Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter4: Accounting For Retail Operations
Section: Chapter Questions
Problem 4.9MBA
Related questions
Question
- To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year.
- The amount of
working capital - The
current ratio - The acid-test ratio
- The average collection period (The accounts receivable at the beginning of last year totaled $250,000)
- The average sales period (The inventory at the beginning of last year totaled $500,000)
- The operating cycle
- The total asset turnover. (The total assets at the beginning of last year were $2,420,000)
- The debt-to-equity ratio
- The times interest earned ratio
- The equity multiplier (The total
stockholder’s equity at the beginning of last year totaled $1,420,000)
2. For both this year and last year
A. Present the balance sheet in common-size format
B. Present the income statement in common-size format down through net income
Could I please have somed help with Question 10 with a breakdown of the explanation?
Expert Solution
Step 1
1. To assist in approaching the bank about the loan, paul has asked you to compute the following ratios for both this year and last year:
|
|
This Year
|
Past Year
|
1. Working capital
|
Current Assets - Current Liabilities
|
$720,000
|
$660,000
|
2. Current Ratio
|
Current Assets/Current Liabilities
|
1.90
|
2.53
|
3.Acid-test ratio
|
(Current Assets - Inventory - Prepaid expense)/Current Liabilities
|
0.69
|
1.09
|
4. Average collection period
|
365/(Sales/(Average Accounts Receivable))
|
28
|
25
|
5. Average sale period
|
365/(Cost of goods sold/Average Inventories))
|
73
|
58
|
Average Payable Period
|
365/(Cost of goods sold/Average Payable))
|
58
|
45
|
6. Operating cycle
|
Average collection period + Average sales period - Average payable period
|
44
|
38
|
7. Total Assets Turnover
|
Sales/Average Assets
|
1.83
|
1.78
|
8. Debt to equity ratio
|
Total long-term liabilities/Total Equity
|
37.5%
|
42.0%
|
9.Times Interest Earned Ratio
|
Operating Profit/Interest expense
|
6.56
|
4.89
|
10. Equity Multiplier
|
Average Total Assets/Average Total Equity
|
1.80
|
1.71
|
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