Question

[The following information applies to the questions displayed below.] Summary information from the financial statements of two companies competing in the same industry follows. Barco Company Kyan Company Barco Company Kyan Company Data from the current year-end balance sheets Data from the current year’s income statement Assets Sales $ 790,000 $ 898,200 Cash $ 19,000 $ 34,000 Cost of goods sold 595,100 650,500 Accounts receivable, net 37,400 53,400 Interest expense 9,200 18,000 Current notes receivable (trade) 9,500 8,200 Income tax expense 15,185 24,797 Merchandise inventory 85,040 134,500 Net income 170,515 204,903 Prepaid expenses 5,600 7,500 Basic earnings per share 4.06 4.34 Plant assets, net 290,000 307,400 Cash dividends per share 3.78 3.94 Total assets $ 446,540 $ 545,000 Beginning-of-year balance sheet data Liabilities and Equity Accounts receivable, net $ 26,800 $ 53,200 Current liabilities $ 67,340 $ 103,300 Current notes receivable (trade) 0 0 Long-term notes payable 80,800 115,000 Merchandise inventory 57,600 111,400 Common stock, $5 par value 210,000 236,000 Total assets 428,000 392,500 Retained earnings 88,400 90,700 Common stock, $5 par value 210,000 236,000 Total liabilities and equity $ 446,540 $ 545,000 Retained earnings 76,645 71,765 Required: 1a. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts (including notes) receivable turnover, (d) inventory turnover, (e) days’ sales in inventory, and (f) days’ sales uncollected. (Do not round intermediate calculations.) 1b. Identify the company you consider to be better short-term credit risk.

Answer 1

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Income Statement	Barco	Kyan		Answer 1 a	Barco	Kyan
Sales	790,000.00	898,200.00		Current Ratio	2.3	2.3
Cost of goods sold	595,100.00	650,500.00		Current Assets/Current Liabilities
Gross Profit	194,900.00	247,700.00
Interest Expense	9,200.00	18,000.00		Acid Test Ratio	1.0	0.9
Income before taxes	185,700.00	229,700.00		Quick Assets/Current Liabilities
Income tax expense	15,185.00	24,797.00
Net Income	170,515.00	204,903.00		Accounts Receivables Turnover	21.4	15.6
Basic Earnings per share	4.06	4.34		Sales Revenue/ Average Receivable
Cash Dividends per share	3.78	3.94
				Inventory Turnover	8.3	5.3
Balance Sheets				Cost of goods sold/Average Inventory
Assets	Barco	Kyan
Current Assets				Days sales in Inventory	43.7	69.0
Cash	19,000.00	34,000.00		365/Inventory Turnover
Accounts Receivable (net)	37,400.00	53,400.00
Current Notes Receivable (trade)	9,500.00	8,200.00		Number of days sales uncollected	21.7	25.0
Merchandise Inventory	85,040.00	134,500.00		Total Receivables/Sales*365 days
Prepaid Expenses	5,600.00	7,500.00
Total Current Assets	156,540.00	237,600.00		Answer 1 b
Plant assets, net	290,000.00	307,400.00		Remarks- Barco has better short term credit risk because all of the above ratios are better and more improved than Kyan.
Total Assets	446,540.00	545,000.00
Liabilities & Stockholders' Equity
Liabilities
Current Liabilities	67,340.00	103,300.00
Long Term Note payable	80,800.00	115,000.00
Total Liabilities	148,140.00	218,300.00
Common Stock $ 5 par	210,000.00	236,000.00
Retained Earnings	88,400.00	90,700.00
Total Stockholders' Equity	298,400.00	326,700.00
Total Liabilities & Stockholders' Equity	446,540.00	545,000.00
Total Current Assets	156,540.00	237,600.00
Less:
Inventory	85,040.00	134,500.00
Prepaid Expense	5,600.00	7,500.00
Quick Assets	65,900.00	95,600.00
Barco	Current	Last Year		Kyan	Current	Last Year
Accounts Receivable (net)	37,400.00	26,800.00		Accounts Receivable (net)	53,400.00	53,200.00
Current Notes Receivable (trade)	9,500.00	-		Current Notes Receivable (trade)	8,200.00	-
Average Receivable (net)	36,850.00			Average Receivable (net)	57,400.00
Merchandise Inventory	85,040.00	57,600.00		Merchandise Inventory	134,500.00	111,400.00
Average Inventory	71,320.00			Average Inventory	122,950.00
Total assets	446,540.00	428,000.00		Total assets	545,000.00	392,500.00
Average assets	437,270.00			Average assets	468,750.00