Question

Markus Company’s common stock sold for $2.75 per share at the end of this year. The company paid a common stock dividend of $0.55 per share this year. It also provided the following data excerpts from this year’s financial statements

	Ending    Balance		Beginning Balance
Cash	$	35,000	$	30,000
Accounts receivable	$	60,000	$	50,000
Inventory	$	55,000	$	60,000
Current assets	$	150,000	$	140,000
Total assets	$	450,000	$	460,000
Current liabilities	$	60,000	$	40,000
Total liabilities	$	130,000	$	120,000
Common stock, $1 par value	$	120,000	$	120,000
Total stockholders’ equity	$	320,000	$	340,000
Total liabilities and stockholders’ equity	$	450,000	$	460,000

	This Year
Sales (all on account)	$	700,000
Cost of goods sold	$	400,000
Gross margin	$	300,000
Net operating income	$	140,000
Interest expense	$	8,000
Net income	$	92,400

1. What is the return on total assets (assuming a 30% tax rate)? (Round percentage answer to 1 decimal place. i.e., 0.123 should be considered as 12.3%)

2. What is the return on equity? (Round your answer to the nearest whole percentage place. i.e., 0.1234 should be considered as 12%)

3. What is the book value per share at the end of this year? (Round your answer to 2 decimal places.)

4. What is the average collection period? (Use 365 days in a year. Round your intermediate and final answers to 2 decimal places.)

5. What is the equity multiplier? (Round your answer to 2 decimal places.)

6. What is the debt-to-equity ratio at the end of this year? (Round your answer to 2 decimal places.)

7. What is the times interest earned ratio? (Round your answer to 1 decimal place.)

8. What is the total asset turnover? (Round your answer to 2 decimal places.)

9. What is the company’s operating cycle? (Round your intermediate and final answers to 2 decimal places.)

10. What is the average sale period? (Use 365 days in a year. Round your intermediate and final answers to 2 decimal places.)

Please Answer all the questions.

Answer 1

Solution 1

Return on total assets (assuming a 30% tax rate)

= *Net Profit after Tax / Average Total assets ** X 100

=$ 92,400 / $455,000 X 100

=20.3% (Answer)

*Net Profit after

The net income given in question is already after tax. So, that will be used for calculation.

=Net operating income- Interest expense

=$ 140,000 - $ 8,000

= $ 132,000

Tax = 30 % of $ 132,000 = $ 39,600

Net Income (after tax) = $ 132,000- $ 39,600 = $ 92,400

**Average Total assets

= (Beginning Assets + Ending Assets) /2

= ($450,000 + $460,000)/2

= $455,000

Solution 2

Return on equity

= Net Income / Average stockholders’ equity X100

= $ 92,400 / ($ 340,000 + $ 320,000 /2) X 100

=$ 92,400 /$ 330,000 X 100

= 28% (Answer)

Solution 3

Book value per share at the end of this year

= Total stockholders’ equity / Number of common shares

= $ 320,000/ ($ 120,000/ $ 1)

=$ 320,000/ 12000 shares

=$ 26.67 (Answer)

Solution 4

Average collection period

= 365/ *Receivable turnover ratio

= 365 /12.72

=28.69 (Answer)

*Receivable turnover ratio

= Net Sales / Average accounts receivables

=$ 700,000/ ($50,000 + $ 60,000)/2

=$ 700,000/ $ 55,000

=12.72

Solution 5

Equity multiplier

= Total assets / Total stockholder's equity

= $ 450,000/ $ 320,000

=1.41 (Answer)

Solution 6

Debt-to-equity ratio

= Total liabilities / Total stockholder's equity

=$ 130,000 / $ 320,000

= 0.41 (Answer)

Solution 7

Times interest earned ratio

=Income before interest and taxes /Interest expense

=$ 140,000 / $ 8,000

= 17.5 (Answer)

Solution 8

Total asset turnover

=Net sales / Average total assets

= $ 700,000 / ($460,000 + $ 450,000)/2

= $ 700,000 / $ 455,000

=1.54 (Answer)

Solution 9

Company’s operating cycle

= Days' Sales of Inventory + Days Sales Outstanding

= (365 / Cost of goods sold X *Average inventory) + (365 / Credit sales X **Average accounts receivable)

= (365 /$ 4, 00,000 X$ 57,500) + (365 / $ 700,000 X $ 55,000)

= 52.47 + 28.68

=81.15 (Answer)

*Average inventory= ($ 60,000 + $ 55,000) / 2 =$ 57,500

**Average accounts receivable= ($ 50,000 + $ 60,000) / 2 =$ 55,000

Solution 10

Average sale period

= 365/ *Inventory turnover ratio

= 365 /6.96

=52.44 (Answer)

*Receivable turnover ratio

= Cost of goods sold / Average inventory

=$ 400,000/ ($60,000 + $ 55,000)/2

=$ 400,000/ $ 57,500

=6.96