Question

In: Finance

Frizell Company has the following comparative balance sheet data.

Frizell Company has the following comparative balance sheet data.

FRIZELL COMPANY Balance Sheets December 31 2017 2016 $ 15,000 $ 30,000 60,000 50,000 Cash Accounts receivable (net) Inventory Plant assets (net) 70,000 60,000 200,000 180,000 $345,000 $320,000 $ 50,000 100,000 140,000 55,000 $ 60,000 Accounts payable Mortgage payable (6%) Common stock, $10 par Retained earnings 100,000 120,000 40,000 $345,000

 

Additional information for 2017:

1. Net income was $25,000.

2. Sales on account were $410,000. Sales returns and allowances were $20,000.

3. Cost of goods sold was $198,000.

 

Instructions

Compute the following ratios at December 31, 2017.

(a) Current ratio.

(b) Acid-test ratio.

(c) Accounts receivable turnover.

(d) Inventory turnover.

Solutions

Expert Solution

a.

Current ratio=Current Assets/Current Liabilities=$15000+$70000+$60000/$50000=$145000/$50000=2.9:1

 

b.

Acid Test ratio=(Cash + Accounts Receivable + Short-term Investments) / Current Liabilities

=$150000+$70000/$50000=$85000/$50000=1.7:1

 

c.

Accounts Receivable Turnover=Net sales/Average of Opening and closing receivables

=$410000-$20000/$65000 (average receivable calculated as $60000+$70000/2)

=$390000/$65000

=6:1

 

d.

Inventory Turnover Ratio=Cost of goods sold/Average Inventory

=$198000/$55000 (average inventory calculated as $50000+$60000/2)

=18:5

a.

Current ratio=Current Assets/Current Liabilities=$15000+$70000+$60000/$50000=$145000/$50000=2.9:1

Junaid answered 2 years ago
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