Question

Exercise 15-8 Selected Financial Ratios [LO15-2, LO15-3, LO15-4]

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash	$	21,000
Accounts receivable, net		170,000
Merchandise inventory		380,000
Prepaid expenses		6,000
Total current assets		577,000
Property and equipment, net		840,000
Total assets	$	1,417,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	260,000
Bonds payable, 11%		330,000
Total liabilities		590,000
Stockholders’ equity:
Common stock, $10 par value	$	190,000
Retained earnings		637,000
Total stockholders’ equity		827,000
Total liabilities and stockholders’ equity	$	1,417,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	3,150,000
Cost of goods sold		1,332,000
Gross margin		1,818,000
Selling and administrative expenses		560,000
Net operating income		1,258,000
Interest expense		36,300
Net income before taxes		1,221,700
Income taxes (30%)		366,510
Net income	$	855,190

Account balances at the beginning of the year were: accounts receivable, $180,000; and inventory, $360,000. All sales were on account.

Required:

Compute the following financial data and ratios:

1. Working capital.

2. Current ratio. (Round your answer to 1 decimal place.)

3. Acid-test ratio. (Round your answer to 2 decimal places.)

4. Debt-to-equity ratio. (Round your answer to 2 decimal places.)

5. Times interest earned ratio. (Round your answer to 2 decimal places.)

6. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)

7. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)

8. Operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)

Answer 1