Question

Exercise 91 The following information pertains to Wamser Company: Cash $21,500 Accounts receivable 125,000 Inventory 75,500 Plant assets (net) 382,000 Total assets $604,000 Accounts payable $75,000 Accrued taxes and expenses payable 25,000 Long-term debt 49,500 Common stock ($10 par) 160,000 Paid-in capital in excess of par 88,500 Retained earnings 206,000 Total equities $604,000 Net sales (all on credit) $804,000 Cost of goods sold 600,500 Net income 81,500 Compute the following: (Round answers to 2 decimal places e.g. 15.25.) (a) Current ratio : 1 (b) Inventory turnover times (c) Accounts receivable turnover times (d) Book value per share $ (e) Earnings per share $ (f) Debt to assets % (g) Profit margin on sales % (h) Return on common stock equity %

Answer 1

(a) Current ratio = Current assets / current liabiity
= ($21,500 + 125,000 + 75,500) / ($75,000 + 25,000)
= $222,000 / $100,000 = 2.22 : 1

(b) Inventory turnover = Cost of goods sold / Average inventory
= $600,500 / $75,500 = 7.95 times

(c) Accounts receivable turnover = Net Credit Sales / Average Accounts receivable
= $804,000 / $125,000 = 6.43 times

(d) Book value per share = Total shareholders equity / Total outstanding shares
= ($160,000 + $88,500 + $206,000) / ($160,000 / $10)
= $28.41 per share

(e)  Earnings per share = Net Income / Total outstanding shares
= $81,500 / 16,000 = $5.09 per share

(f) Debt to assets = Total debt / Total assets
  = ($75,000 + 25,000 + 49,500) / $604,000
= 24.75%

(g) Profit margin on sales = Net Income / Net Sales
= $81,500 / $804,000 = 10.14%

(h) Return on common stock equity = Net Income / Common stockholder's equity
= $81,500 / ($160,000 + $88,500 + $206,000)
= 17.93%