Question

NUMBER THREE:

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash	$	22,000
Accounts receivable, net		180,000
Merchandise inventory		380,000
Prepaid expenses		7,000
Total current assets		589,000
Property and equipment, net		820,000
Total assets	$	1,409,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	220,000
Bonds payable, 10%		380,000
Total liabilities		600,000
Stockholders’ equity:
Common stock, $5 par value	$	150,000
Retained earnings		659,000
Total stockholders’ equity		809,000
Total liabilities and stockholders’ equity	$	1,409,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	3,700,000
Cost of goods sold		1,276,500
Gross margin		2,423,500
Selling and administrative expenses		610,000
Net operating income		1,813,500
Interest expense		38,000
Net income before taxes		1,775,500
Income taxes (30%)		532,650
Net income	$	1,242,850

Account balances at the beginning of the year were: accounts receivable, $190,000; and inventory, $310,000. All sales were on account.

Required:

Compute the following financial data and ratios:

1. Working capital.

2. Current ratio. (Round your answer to 1 decimal place.)

3. Acid-test ratio. (Round your answer to 2 decimal places.)

4. Debt-to-equity ratio. (Round your answer to 2 decimal places.)

5. Times interest earned ratio. (Round your answer to 2 decimal places.)

6. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)

7. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)

8. Operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)

Answer 1

	1	Working Capital =(Current Asset )-(Current Liabilities)
	A	Total Current assets	589,000
	B	Total Current liabilities	220,000
	C=A-B	Working Capital	369,000
	2	Current Ratio=(Current Assets)/(Current Liabilities)
	D=A/B	Current Ratio	2.677272727
	3	Acid Test Ratio=(Quick assets)/(Current Liabilities)
	E	Quick assets =cash +Accounts Receivable=	202000	(22000+180000)
	F=E/B	Acid Test Ratio=	0.92
	4	Debt to Equity Ratio=Total Liabilities/Total stockholders equity
	G	Total Liabilities	600,000
	H	TotalStockholders equity	809,000
	I=G/H	Debt to equity	0.741656366
	5	Times Interest earned
		Earning before interest and taxes/Interest expenses
	J	Earning before interest =Net Operating Income	1,813,500
	K	Interest expenses	38,000
	L=J/K	Times Interest earned	47.72368421