Question

The market value of Farmington Corp.'s common shares was quoted at $54 per share at December 31, 2018, and 2017. Planetarium 's balance sheet at December 31, 2018, and 2017, and statement of income and retained earnings for the years then ended are presented below: Farmington Corp. Balance Sheet December 31 2018 2017 Assets: Current assets: Cash $ 9,000,000 $ 5,200,000 Short-term investments 17,200,000 15,400,000 Accounts receivable (net) 109,000,000 111,000,000 Inventories, lower of cost or market 122,000,000 140,000,000 Prepaid expenses 4,000,000 2,800,000 Total current assets $261,200,000 $274,400,000 Property, plant, and equipment (net) 350,000,000 315,000,000 Investments, at equity 2,800,000 3,500,000 Long-term receivables 15,000,000 20,000,000 Copyrights and patents (net) 6,000,000 7,000,000 Other assets 8,000,000 9,100,000 Total assets $643,000,000 $629,000,000 Liabilities and Stockholders' Equity: Current liabilities: Notes payable $ 7,000,000 $ 17,000,000 Accounts payable 55,000,000 52,000,000 Accrued expenses 27,500,000 30,000,000 Income taxes payable 1,500,000 2,000,000 Current portion of long-term debt 10,000,000 9,500,000 Total current liabilities 101,000,000 110,500,000 Long-term debt 180,000,000 190,000,000 Deferred income taxes 69,000,000 65,000,000 Other liabilities 15,000,000 9,500,000 Total liabilities 365,000,000 375,000,000 Stockholders' equity: Common stock, par value $1; authorized 20,000,000 shares; issued and outstanding 12,000,000 shares 12,000,000 12,000,000 10% cumulative preferred shares, par value $100; $100 liquidating value; authorized 100,000 shares; issued and outstanding 60,000 shares 6,000,000 6,000,000 Additional paid-in capital 119,000,000 119,000,000 Retained earnings 141,000,000 117,000,000 Total stockholders' equity 278,000,000 254,000,000 Total liabilities and stockholders' equity $643,000,000 $629,000,000 Farmington Corp. Statement of Income and Retained Earnings Year ended December 31 2018 2017 Net sales $540,000,000 $500,000,000 Cost and expenses: Cost of goods sold 390,900,000 400,000,000 Selling, general, and administrative expenses 70,000,000 65,000,000 Other, net 9,100,000 6,000,000 Total costs and expenses 470,000,000 471,000,000 Income before income taxes 70,000,000 29,000,000 Income taxes 21,000,000 11,600,000 Net income 49,000,000 17,400,000 Retained earnings at beginning of period 117,000,000 113,100,000 Dividends on common stock (24,400,000) (12,900,000) Dividends on preferred stock (600,000) (600,000) Retained earnings at end of period $141,000,000 $117,000,000 Instructions Based on the above information, compute the following (for the year 2018 only): (Show supporting computations in good form.) (a) Current ratio. (b) Acid-test (quick) ratio. (c) Accounts receivable turnover. (d) Inventory turnover. (e) Book value per share of common stock. (f) Earnings per share. (g) Price-earnings ratio. (h) Payout ratio on common stock.

Answer 1

1	Current ratio = Current assets / current liabilities
	Current assets	261200000
	Current liabilities	101000000
	Current ratio	2.59
2	Acid test ratio = Acid test assets / current liabilities
	Acid test assets = current assets - prepaid expense - merchandise inventory
	Acid test assets	135200000
	Current liabilities	101000000
	Acid test ratio	1.34
3	Accounts receivable turnover = net credit sales /Average accounts receivable
	Net sales	540000000
	Beginning accounts receivable	111000000
	Ending accounts receivable	109000000
	Average accounts receivable	110000000
	Accounts receivable turnover	4.9
	Days sales outstanding = 365 / accounts receivable tunover
	Days sales outstanding	74.4	Days
4	Inventory turnover = Cost of goods sold / Average inventory
	Cost of goods sold	390900000
	Beginning inventory	140000000
	Ending inventory	122000000
	Average inventory	131000000
	Average inventory = (Beginning + Ending )/2
	Inventory turnover	3.0
5	Days sale in inventory = 365 / inventory turnover
	Days sales in inventory	122	Days