ACC205 week 5 exercise
acc205 week 4 DQ
July 16, 2018ACC205 week 5 DQ
July 16, 2018Week Five Exercise Assignment
Financial Ratios
1.
Liquidity ratios.Edison, Stagg, and Thornton
have the following financial information at the close of business on July 10:
Edison
Stagg
Thornton
Cash
$4,000
$2,500
$1,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
2,000
2,500
3,000
Inventory
1,000
2,500
4,000
Prepaid expenses
800
800
800
Accounts payable
200
200
200
Notes payable: short-term
3,100
3,100
3,100
Accrued payables
300
300
300
Long-term liabilities
3,800
3,800
3,800
Compute the current and
quick ratios for each of the three companies. (Round calculations to two
decimal places.) Which firm is the most liquid? Why?
2.
Computation and evaluation
of activity ratios.The following data relate to
Alaska Products, Inc:
19X5
19X4
Net credit sales
$832,000
$760,000
Cost of goods sold
440,000
350,000
Cash, Dec. 31
125,000
110,000
Average Accounts receivable
180,000
140,000
Average Inventory
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000
Compute the accounts receivable
and inventory turnover ratios for 19X5. Alaska rounds all calculations to
two decimal places.
3.
Profitability ratios,
trading on the equity.Digital Relay has both
preferred and common stock outstanding. The comÂpany reported the following
information for 19X7:
Net sales
$1,500,000
Interest expense
120,000
Income tax expense
80,000
Preferred dividends
25,000
Net income
130,000
Average assets
1,100,000
Average common stockholders’ equity
400,000
Compute the gross profit
margin ratio, the return on equity and the return on assets, rounding
calculations to two decimal places.
Does the firm have
positive or negative financial leverage? Briefly exÂplain.
4. Horizontal analysis. Mary Lynn Corporation has
been operating for several years. Selected data from the 20X1 and 20X2
financial statements follow.
20X2
20X1
Current Assets
$ 76,000
$ 80,000
Property, Plant, and Equipment (net)
99,000
90,000
Intangibles
25,000
50,000
Current Liabilities
40,800
48,000
Long-Term Liabilities
143,000
160,000
Stockholdersâ Equity
16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
332,500
350,000
Operating Expenses
93,500
85,000
Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the
results of your work.
5. Vertical analysis. Mary Lynn Corporation has
been operating for several years. Selected data from the 20X1 and 20X2
financial statements follow.
20X2
20X1
Current Assets
$ 76,000
$ 80,000
Property, Plant, and
Equipment (net)
99,000
90,000
Intangibles
25,000
50,000
Current Liabilities
40,800
48,000
Long-Term Liabilities
143,000
160,000
Stockholdersâ Equity
16,200
12,000
Net Sales
500,000
500,000
Cost of Goods Sold
332,500
350,000
Operating Expenses
93,500
85,000
Prepare a vertical analysis
for 20X1 and 20X2. Briefly comment on the results of your work.
6. Ratio computation. The financial
statements of the Lone Pine Company follow.
LONE
PINE COMPANY
Comparative
Balance Sheets
December
31, 20X2 and 20X1 ($000 Omitted)
20X2
20X1
Assets
Current Assets
Cash and Short-Term
Investments
$ 400
$ 600
Accounts Receivable (net)
3,000
2,400
Inventories
2,000
2,200
Total Current Assets
$5,400
$5,200
Property, Plant, and Equipment
Land
$1,700
$ 600
Buildings and Equipment
(net)
1,500
1,000
Total Property, Plant, and
Equipment
$3,200
$1,600
Total Assets
$8,600
$6,800
Liabilities and
Stockholdersâ Equity
Current Liabilities
Accounts Payable
$1,800
$1,700
Notes Payable
1,100
1,900
Total Current Liabilities
$2,900
$3,600
Long-Term Liabilities
Bonds Payable
4,100
2,100
Total Liabilities
$7,000
$5,700
Stockholdersâ Equity
Common Stock
$ 200
$ 200
Retained Earnings
1,400
900
Total Stockholdersâ Equity
$1,600
$1,100
Total Liabilities and
Stockholdersâ Equity
$8,600
$6,800
LONE
PINE COMPANY
Statement
of Income and Retained Earnings
For
the Year Ending December 31,20X2 ($000 Omitted)
Net Sales*
$36,000
Less: Cost of Goods Sold
$20,000
Selling Expense
6,000
Administrative Expense
4,000
Interest Expense
400
Income Tax Expense
2,000
32,400
Net Income
$
3,600
Retained Earnings, Jan. 1
900
$ 4,500
Cash Dividends Declared
and Paid
3,100
Retained Earnings, Dec. 31
$
1,400
*All sales are on account.
Instructions
Compute the following items
for Lone Pine Company for 20X2, rounding all calcuÂlations to two decimal
places when necessary:
a. Quick ratio
b. Current ratio
c. Inventory-turnover ratio
d.
Accounts-receivable-turnover ratio
e. Return-on-assets ratio
f. Net-profit-margin ratio
g.
Return-on-common-stockholdersâ equity
h. Debt-to-total assets
i. Number of times that
interest is earned
j. Dividend payout rate