Question

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		220,000
Merchandise inventory		350,000
Prepaid expenses		9,000
Total current assets		601,000
Property and equipment, net		830,000
Total assets	$	1,431,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	240,000
Bonds payable, 9%		330,000
Total liabilities		570,000
Stockholders’ equity:
Common stock, $5 par value	$	100,000
Retained earnings		761,000
Total stockholders’ equity		861,000
Total liabilities and stockholders’ equity	$	1,431,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	3,895,000
Cost of goods sold		1,496,000
Gross margin		2,399,000
Selling and administrative expenses		600,000
Net operating income		1,799,000
Interest expense		29,700
Net income before taxes		1,769,300
Income taxes (30%)		530,790
Net income	$	1,238,510

Account balances at the beginning of the year were: accounts receivable, $190,000; and inventory, $330,000. 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.)

	1. Working capital 2. Current ratio 3. Acid-test ratio 4. Debt-to-equity ratio 5. Times interest earned ratio 6. Average collection period days 7. Average sale period days 8. Operating cycle days

Answer 1

1)	Working Capital = Current Assets - Current Liabilities
	= $601000-240000
	= $ 361000
2)	Current Ratio = Current Assets / Current Liabilities
	= $601000/240000
	=2.5 times
3)	Quick assets =Acount receivables +Cash
		=$22000+220000
		=$242000
	Quick Ratio = Quick Assets / Current Liabilities
	= $242000/240000
	=1.01 times
4)
	Debt To Equity Ratio = Total Debt / Total Equity
	= $570000/861000
	=0.66 times
5)	Times Interest Earned Ratio = EBIT/ Interest expenses
	= $1799000/29700
	=60.57 times
6)	Average Account Receivables = (beginning Account Receivables + ending Account Receivables)/2
	= ( $190000+220000)/2
	= $ 205000
	Assets Turnover Ratio = Sales / average Assets
	= $3895000/205000
	=19 times
	Average Collection Period = 365/ Account Receivables turnover ratio
	= 365 days /19
	=19.2 days
7)	Average Inventory = (beginning inventory + ending inventory)/2
	= ( $330000+350000)/2
	= $ 340000
	Inventory Turnover Ratio = Cost of goods sold / average inventory
	= $1496000/340000
	=4.4 times
	Average sale period = 365/ inventory turnover ratio
	= 365 days /4.4
	=83 days
8)	Operating cycle = 19.2+83
	=102.2	days