Question

Financial statements for Allendale Company follow: ALLENDALE COMPANY Balance Sheets As of December 31 2019 2018 Assets Current assets Cash $ 40,000 $ 36,000 Marketable securities 20,000 6,000 Accounts receivable (net) 54,000 46,000 Inventories 135,000 143,000 Prepaid items 25,000 10,000 Total current assets 274,000 241,000 Investments 27,000 20,000 Plant (net) 270,000 255,000 Land 29,000 24,000 Total assets $ 600,000 $ 540,000 Liabilities and Stockholders’ Equity Liabilities Current liabilities Notes payable $ 17,000 $ 6,000 Accounts payable 113,800 100,000 Salaries payable 21,000 15,000 Total current liabilities 151,800 121,000 Noncurrent liabilities Bonds payable 100,000 100,000 Other 32,000 27,000 Total noncurrent liabilities 132,000 127,000 Total liabilities 283,800 248,000 Stockholders’ equity Preferred stock, (par value $10, 4% cumulative, non-participating; 8,000 shares authorized and issued) 80,000 80,000 Common stock (no par; 50,000 shares authorized; 10,000 shares issued) 80,000 80,000 Retained earnings 156,200 132,000 Total stockholders’ equity 316,200 292,000 Total liabilities and stockholders’ equity $ 600,000 $ 540,000 ALLENDALE COMPANY Statements of Income and Retained Earnings For the Years Ended December 31 2019 2018 Revenues Sales (net) $ 230,000 $ 210,000 Other revenues 8,000 5,000 Total revenues 238,000 215,000 Expenses Cost of goods sold 120,000 103,000 Selling, general, and administrative 55,000 50,000 Interest expense 8,000 7,200 Income tax expense 23,000 22,000 Total expenses 206,000 182,200 Net earnings (net income) 32,000 32,800 Retained earnings, January 1 132,000 107,000 Less: Preferred stock dividends 3,200 3,200 Common stock dividends 4,600 4,600 Retained earnings, December 31 $ 156,200 $ 132,000 Required Calculate the following ratios for 2019 and 2018. Since 2017 numbers are not presented do not use averages when calculating the ratios for 2018. Instead, use the number presented on the 2018 balance sheet. Working capital. Current ratio. (Round your answers to 2 decimal places.) Quick ratio. (Round your answers to 2 decimal places.) Receivables turnover (beginning receivables at January 1, 2018, were $47,000). (Round your answers to 2 decimal places.) Average days to collect accounts receivable. (Round your intermediate calculations to 2 decimal places and your final answers to the nearest whole number.) Inventory turnover (beginning inventory at January 1, 2018, was $140,000). (Round your answers to 2 decimal places.) Number of days to sell inventory. (Round your intermediate calculations to 2 decimal places and your final answers to the nearest whole number.) Debt to assets ratio. (Round your answers to the nearest whole percent.) Debt to equity ratio. (Round your answers to 2 decimal places.) Number of times interest was earned. (Round your answers to 2 decimal places.) Plant assets to long-term debt. (Round your answers to 2 decimal places.) Net margin. (Round your answers to 2 decimal places.) Turnover of assets. (Round your answers to 2 decimal places.) Return on investment. (Round your answers to 2 decimal places.) Return on equity. (Round your answers to 2 decimal places.) Earnings per share. (Round your answers to 2 decimal places.) Book value per share of common stock. (Round your answers to 2 decimal places.) Price-earnings ratio (market price per share: 2018, $11.75; 2019, $12.50). (Round your intermediate calculations and final answer to 2 decimal places.) Dividend yield on common stock. (Round your answers to 2 decimal places.)

Answer 1

Answer to Part 1.

Working Capital = Current Assets – Current Liabilities

December 31, 2018:
Working Capital = $241,000 - $121,000
Working Capital = $120,000

December 31, 2019:
Working Capital = $274,000 - $151,800
Working Capital = $122,200

Answer to Part 2.

Current Ratio = Current Assets / Current Liabilities

December 31, 2018:
Current Ratio = $241,000 / $121,000
Current Ratio = 1.99 : 1

December 31, 2019:
Current Ratio = $274,000 / $151,800
Current Ratio = 1.81 : 1

Answer to Part 3.

Quick Ratio = (Current Assets – Inventories – Prepaid Items) / Current Liabilities

December 31, 2018:
Quick Ratio = ($241,000 - $143,000 - $10,000) / $121,000
Quick Ratio = 88,000 / 121,000
Quick Ratio = 0.73 : 1

December 31, 2019:
Quick Ratio = ($274,000 - $135,000 - $25,000) / $151,800
Quick Ratio = 114,000 / 151,800
Quick Ratio = 0.75 : 1

Answer to Part 4.

Receivable Turnover Ratio = Sales / Average Accounts Receivable

December 31, 2018:
Average Accounts Receivable = ($47,000 + $46,000) / 2
Average Accounts Receivable = $46,500

Receivable Turnover Ratio = 210,000 / 46,500
Receivable Turnover Ratio = 4.52 times

December 31, 2019:
Average Accounts Receivable = ($46,000 + $54,000) / 2
Average Accounts Receivable = $50,000

Receivable Turnover Ratio = 230,000 / 50,000
Receivable Turnover Ratio = 4.60 times

Answer to Part 5.

Average days to collect Accounts Receivable = 365 / Receivable Turnover Ratio

December 31, 2018:
Average days to collect Accounts Receivable = 365 / 4.52
Average days to collect Accounts Receivable = 80.75 or 81 days

December 31, 2019:
Average days to collect Accounts Receivable = 365 / 4.60
Average days to collect Accounts Receivable = 79.34 or 79 days