Question

The balance sheet for Bryan Corporation is given below. Sales for the year were $3,190,000, with 75 percent of sales sold on credit.

BRYAN CORPORATION Balance Sheet Dec. 31, 20XX
Assets			Liabilities and Equity
Cash		$60,000	Accounts payable		$295,000
Accounts receivable		390,000	Accrued taxes		50,000
Inventory		425,000	Bonds payable (long term)		300,000
Plant and equipment		485,000	Common stock		430,000
			Retained earnings		285,000
Total assets		$1,360,000	Total liabilities and equity		$1,360,000

Compute the following ratios: (Use 365 days in a year. Do not round intermediate calculation. Round the final answers to 2 decimal places.)

a.	Current ratio	x
b.	Quick ratio	x
c.	Debt-to-total-assets ratio	%
d.	Asset turnover	x
e.	Average collection period	days

Answer 1

a. Current ratio = Current assets / Current libilities

Current assets = Cash, accounts receivable and inventory

Current liabilities = Accounts payable and accrued taxes

CURRENT RATIO = ($60,000 + $390,000 + $425,000) / ($295,000 + $50,000)

= $875,000 / $345,000 = 2.5362

CURRENT RATIO = 2.54

b. Quick ratio = Current assets(except inventory) / Current liabilities

= ($60,000 + $390,000) / $345,000 = $450,000 / $345,000 = 1.30

QUICK RATIO = 1.30

c. Debt-to-total-assets ratio = (Total debts / Total assets) * 100

Total debts = Accounts payable + accrued taxes + bonds payable = $295,000 + $50,000 + $300,000 = $645,000

Total assets = $1,360,000

Debt-to-total-assets ratio = ($645,000 / $1,360,000 ) * 100 = 47.42%

d. Asset turnover = sales / total assets

Sales = $3,190,000

Total assets = $1,360,000

Asset turnover = $3,190,000 / $1,360,000 = 2.34

e. Average collection period = (Accounts receivable / Net credit sales) * 365

Accounts receivables = $390,000

Credit sales = 75% of cash sales $3,190,000 = $3,190,000 * 75% = $2,392,500

Average collection period = ($390,000 / $2,392,500) * 365 = 59.4984 days

Average collection period = 59.49 days