SERIAL PROBLEM Business Solutions This serial problem began

SERIAL PROBLEM Business Solutions (This serial problem began in Chapter I and continues through most of the book. if previous chapter seg- ments were not completed, the serial problem can begin at this point.) P3 SP 13 Use the following selected data from Business Solutions\'s income statement for the three months ended March 31, 2018, and from its March 31, 2018, balance sheet to complete the requirements below: computer services revenue, $25.307; net sales (of goods). S18,693; total sales and revenue, $44,000; cost of goods sold, $14,052; net income, $18,833: quick assets, $90,924; current assets, $95,568: total assets, S120,268; current liabilities, $875: total liabilities, $875: and total equity, $119,393. Required 1. Compute the gross margin ratio (both with and without services revenue) and net profit margin ratio (round the percent to one decimal). 2. Compute the current ratio and acid-test ratio (round to one decimal). 3. Compute the debt ratio and equity ratio (round the percent to one decimal) 4. What percent of its assets are current? What percent are long term? (Round the percents to one decimal.) RF

Solution

Gross profit = Sales – COGS

                       = 44000 – 14052 = 29948

Gross margin ratio is the ratio of gross profit of a business to its revenue. It is a profitability ratio measuring what proportion of revenue is converted into gross profit

Gross margin = Gross profit/ revenue

                            = 29948/ 44000

                          = 0.6806 or 68.06%

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Without service revenue gross margin

Gross profit = 18693 – 14052 = 4641

Gross margin = Gross profit/ revenue

                            = 4641/ 44000

                          = 0.1055 or 10.55%

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The net profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio that measures the amount of net income earned with each dollar of sales generated by comparing the net income and net sales of a company. In other words, the profit margin ratio shows what percentage of sales are left over after all expenses are paid by the business.

Profit margin ratio = Net Income/ Net sales

                                      = 18833/ 44000

                                      = 0.428

So profit margin ratio is 0.428 or 42.8%

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The current ratio is a liquidity ratio that measures a company\'s ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the current total assets of a company (both liquid and illiquid) relative to that company’s current total liabilities. The formula for calculating a company’s current ratio is

Current ratio = Current asset/ Current liability

                           = 95568/ 875

                           = 109.22

Current ratio is 109.22

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The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receivable are considered quick assets.

Quick ratio = (Cash + Cash equivalents + short term investment + Current receivables)/Current liability

Quick ratio = (90924)/ 875

                        = 90924/ 875

                        = 103.91

Quick ratio is 103.91

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There are no long term debt, so debt ratio cannot be determined

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The equity ratio is an investment leverage or solvency ratio that measures the amount of assets that are financed by owners’ investments by comparing the total equity in the company to the total assets

Equity ratio = Total Equity/ Total asset

                     = 119393/ 120268

                     = 0.9927 or 99.27%

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Current asset % = Current asset/ total asset

                             = 90924/ 120268

                             = .7560 or 75.60%

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Lon term asset % = fixed asset/ total asset

                                 = (120268 – 90924)/ 120268

                                  = 29344/ 120268

                                 = .244 or 24.4%

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Hope that helps.

Feel free to comment if you need further assistance J