Question

The balance sheet for Stud Clothiers is shown next. Sales for the year were $3,420,000, with 75 percent of sales sold on credit.

STUD CLOTHIERS Balance Sheet 20X1
Assets			Liabilities and Equity
Cash	$	27,000	Accounts payable	$	293,000
Accounts receivable		291,000	Accrued taxes		125,000
Inventory		308,000	Bonds payable (long-term)		201,000
Plant and equipment		393,000	Common stock		100,000
			Paid-in capital		150,000
			Retained earnings		150,000
Total assets	$	1,019,000	Total liabilities and equity	$	1,019,000

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

B- Quick Ratio

C- Debt to total assets ratio-

D- Assest turnover-

E- Average collection period-

Answer 1

A) Currrent ratio = Current asset / Current liaiblity

                           = 27000 + 291000 + 308000 / 293000 + 125000

                           = 626000 / 418000

                          = 1.50 Times (1.497)

B) Quick ratio = Cash + Accounts rec. / Current liability

                       = 27000 + 291000 / 418000

                       = 0.76 Times

C) Debt to Total assets ratio = (Current liability + long term liability / Total Assets) * 100

                                              =( 418000 + 201000 / 1019000) * 100

                                             = 60.75 %

D) Asset Turnover ratio = Net total Sales / Average total Assets

                                      = 3420000 / 1019000

                                     = 3.36 Times

In the absence of information Total assets are considered as average assets

E) Average collection period = No of Days in year / Accounts Rec. Turnover^

                                              = 360 / 8.81

                                             = 40.84 Days

^Accounts Rec Turnover Ratio = Net Credit sales / Avg Accounts Rec.

                                                 = 3420000 * 75% / 291000

                                                = 2565000 / 291000

                                                = 8.81 Times

In the absence of information total Account Rec are considered as Average Accounts Rec.

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