Question

The comparative statements of Crane Company are presented here. CRANE COMPANY Income Statements For the Years Ended December 31 2017 2016 Net sales $1,898,740 $1,758,700 Cost of goods sold 1,066,740 1,014,200 Gross profit 832,000 744,500 Selling and administrative expenses 508,200 487,200 Income from operations 323,800 257,300 Other expenses and losses Interest expense 23,700 21,700 Income before income taxes 300,100 235,600 Income tax expense 93,700 74,700 Net income $ 206,400 $ 160,900 CRANE COMPANY Balance Sheets December 31 Assets 2017 2016 Current assets Cash $ 60,100 $ 64,200 Debt investments (short-term) 74,000 50,000 Accounts receivable 126,000 111,000 Inventory 127,700 117,200 Total current assets 387,800 342,400 Plant assets (net) 660,000 531,300 Total assets $1,047,800 $873,700 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 168,200 $153,600 Income taxes payable 45,200 43,700 Total current liabilities 213,400 197,300 Bonds payable 231,000 211,000 Total liabilities 444,400 408,300 Stockholders’ equity Common stock ($5 par) 290,000 300,000 Retained earnings 313,400 165,400 Total stockholders’ equity 603,400 465,400 Total liabilities and stockholders’ equity $1,047,800 $873,700 All sales were on account. Net cash provided by operating activities for 2017 was $238,000. Capital expenditures were $136,000, and cash dividends were $58,400. Compute the following ratios for 2017. (Round all answers to 2 decimal places, e.g. 1.83 or 1.83%.) (a) Earnings per share $ (b) Return on common stockholders’ equity % (c) Return on assets % (d) Current ratio :1 (e) Accounts receivable turnover times (f) Average collection period days (g) Inventory turnover times (h) Days in inventory days (i) Times interest earned times (j) Asset turnover times (k) Debt to assets ratio % (l) Free cash flow $

Answer 1

Answer a.

Common Stock, 2017 = $290,000
Par Value = $5

Number of shares outstanding, 2017 = $290,000 / $5
Number of shares outstanding, 2017 = 58,000

Common Stock, 2016 = $290,000
Par Value = $5

Number of shares outstanding, 2016 = $300,000 / $5
Number of shares outstanding, 2016 = 60,000

Average number of shares outstanding = (58,000 + 60,000) / 2
Average number of shares outstanding = 59,000

EPS = Net Income / Average number of shares outstanding
EPS = $206,400 / 59,000
EPS = $3.50

Answer b.

Average Common Stockholders’ Equity = ($603,400 + $465,400) / 2
Average Common Stockholders’ Equity = $534,400

Return on Common Stockholders’ Equity = Net Income / Average Common Stockholders’ Equity
Return on Common Stockholders’ Equity = $206,400 / $534,400
Return on Common Stockholders’ Equity = 38.62%

Answer c.

Average Assets = ($1,047,800 + $873,700) / 2
Average Assets = $960,750

Return on Assets = Net Income / Average Assets
Return on Assets = $206,400 / $960,750
Return on Assets = 21.48%

Answer d.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $387,800 / $213,400
Current Ratio = 1.82 : 1

Answer e.

Average Accounts Receivable = ($126,000 + $111,000) / 2
Average Accounts Receivable = $118,500

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
Accounts Receivable Turnover = $1,898,740 / $118,500
Accounts Receivable Turnover = 16.02 times

Answer f.

Average Collection Period = 365 / Accounts Receivable Turnover
Average Collection Period = 365 / 16.02
Average Collection Period = 22.78 days