Frizell Company has the following comparative balance sheet

Frizell Company has the following comparative balance sheet data. FRIZELL COMPANY Balance Sheets December 31 2017 2016 $ 15,800 $ 29,400 Accounts receivable (net) 70,60059,400 59,200 49,100 204,500181,500 $350,100 $319,400 $49,900 $59,300 Mortgage payable (6%)106,500 106,500 Common stock, $10 par 141,500 124,500 29,100 $350,100 $319,400 Cash Inventory Plant assets (net) Accounts payable Retained earnings 52,200 Additional information for 2017: 1. Net income was $24,000 2. Sales on account were $406,500. Sales returns and allowances were $20,600. 3. Cost of goods sold was $199,700. Compute the following ratios at December 31, 2017. (Round answers to 1 decimal place, e.g. 1.6 (a) Current ratio (b) Acid-test ratio (c) Accounts receivable turnover (d) Inventory turnover times times

Solution

a) Current ratio = Current assets/Current liabilities

= (15800+70600+59200) / 49900

Current ratio = 2.9:1

b) Acid test ratio = (15800+70600)/49900 = 1.7:1

c) Account receivable turnover = Net sales/Average account receivable

Average account receivable = (70600+59400/2) = 65000

Net Sales = 406500-20600 = 385900

Account receivable turnover = 385900/65000 = 5.9 Times

d) Inventory turnover = Cost of goods sold/Average inventory

Average inventory = (59200+49100/2) = 54150

Inventory turnover = 199700/54150 = 3.7 Times