College Accounting, Chapters 1-27
College Accounting, Chapters 1-27
23rd Edition
ISBN: 9781337794756
Author: HEINTZ, James A.
Publisher: Cengage Learning,
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Consider the following financial statements for Green Valley
Nursing Home, Inc., a for-profit, long-term care facility:
Green Valley Nursing Home, Inc., Statement
of Income and Retained Earnings, Year Ended
December 31, 2015
Assets
Green Valley Nursing Home, Inc.,
Balance Sheet, December 31, 2015
Revenue:
Net patient service revenue
$3,163,258
Other revenue
Total revenues
106,146
$3,269,404
Expenses:
Salaries and benefits
$1,515,438
Medical supplies and drugs
966,781
Insurance
296,357
Current Assets:
Cash
Marketable securities
Net patient accounts receivable
Supplies
Total current assets
Property and equipment
Less accumulated depreciation
Net property and equipment
Total assets
$ 105,737
200,000
215,600
87,655
$ 608,992
$2,250,000
356,000
$1,894,000
$2,502,992
(continued)
Provision for bad debts
110,000
Depreciation
85,000
(continued from previous page)
Interest
206,780
Liabilities and Shareholders'
Total expenses
$3,180,356
Equity
Operating income
Current Liabilities:
$
89,048
Accounts payable
Provision for income taxes
31,167
Accrued expenses
Net income
$
57,881
Notes payable
Current portion of long-term debt
Total current liabilities
$
72,250
192,900
100,000
80,000
Retained earnings, beginning of year
$ 199,961
Retained earnings, end of year
$ 257,842
Long-term debt
Shareholders' Equity:
Common stock, $10 par value
Retained earnings
Total shareholders' equity
Total liabilities and shareholders'
equity
$ 445,150
$1,700,000
$ 100,000
257,842
$ 357,842
$2,502,992
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Transcribed Image Text:Consider the following financial statements for Green Valley Nursing Home, Inc., a for-profit, long-term care facility: Green Valley Nursing Home, Inc., Statement of Income and Retained Earnings, Year Ended December 31, 2015 Assets Green Valley Nursing Home, Inc., Balance Sheet, December 31, 2015 Revenue: Net patient service revenue $3,163,258 Other revenue Total revenues 106,146 $3,269,404 Expenses: Salaries and benefits $1,515,438 Medical supplies and drugs 966,781 Insurance 296,357 Current Assets: Cash Marketable securities Net patient accounts receivable Supplies Total current assets Property and equipment Less accumulated depreciation Net property and equipment Total assets $ 105,737 200,000 215,600 87,655 $ 608,992 $2,250,000 356,000 $1,894,000 $2,502,992 (continued) Provision for bad debts 110,000 Depreciation 85,000 (continued from previous page) Interest 206,780 Liabilities and Shareholders' Total expenses $3,180,356 Equity Operating income Current Liabilities: $ 89,048 Accounts payable Provision for income taxes 31,167 Accrued expenses Net income $ 57,881 Notes payable Current portion of long-term debt Total current liabilities $ 72,250 192,900 100,000 80,000 Retained earnings, beginning of year $ 199,961 Retained earnings, end of year $ 257,842 Long-term debt Shareholders' Equity: Common stock, $10 par value Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ 445,150 $1,700,000 $ 100,000 257,842 $ 357,842 $2,502,992
a. Perform a Du Pont analysis on Green Valley. Assume that the
industry average ratios are as follows:
Total margin
3.5%
Total asset turnover
1.5
Equity multiplier
2.5
Return on equity (ROE)
13.1%
b. Calculate and interpret the following ratios:
Industry Average
Return on assets (ROA)
Current ratio
5.2%
2.0
Days cash on hand
22 days
Average collection period
19 days
Debt ratio
71%
Debt-to-equity ratio
2.5
Times interest earned (TIE) ratio
2.6
Fixed asset turnover ratio
1.4
c. Assume that there are 10,000 shares of Green Valley's stock
outstanding and that some recently sold for $45 per share.
• What is the firm's price/earnings ratio?
What is its market/book ratio?
(Hint: These ratios are discussed in the supplement to this
chapter.)
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Transcribed Image Text:a. Perform a Du Pont analysis on Green Valley. Assume that the industry average ratios are as follows: Total margin 3.5% Total asset turnover 1.5 Equity multiplier 2.5 Return on equity (ROE) 13.1% b. Calculate and interpret the following ratios: Industry Average Return on assets (ROA) Current ratio 5.2% 2.0 Days cash on hand 22 days Average collection period 19 days Debt ratio 71% Debt-to-equity ratio 2.5 Times interest earned (TIE) ratio 2.6 Fixed asset turnover ratio 1.4 c. Assume that there are 10,000 shares of Green Valley's stock outstanding and that some recently sold for $45 per share. • What is the firm's price/earnings ratio? What is its market/book ratio? (Hint: These ratios are discussed in the supplement to this chapter.)
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