Question

The following information was taken from the financial statements of Lefton corporation: Accounts receivable 2018: $25,000 2017: $18,500 Inventory 2018: $33,000 2017; $46000 Fixed assets (net) 2018: $120,000 2017: $100,000 Accounts payable 2018: $65000 2017: $70,000 Net sales: 2018: $375,000 2017: $425,000 Cost of goods sold 2018: $150,000 2017: $200,000 Net income 2018: $56,000 2017:$40000 # shares issued 2018: 80,000 2017: 80,000 # shares in treasury stock 2018:10,000 2017:20,000 Calculate the following ratios for 2018: Fixed asset turnover Inventory turnover Receivable turnover Accounts payable turnover Earnings per share.

Answer 1

Ans. 1	Fixed assets turnover = Sales / Average fixed assets
	$375,000 / $110,000
	3.41 times
	*Average fixed assets = (Beginning fixed assets + Ending fixed assets) / 2
	($100,000 + $120,000) / 2
	$110,000
Ans. 2	Inventory turnover = Cost of goods sold / Average Inventory
	$150,000 / $39,500
	3.80 times
	*Average inventory = (Beginning inventory + Ending inventory) / 2
	($46,000 + $33,000) / 2
	$39,500
Ans. 3	Accounts receivable turnover = Net credit sales / Average receivables
	$375,000 / $21,750
	17.24 times
	*Average receivable = (Beginning receivables + Ending receivables) / 2
	($25,000 + $18,500) / 2
	$21,750
Ans. 4	Accounts payable turnover = Net credit purchase / Average payable
	$137,000 / $67,500
	2.03 times
	*Net credit purchase = Cost of goods sold + Ending inventory - Beginning inventory
	$150,000 + $33,000 - $46,000
	$137,000
	*Average payable = (Beginning payable + Ending payable) / 2
	($70,000 + $65,000) / 2
	$67,500
Ans. 5	Earning per share =   Net income / Number of shares outstanding
	$56,000 / 70,000
	$0.80   per share
	Number of shares outstanding = Common shares issued - Treasury stock
	80,000 - 10,000   =    70,000