Question

Measures of liquidity, Solvency, and Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 52 on December 31, 20Y2.

Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
			20Y2		20Y1
Retained earnings, January 1			$3,104,450		$2,627,250
Net income			672,000		538,100
Total			$3,776,450		$3,165,350
Dividends:
	On preferred stock		$9,100		$9,100
	On common stock		51,800		51,800
		Total dividends	$60,900		$60,900
Retained earnings, December 31			$3,715,550		$3,104,450

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$4,722,735		$4,351,250
Cost of goods sold	1,651,260		1,519,160
Gross profit	$3,071,475		$2,832,090
Selling expenses	$1,090,400		$1,310,100
Administrative expenses	928,855		769,430
Total operating expenses	$2,019,255		$2,079,530
Income from operations	$1,052,220		$752,560
Other revenue	55,380		48,040
	$1,107,600		$800,600
Other expense (interest)	344,000		189,600
Income before income tax	$763,600		$611,000
Income tax expense	91,600		72,900
Net income	$672,000		$538,100

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$858,480		$633,610
	Marketable securities		1,299,310		1,049,980
	Accounts receivable (net)		854,100		803,000
	Inventories		642,400		496,400
	Prepaid expenses		162,415		126,720
		Total current assets	$3,816,705		$3,109,710
Long-term investments			2,174,950		217,941
Property, plant, and equipment (net)			4,730,000		4,257,000
Total assets			$10,721,655		$7,584,651
Liabilities
Current liabilities			$1,316,105		$720,201
Long-term liabilities:
	Mortgage note payable, 8%		$1,930,000		$0
	Bonds payable, 8%		2,370,000		2,370,000
		Total long-term liabilities	$4,300,000		$2,370,000
Total liabilities			$5,616,105		$3,090,201
Stockholders' Equity
Preferred $0.70 stock, $50 par			$650,000		$650,000
Common stock, $10 par			740,000		740,000
Retained earnings			3,715,550		3,104,450
Total stockholders' equity			$5,105,550		$4,494,450
Total liabilities and stockholders' equity			$10,721,655		$7,584,651

Required:

Determine the following measures for 20Y2, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

5. Number of days' sales in receivables		days
6. Inventory turnover
7. Number of days' sales in inventory		days
8. Ratio of fixed assets to long-term liabilities

Answer 1

Ans: Number of Days Sales in receivables= 365/Accounts Receivable turnover

Accounts Receivable= Net Sales/ Average Accounts Receivable

Net Sales= $4,722,735

Average Accounts Receivable= opening Accounts Receivable+ Closing Account Receivable/2

Average Account Receivable= 854,100+ 803,000/2

=> 1,657,100/2

=> 828,550

Accounts Receivable= 4,722,735/828,550

=> 5.70 times

Number of days Sales in receivable= 365/5.70

=> 64.03 days

Ans:6. Inventory turnover= COGS/Average Inventory

Average Inventory= Opening Inventory+ Closing Inventory/2

=> 642,400+ 496,400/2

=> 569,400

COGS= 1,651,260

Inventory Turnover= 1,651,260/569,400

=> 2.90 Times

Ans:7. Number of days sales in receivable= 365/Inventory turnover

=> 365/2.90

=> 125.86 days

Ans:8. Ratio of fixed assets to long-term liabilities= Fixed Assets/long term liabilities

Fixed Assets= 4,730,000

Long term liabilities= 4,300,000

Ratio= 4,730,000/4,300,000

=> 1.10:1