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In: Accounting

The comparative statements of Bramble Interiors Ltd. are presented as follows: BRAMBLE INTERIORS LTD. Income Statement...

The comparative statements of Bramble Interiors Ltd. are presented as follows:

BRAMBLE INTERIORS LTD. Income Statement For the Year Ended December 31
	2021	2020
Net sales	$2,159,750	$1,836,500
Cost of goods sold	1,145,000	1,019,500
Gross profit	1,014,750	817,000
Selling and administrative expenses	500,000	491,000
Income from operations	514,750	326,000
Other expenses and losses
Interest expense	14,000	16,000
Income before income taxes	500,750	310,000
Income tax expense	108,275	82,000
Profit	$392,475	$228,000

BRAMBLE INTERIORS LTD. Balance Sheet December 31
Assets	2021	2020	2019
Current assets
Cash	$80,000	$129,100	$114,200
Accounts receivable	188,600	106,400	102,400
Inventory	213,800	143,000	114,500
Total current assets	482,400	378,500	331,100
Property, plant, and equipment (net)	647,700	601,300	510,300
Total assets	$1,130,100	$979,800	$841,400
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$289,175	$169,000	$144,400
Income taxes payable	40,000	47,000	45,500
Total current liabilities	329,175	216,000	189,900
Bonds payable	190,000	195,000	200,000
Total liabilities	519,175	411,000	389,900
Shareholders’ equity
Common shares	280,000	280,000	300,000
Retained earnings	330,925	288,800	151,500
Total shareholders’ equity	610,925	568,800	451,500
Total liabilities and shareholders’ equity	$1,130,100	$979,800	$841,400

Additional information:

1.		All sales were on account.
2.		Weighted-average common shares in 2021 were 52,000 and in 2020 were 54,000.

(a)

Calculate the following ratios for 2021 and 2020. (Round earnings per share, current ratio, acid-test ratio and asset turnover answers to 2 decimal places, e.g. 1.83 or 1.83% and all other answers to 1 decimal place, e.g. 1.5 or 1.5%. Use 365 days for calculation.)

		2021		2020
1.	Gross profit margin		%		%
2.	Profit margin		%		%
3.	Earnings per share	$		$
4.	Receivables turnover		times		times
5.	Collection period		days		days
6.	Inventory turnover		times		times
7.	Days sales in inventory		days		days
8.	Return on common shareholders’ equity		%		%
9.	Return on assets		%		%
10.	Current ratio
11.	Acid-test ratio
12.	Asset turnover		times		times
13.	Debt to total assets		%		%

Expert Solution

a.

.	.	2021	2020
1.	Gross profit margin	47%	44.5%
2.	Profit margin	18.2%	12.4%
3.	Earnings per share	$7.55	$4.22
4.	Receivables turnover	14.6 times	17.6 times
5.	Collection period	25 days	20.7 days
6.	Inventory turnover	6.4 times	7.9 times
7.	Days sales in inventory	57 days	46.2 days
8.	Return on common shareholders’	66.5%	44.7%
9.	Return on assets	37.2%	25.1%
10.	Current ratio	1.47	1.75
11.	Acid-test ratio	0.82	1.09
12.	Asset turnover	2.05 times	2.02 times
13.	Debt to total assets	45.9%	41.9%

Working note:-

.	.	2021	2021	2020	2020
1.	Gross profit margin = Gross profit / sales	1014750/ 2159750 = 0.4698	47%	817,000/ 1,836,500 =0.4449	44.5%
2.	Profit margin =profit / sales	392,475 / 2159750 =0.1817	18.2%	228,000 / 1,836,500 =0.1241	12.4%
3.	Earnings per share = Net income / average outstanding share	392,475 / 52,000	$7.55	228,000 / 54000	$4.22
4.	Receivables turnover =sales / average receivable Avg receivable = (beg + end ) / 2	2159750 / 147500	14.6 times	1,836,500 / 104400	17.6 times
5.	Collection period = 365 / Receivables turnover	365 / 14.6	25 days	365/ 17.6	20.7 days
6.	Inventory turnover = cost of goods sold / average inventory Avg inventory = ( beg + end ) / 2	1145000/ ((143000+ 213800)/2)	6.4 times	1019500 / (( 114500+ 143000 ) / 2)	7.9 times
7.	Days sales in inventory = 365 / Inventory turnover	365/6.4	57 days	365/7.9	46.2 days
8.	Return on common shareholders’ equity = net income / avg equity Avg equity = ( beg + end ) / 2*	392475 / 589862.5 =0.665	66.5%	228000 / 510150 = 0.447	44.7%
9.	Return on assets = Net income / average assets*	392475 / 1054950 =0.372	37.2%	228000/ 910600 =0.251	25.1%
10.	Current ratio = Current assets / current liabilities	482400 / 329175	1.47	378500 / 216000	1.75
11.	Acid-test ratio = quick assets* / current liabilities	268600 / 329175	0.82	235500 / 216000	1.09
12.	Asset turnover = sales / avg assets	2159750 / 1054950	2.05 times	1836500 / 910600	2.02 times
13.	Debt to total assets Total debt / assets	519175 / 1130100 =0.459	45.9%	411000 / 979800 = 0.419	41.9%

8 *2021 = avg equity = (568800 + 610925 ) / 2 = 589862.5

2020 = ( 451500 + 568800 ) / 2 = 510150

9. average assets = (beg + end ) / 2

2021 = ( 979800 + 1130100 ) / 2 = 1054950

2020 = ( 841400 + 979800 ) / 2 = 910600

11. Quick assets = cash + account receivable

2021 = 80000 + 188600 = 268600

2020 = 129100 + 106400 = 235500

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