Question

Great Adventures Problem AP12-1

[The following information applies to the questions displayed below.]

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				$	193,410
Interest revenue					400
Expenses:
Cost of goods sold	$	39,900
Operating expenses		68,480
Depreciation expense		18,650
Interest expense		10,276
Income tax expense		15,900
Total expenses					153,206
Net income				$	40,604

GREAT ADVENTURES, INC.
Balance Sheets
December 31, 2022 and 2021
	2022				2021
Assets
Current assets:
Cash	$	300,210			$	64,780
Accounts receivable		50,120				0
Inventory		9,800				0
Other current assets		1,180				5,620
Long-term assets:
Land		780,000				0
Buildings		870,000				0
Equipment		90,840				54,000
Accumulated depreciation		(28,050	)			(8,700	)
Total assets	$	2,074,100			$	115,700
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	23,600			$	3,360
Interest payable		1,450				890
Income tax payable		15,900				14,280
Other current liabilities		29,400				0
Notes payable (current)		76,301				0
Notes payable (long-term)		733,955				32,800
Stockholders’ equity:
Common stock		148,000				29,520
Paid-in capital		1,158,800				0
Retained earnings		60,694				34,850
Treasury stock		(174,000	)			0
Total liabilities and stockholders’ equity	$	2,074,100			$	115,700

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.

Great Adventures Problem AP12-1 Part 1

Required:

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.)

Great Adventures Problem AP12-1

[The following information applies to the questions displayed below.]

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				$	193,410
Interest revenue					400
Expenses:
Cost of goods sold	$	39,900
Operating expenses		68,480
Depreciation expense		18,650
Interest expense		10,276
Income tax expense		15,900
Total expenses					153,206
Net income				$	40,604

GREAT ADVENTURES, INC.
Balance Sheets
December 31, 2022 and 2021
	2022				2021
Assets
Current assets:
Cash	$	300,210			$	64,780
Accounts receivable		50,120				0
Inventory		9,800				0
Other current assets		1,180				5,620
Long-term assets:
Land		780,000				0
Buildings		870,000				0
Equipment		90,840				54,000
Accumulated depreciation		(28,050	)			(8,700	)
Total assets	$	2,074,100			$	115,700
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	23,600			$	3,360
Interest payable		1,450				890
Income tax payable		15,900				14,280
Other current liabilities		29,400				0
Notes payable (current)		76,301				0
Notes payable (long-term)		733,955				32,800
Stockholders’ equity:
Common stock		148,000				29,520
Paid-in capital		1,158,800				0
Retained earnings		60,694				34,850
Treasury stock		(174,000	)			0
Total liabilities and stockholders’ equity	$	2,074,100			$	115,700

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.

Great Adventures Problem AP12-1 Part 1

Required:

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.

b. Average collection period.

c. Inventory turnover ratio.

d. Average days in inventory.

e. Current ratio.

f. Acid-test ratio.

g. Debt to equity ratio.

h. Times interest earned ratio.

Answer 1

a. Receivables turnover ratio.

Receivables turnover ratio = Total Credit Sales / Average Accounts Receivables

= $193,410 / [($50,120 + $0)/2]

= $193,410 / $25,060

= 7.7 Times

b. Average collection period.

Average Collection Period = Number of days in a year / Accounts Receivables Turnover Ratio

= 365 Days / 7.7 Times

= 47.4 Days

c. Inventory turnover ratio

Inventory turnover ratio = Cost of goods sold / Average inventory

= $39,900 / [($9,800 + $0)/2]

= $39,900 / $4,900

= 8.1 Times

d. Average days in inventory.

Average days in inventory = Number of days in a year / Inventory turnover ratio

= 365 Days / 8.1 Times

= 45.1 Days

e. Current ratio.

Current ratio = Total Current assets – Total current liabilities

= [$30,0210 + $50,120 + $9,800 + $1,180] / [$23,600 + $1,450 + $15,900 + $29,400 + $76,301]

= $361,310 / $146,651

= 2.5 Times

f. Acid-test ratio.

Acid-test ratio = [Total current assets – Inventory – Other current assets] / Total current liabilities

= [$361,310 - $9,800 - $1,180] / $146,651

= $350,330 / $146,651

= 2.4 Times

Debt to equity ratio.

Debt to equity ratio = Total Liabilities / Total Stockholders Equity

= $880,606 / $1,193,494

= 0.7 Times

h. Times interest earned ratio.

Times Interest Earned Ratio = [Net Income + Income tax + Interest expenses] / Interest Expenses

= [$40,604 + $15,900 + $10,276] / $10,276

= $66,780 / $10,276

= 6.5 Times