600)
Balances, Dec. 31		$400,000			$460,000			$2,329,700			$400,000			$460,000			$1,950,300

AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7
	Dec. 31, 20Y8		Dec. 31, 20Y7
Assets
Current assets:
Cash	$549,190		$336,120
Temporary investments	831,210		557,010
Accounts receivable (net)	532,900		503,700
Inventories	408,800		321,200
Prepaid expenses	103,910		67,220
Total current assets	$2,426,010		$1,785,250
Long-term investments	1,032,360		-346,988
Property, plant, and equipment (net)	3,240,000		2,916,000
Total assets	$6,698,370		$4,354,262
Liabilities
Current liabilities	$808,670		$53,962
Long-term liabilities:
Mortgage note payable, 8%, due in 15 years	$1,210,000		$0
Bonds payable, 8%, due in 20 years	1,490,000		1,490,000
Total long-term liabilities	$2,700,000		$1,490,000
Total liabilities	$3,508,670		$1,543,962
Stockholders' Equity
Preferred $0.70 stock, $40 par	$400,000		$400,000
Common stock, $10 par	460,000		460,000
Retained earnings	2,329,700		1,950,300
Total stockholders' equity	$3,189,700		$2,810,300
Total liabilities and stockholders' equity	$6,698,370		$4,354,262

Instructions:

Determine the following measures for 20Y8.

Round ratio values to one decimal place and dollar amounts to the nearest cent. For number of days' sales in receivables and number of days' sales in inventory, round intermediate calculations to the nearest whole dollar and final amounts to one decimal place. Assume there are 365 days in the year.

6. Inventory turnover
7. Days' sales in inventory		? days
8. Debt ratio		? %
9. Ratio of liabilities to stockholders' equity		?
10. Ratio of fixed assets to long-term liabilities		?
11. Times interest earned		? times
12. Times preferred dividends earned		? times
13. Asset turnover		?
14. Return on total assets		? %
15. Return on stockholders' equity		? %
16. Return on common stockholders' equity		? %
17. Earnings per share on common stock	$	?
18. Price-earnings ratio		?
19. Dividends per share of common stock	$	?
20. Dividend yield		? %

Answer 1

Answer of Part 6:

Average Inventory = (Beginning Inventory + Ending Inventory)/2
Average Inventory = ($321,200 + $408,800)/2
Average Inventory = $365,000

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $1,131,500 / $365,000
Inventory Turnover = 3.1 times

Answer of Part 7:

Days Sales in Inventory = 365 days / Inventory Turnover
Days Sales in Inventory = 365 / 3.1
Days Sales in Inventory = 117.7 days

Answer of Part 8:

Debt Ratio = Total Liabilities / Total Assets
Debt Ratio= $3,508,670 / $6,698,370
Debt Ratio = 0.524 or 52.4%

Answer of Part 9:

Ratio of liabilities to Stockholders Equity = Total Liabilities / Stockholders Equity
Ratio of liabilities to Stockholders Equity = $3,508,670 / $3,189,700
Ratio of liabilities to Stockholders Equity = 1.1

Answer of Part 10:

Ratio of Fixed Assets to Long term Liabilities = Fixed Assets / Long term Liabilities
Ratio of Fixed Assets to Long term Liabilities = $3,240,000 / $2,700,000
Ratio of Fixed Assets to Long term Liabilities = 1.2

Answer of Part 11:

Times Interest Earned = Operating Income / Interest Expense
Times Interest Earned = $652,170 / $216,000
Times Interest Earned = 3.0 times