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The following data is given: December 31, 2018 2017 Cash $66,500 $49,500 Accounts receivable (net) 90,000...

The following data is given:

December 31, 2018 2017

Cash $66,500 $49,500

Accounts receivable (net) 90,000 59,000

Inventories 90,000 105,000

Plant assets (net) 382,500 324,000

Accounts payable 55,500 39,500

Salaries and wages payable 12,000 5,500

Bonds payable 68,500 72,000 8%

Preferred stock, $40 par 100,000 100,000

Common stock, $10 par 120,000 90,000

Paid-in capital in excess of par 75,000 70,000

Retained earnings 198,000 160,500

Net credit sales 995,000

Cost of goods sold 740,000

Net income 82,000

Compute the following ratios:

(a) Acid-test ratio at 12/31/18 : 1
(b) Accounts receivable turnover in 2018 times
(c) Inventory turnover in 2018 times
(d) Profit margin on sales in 2018 %
(e) Return on common stock holders’ equity in 2018 %
(f) Book value per share of common stock at 12/31/18 $

Solutions

Expert Solution

The ratios are calculated below:

a) Acid-test ratio = Quick Assets / Current Liability

= (Cash + Accounts receivable ) / (Accounts payable + Salaries and wages payable)

= ($66,500 + $90,000 ) / ($55,500 + $12,000 )

= $156,500 / $67,500

Acid-test ratio = 2.32 : 1

b) Accounts receivable turnover in 2018 is calculated below:

Accounts receivable turnover = Net Credit Sale / Average Account Receivable

Average Account Receivable = (Begining Average Account Receivable + Ending Average Account Receivable)/2

= $59,000 + $90,000 / 2

=$74,500

Accounts receivable turnover = $995,000 /  $74,500

= 13.36 Times

(c) Inventory turnover in 2018 is calculated below:

  Inventory turnover = Cost of Goods Sold / Average Inventory

Average Inventory  = (Begining Inventory  + Ending Average Inventory )/2

Inventory turnover = ($90,000 + $105,000) / 2

= $97,500

Inventory turnover = $740,000 / $97,500

= 7.59 times

(d) Profit Margin on sales in 2018 is calculated below:

Profit Margin on sales = Net Income / Net Sale *100

= $82,000/  $995,000 *100

= 8.24%

Profit Margin on sales in 2018 is 8.24%

(e)Return on common stock holders’ equity in 2018 is calculated below:

Return on common stock holders’ equity

= (Net Income - Prefrence Dividend ) / Average common stock holders’ equity * 100

Average common stock holders’ equity = ($90,000 + $70,000 +$160,500) + $120,000 + $75,000 + $198,000 )/2

=($320,500 + $393,000) / 2

= $356,750

Return on common stock holders’ equity = ($82,000 - $0) / $356,750 *100

= $82,000 / $356,750 *100

= 22.99%

(f)Book value per share of common stock at 12/31/18 is calculated below:

Book value per share of common stock = Stockholder's Equity - Preferred Stock / Average Shares Outstanding

Begining Shares = $90,000 / $10 = 9,000 shares

Ending Shares = $120,000 / $10 = 12,000 shares

Average Shares Outstanding = 9,000 + 12,000 / 2

= 10,500 Shares

Book value per share of common stock = ($100,000 + $120,000 + $75,000 + $198,000) - $100,000 /10,500 Shares

= $493,000 - $100,000 /10,500 Shares

= $393,000 / 10,500

   = $37.43

Book value per share of common stock = $37.43

ekkarill92 answered 2 years ago
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