Question

TBSFCO0166 Compute Ratios

Use the information in the exhibit(s) above as needed.

Using the information below, compute the following amounts and ratios for the Quant Corporation for the current year. Assume that (1) the only effects on retained earnings are net income and cash dividends for the year, and (2) only common stock dividends were declared (none for preferred stock). Assume a 365 day year. Enter your amounts rounded to two decimal places, and include the preceding "0" before the decimal point (e.g. 1.00 and 0.10)..

Current year financial statement information for the Quant Corporation:

Balance Sheet	Jan. 1	Dec. 31
Cash	$  100	$  150
Receivables, net	300	320
Inventories	600	660
Prepaids	200	270
Plants assets	2,000	2,400
Accumulated depreciation	(800)	(1,000)
Total assets	$2,400	$2,800
Accounts payable	$  120	$  160
Income tax payable	80	70
Accrued payables	90	210
Current maturity of long-term debt	300	300
Bonds payable	500	400
Preferred stock, $100 par	100	100
Common stock, $1 par	200	250
PIC-common	300	350
Retained earnings	810	1,080
Treasury stock	(100)	(120)
Total liabilities and OE	$2,400	42,800
Income Statement
Sales		$3,800
Cost of goods sold		(1,700)
Gross margin		2,100
Operating expenses		(1,400)
Interest expense		(100)
Income before tax		600
Income tax expense		(180)
Net income		$  420

Calculate the following:

Working Capital-

Current Ratio:

Acid test (quick) ratio-

Accounts receivable turnover-

Inventory Turnover-

Operating cycle in days-

Answer 1

Working capital = $660

Explanation;

Working capital = Current assets – Current liabilities

Working capital = $1400 – $740

= $660

Current ratio = 1.89

Explanation;

Current ratio = Current assets / Current liabilities

Current ratio = $1400 / $740

= 1.89

Quick ratio = 0.63

Explanation;

Quick ratio = Quick assets / Current liabilities

Quick ratio = $470 / $740

= 0.63

Account receivable turnover = 12.26

Explanation;

Account receivable turnover = Net credit sales / Average accounts receivable

Net credit sales = $3800

Average accounts receivable ($320 + $300) / 2 = $310

Account receivable turnover = $3800 / $310

= 12.26

Inventory turnover = 2.70

Explanation;

Inventory turnover = Cost of goods sold / Average inventory

Cost of goods sold = $1700

Average inventory ($600 + $660) / 2 = $630

Inventory turnover = $1700 / $630

= 2.70

Operating cycle in days = 165.04 days

Explanation;

Operating Cycle = Days' Inventory outstanding + Days Sales Outstanding

Days’ Inventory Outstanding (365 * 630 / 1700) = 135.26 days

Days’ Sales Outstanding (365 * 310 / 3800) = 29.78 days

Operating cycle in days (135.26 days + 29.78 days) = 165.04 days