Homework SourseThe balance sheet for Stud Clothiers is shown next Sales for
The balance sheet for Stud Clothiers is shown next. Sales for the year were $3,420,000, with 75 percent of sales sold on credit.
Compute the following ratios: (Use a 360-day year. Do not round intermediate calculations. Round your answers to 2 decimal places. Input your debt-to-total assets answer as a percent rounded to 2 decimal places.)
A- Current Ratio
B- Quick Ratio
C- Debt to total assets ratio-
D- Assest turnover-
E- Average collection period-
| STUD CLOTHIERS Balance Sheet 20X1 | |||||
| Assets | Liabilities and Equity | ||||
| Cash | $ | 27,000 | Accounts payable | $ | 293,000 |
| Accounts receivable | 291,000 | Accrued taxes | 125,000 | ||
| Inventory | 308,000 | Bonds payable (long-term) | 201,000 | ||
| Plant and equipment | 393,000 | Common stock | 100,000 | ||
| Paid-in capital | 150,000 | ||||
| Retained earnings | 150,000 | ||||
| Total assets | $ | 1,019,000 | Total liabilities and equity | $ | 1,019,000 |
Solution
A) Currrent ratio = Current asset / Current liaiblity
= 27000 + 291000 + 308000 / 293000 + 125000
= 626000 / 418000
= 1.50 Times (1.497)
B) Quick ratio = Cash + Accounts rec. / Current liability
= 27000 + 291000 / 418000
= 0.76 Times
C) Debt to Total assets ratio = (Current liability + long term liability / Total Assets) * 100
=( 418000 + 201000 / 1019000) * 100
= 60.75 %
D) Asset Turnover ratio = Net total Sales / Average total Assets
= 3420000 / 1019000
= 3.36 Times
In the absence of information Total assets are considered as average assets
E) Average collection period = No of Days in year / Accounts Rec. Turnover^
= 360 / 8.81
= 40.84 Days
^Accounts Rec Turnover Ratio = Net Credit sales / Avg Accounts Rec.
= 3420000 * 75% / 291000
= 2565000 / 291000
= 8.81 Times
In the absence of information total Account Rec are considered as Average Accounts Rec.
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