Question

Income statement and balance sheet data for The Athletic Attic are provided below.

THE ATHLETIC ATTIC
Income Statements
For the years ended December 31
		2022			2021
Net sales	$	11,240,000		$	9,700,000
Cost of goods sold		7,340,000			6,000,000
Gross profit		3,900,000			3,700,000
Expenses:
Operating expenses		1,660,000			1,610,000
Depreciation expense		200,000			200,000
Interest expense		46,000			46,000
Income tax expense		472,000			410,000
Total expenses		2,378,000			2,266,000
Net income	$	1,522,000		$	1,434,000

THE ATHLETIC ATTIC
Balance Sheets
December 31
		2022				2021				2020
Assets
Current assets:
Cash	$	231,000			$	160,000			$	216,000
Accounts receivable		996,000				746,000				766,000
Inventory		1,731,000				1,361,000				1,031,000
Supplies		136,000				106,000				81,000
Long-term assets:
Equipment		1,340,000				1,340,000				1,340,000
Less: Accumulated depreciation		(660,000	)			(460,000	)			(260,000	)
Total assets	$	3,774,000			$	3,253,000			$	3,174,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	192,400			$	123,000			$	104,400
Interest payable		4,600				0				4,600
Income tax payable		46,000				41,000				36,000
Long-term liabilities:
Notes payable		560,000				560,000				560,000
Stockholders' equity:
Common stock		660,000				660,000				660,000
Retained earnings		2,311,000				1,869,000				1,809,000
Total liabilities and stockholders’ equity	$	3,774,000			$	3,253,000			$	3,174,000

Problem 12-6B Part 1

Required:
1. Calculate the following risk ratios for 2021 and 2022: (Round your answers to 1 decimal place.)

	2021 2022 Receivables turnover ratio times times Inventory turnover ratio times times Current ratio to 1 to 1 Debt to equity ratio % %

Answer 1

2021
	Equation	In Numbers	Answer
Receivable Turn Over Ratio	Net Sales / Average Accounts Receivable	9700000 / 756000	12.8	Times
Inventory Turn Over Ratio	Cost of Goods Sold / Average Inventory	6000000 / 1196000	5.0	Times
Current Ratio	Current Asset / Current Liabilities	2373000 / 164000	14.5	:1
Debt to Equity Ratio	Total Debt / Total Equity x 100%	724000 / 2529000 x 100%	28.6%
2022
	Equation	In Numbers	Answer
Receivable Turn Over Ratio	Net Sales / Average Accounts Receivable	11240000 / 871000	12.9	Times
Inventory Turn Over Ratio	Cost of Goods Sold / Average Inventory	7340000 / 1546000	4.7	Times
Current Ratio	Current Asset / Current Liabilities	3094000 / 243000	12.7	:1
Debt to Equity Ratio	Total Debt / Total Equity x 100%	803000 / 2971000 x 100%	27.0%

Average Accounts Receivable = (OPening Balance of Accounts Receivable + Closing Balance AR ) / 2

2021 Average Accounts Receivable = 766000 + 746000 / 2 = 756000

2022 Average Accounts Receivable = 746000 + 996000 / 2 = 871000

Average Inventory = OPening Balance + Closing Balance / 2

2021 Average Inventory = 1031000 + 1361000 / 2 = 1196000

2022 Average Inventory = 1361000 + 1731000 / 2 = 1546000

Total Equity = Common Stock + Reatined Earnings

Current Asset = Cash + Accounts Receivable + Inventory + Supplies

Current Liability = Accounts Payable + Interest Payable + Income Tax Payable

Total Debt = Current Liability + Notes Payable