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In: Accounting

Given the information below, answer questions from #2 to #6. Accounts Receivable $20,000 ($30,000 in the...

  • Given the information below, answer questions from #2 to #6.
Accounts Receivable $20,000 ($30,000 in the previous year)
Total Current Assets $300,000
Investments $50,000
Total Assets $1,000,000
Total Current Liabilities $100,000
Total Long-Term Debt $400,000
Total Liabilities $500,000
Net Income $300,000
Total Revenue (Sales) $900,000
Industry average: Current ratio 1
Industry average: Solvency ratio 2.5
Industry average: Profit margin ratio 35%

(1) What is the Current Ratio of this company; and (2) who would prefer a lower current ratio?

A. (1) 2; (2) Managers

B. (1) 3; (2) Owners

C. (1) 2; (2) Owners

D. (1) 1; (2) Creditors

What is the Accounts Receivable Turnover (ART) ratio of this company?

A. 36 times

B. 81.82 times

C. 90 times

D. 45 times

What is the Average Collection Period of this company?

A. 10.14 days

B. 12.25 days

C. 9.6 days

D. 30.1 days

(1) What is the Solvency Ratio of this company; and (2) who would prefer a higher solvency ratio?

A. (1) 2; (2) Managers

B. (1) 1; (2) Creditors

C. (1) 2; (2) Creditors

D. (1) .5; (2) Manager

(1) What is the Profit Margin of this company; and (2) who would prefer a higher profit margin ratio? (Round to the nearest whole number)

A. (1) 35%; (2) Owner

B. (1) 33%; (2) All (Owners, Creditors, and Managers)

C. (1) 33%; (2) Manager

D. (1) 45%; (2) All (Owners, Creditors, and Managers)

Solutions

Expert Solution

Hi,

I have solved this question by using the various formulas as required by the question. There are various for solvency ratio, as per given data total debts to total assets ratio, is prefered over others.

Any doubts are welcome.

ekkarill92 answered 1 year ago
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