Question

Income statement and balance sheet data for Great Adventures, Inc., are provided below.

GREAT ADVENTURES, INC.
Income Statement
For the year ended December 31, 2022
Net sales revenues				$	168,330
Interest revenue					160
Expenses:
Cost of goods sold	$	38,700
Operating expenses		53,840
Depreciation expense		17,450
Interest expense		7,284
Income tax expense		14,700
Total expenses					131,974
Net income				$	36,516

GREAT ADVENTURES, INC.
Balance Sheets
December 31, 2022 and 2021
	2022				2021
Assets
Current assets:
Cash	$	197,660			$	64,540
Accounts receivable		47,960				0
Inventory		7,400				0
Other current assets		940				4,660
Long-term assets:
Land		540,000				0
Buildings		810,000				0
Equipment		66,120				42,000
Accumulated depreciation		(25,650	)			(8,100	)
Total assets	$	1,644,430			$	103,100
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	21,200			$	2,880
Interest payable		850				770
Income tax payable		14,700				14,040
Other current liabilities		22,200				0
Notes payable (current)		52,054				0
Notes payable (long-term)		512,740				30,400
Stockholders’ equity:
Common stock		124,000				21,360
Paid-in capital		940,400				0
Retained earnings		58,286				33,650
Treasury stock		(102,000	)			0
Total liabilities and stockholders’ equity	$	1,644,430			$	103,100

As you can tell from the financial statements, 2022 was an especially busy year. Tony and Suzie were able to use the money received from borrowing and the issuance of stock to buy land and begin construction of cabins, dining facilities, ropes course, and the outdoor swimming pool. They even put in a baby pool to celebrate the birth of their first child.

1. Calculate the following risk ratios for 2022. (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.)

	a. Receivables turnover ratio. (Hint: Use net sales revenues for net credit sales) times b. Average collection period. days c. Inventory turnover ratio. times d. Average days in inventory. days e. Current ratio. to 1 f. Acid-test ratio. (Hint: There are no current investments) to 1 g. Debt to equity ratio. % h. Times interest earned ratio. times

2. Calculate the following profitability ratios for 2022. (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.)

	a. Gross profit ratio. (Hint: Use net sales revenues) % b. Return on assets. % c. Profit margin. (Hint: Use net sales revenues) % d. Asset turnover. (Hint: Use net sales revenues) times e. Return on equity. %

Answer 1

ANSWER

2)

(a)

gross profit ratio = (net sales revenue - cost pf goods sold)/net sales revenue

= ($168330 - $38700)/$168330

= 77%

(b)

Return on assets (ROA) = net income/average total assets

= $36516/$873765

= 4.2%

Where,

Average total assets = ($1644430 + $103100)/2 = $873765

(c)

profit margin = net income/sales

= $36516/$168330

= 21.7%

(d)

Total assets turnover = net sales revenue/average total assets

= $168330/$873765

= 0.1926 or 0.2 times

Where,

Where,

Average total assets = ($1644430 + $103100)/2 = $873765

(e)

Return on equity = net income/average shareholders equity

= $36516/$537848

= 6.8%

Where,

Average shareholders equity = {($124000 + $940400 + $58286 - $102000) + ($21360 + $33650)}/2

= ($1020686 + $55010)/2 = $537848

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