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5. Earnings per share is computed by dividing net income (after deducting preferred
dividends) by the average number of common shares outstanding.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
6. The dividend payout ratio divided by the dividend yield ratio equals the price-earnings
ratio.
Ans: True AACSB: Analytic
AICPA FN: Reporting LO: 2
16-5
11. If a company's acid-test ratio increases, its current ratio will also increase.
Ans: True AACSB: Analytic
AICPA FN: Reporting LO: 3
12. Assuming a current ratio greater than 1, acquiring land by issuing more of the
company's common stock will increase the current ratio.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 3
13. If a company successfully implements lean production, its inventory turnover ratio
should decrease.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 3
16-6
16-7
16-8
16-9
16-10
$824,000
477,000
347,000
208,000
139,000
37,000
102,000
30,000
$ 72,000
16-11
15
30%
$5
16-12
16-13
16-14
16-15
16-16
$610,000
350,000
260,000
110,000
150,000
30,000
120,000
36,000
$ 84,000
The beginning balance of total assets was $560,000 and the ending balance was
$580,000. The return on total assets is closest to:
A) 18.4%
B) 14.7%
C) 26.3%
D) 21.1%
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
16-17
Year 2
Year 1
$ 100,000 $ 100,000
300,000
300,000
370,000
370,000
480,000
390,000
$1,250,000 $1,160,000
Net income for Year 2 was $160,000. Dividends on common stock were $47,000 in
total and dividends on preferred stock were $23,000 in total. The return on common
stockholders' equity for Year 2 is closest to:
A) 9.4%
B) 13.3%
C) 12.4%
D) 14.5%
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Return on common stockholders' equity = (Net income Preferred dividends)
Average common stockholders' equity*
= ($160,000 $23,000) $1,105,000 = 12.4%
*Average common stockholders' equity = ($1,060,000 + $1,150,000) 2 = $1,105,000
16-18
$ 100,000
400,000
360,000
580,000
$1,440,000
A total of 400,000 shares of common stock and 20,000 shares of preferred stock were
outstanding at the end of the year. The book value per share is closest to:
A) $3.35
B) $5.00
C) $1.90
D) $3.60
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Book value per share= Common stockholders' equity Number of common shares
outstanding* = $1,340,000 400,000 shares = $3.35 per share
46. Dravis Company's working capital is $10,000 and its current liabilities are $84,000.
The company's current ratio is closest to:
A) 0.88
B) 0.12
C) 9.40
D) 1.12
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Current ratio = Current assets Current liabilities = ($84,000 + $10,000) $84,000 =
1.12
16-19
16-20
16-21
16-22
$12,000
$29,000
$37,000
$51,000
$20,000
$115,000
16-23
16-24
16-25
This Year
$101,000
$155,000
$662,000
$399,000
Last Year
$125,000
$153,000
16-26
16-27
$87,000
$49,000
$38,000
$11,000
$27,000
16-28
$760,000
$570,000
$190,000
16-29
16-30
Year 2
Year 1
$ 140 $ 130
160
140
170
150
90
90
560
510
840
900
$1,400 $1,410
$ 150 $ 150
60
60
60
60
270
270
230
270
500
540
200
200
100
100
100
100
500
470
900
870
$1,400 $1,410
$1,370
800
570
439
131
31
100
30
$ 70
Dividends on common stock during Year 2 totaled $30 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $4.86
per share.
65. The gross margin percentage for Year 2 is closest to:
A) 814.3%
B) 71.3%
C) 41.6%
D) 12.3%
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Gross margin percentage = Gross margin Sales = $570 $1,370 = 41.6%
66. The earnings per share of common stock for Year 2 is closest to:
A) $0.60
B) $0.70
C) $1.00
D) $1.31
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
16-31
16-32
16-33
16-34
16-35
16-36
16-37
16-38
Year 2
Year 1
$ 260 $ 120
160
190
180
160
60
70
660
540
680
750
$1,340 $1,290
$ 170 $ 150
40
40
80
90
290
280
290
300
580
580
100
100
200
200
100
100
360
310
760
710
$1,340 $1,290
16-39
16-40
16-41
16-42
16-43
Year 4
Year 3
Year 2
Year 1
$810,000 $720,000 $630,000 $600,000
Cash....................................
Accounts receivable...........
Inventory............................
Prepaid expenses................
Total current assets.............
16-44
16-45
16-46
Year 1
$ 200 $ 170
170
140
120
120
20
30
510
460
1,530 1,540
$2,040 $2,000
$ 170 $ 160
60
50
270
290
500
500
290
790
300
800
100
100
200
200
280
280
670
620
1,250 1,200
$2,040 $2,000
16-47
$1,740
1,210
530
210
320
30
290
87
$ 203
Dividends during Year 2 totaled $153 thousand, of which $10 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $80.
93. Orahood Company's earnings per share of common stock for Year 2 was closest to:
A) $7.25
B) $2.14
C) $4.83
D) $5.08
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Earnings per share = (Net Income Preferred Dividends)
Average number of common shares outstanding*
= ($203 $10) (40 shares + 40 shares)/2 = $4.83 per share
*Number of common shares outstanding = Common stock Par value
= $200 $5 per share = 40 shares
16-48
16-49
16-50
16-51
Year 2
Year 1
$ 90,000 $ 70,000
110,000 110,000
500,000 420,000
$700,000 $600,000
Current liabilities...................................................
Bonds payable........................................................
Preferred stock (par value $100, 8%)....................
Common stock (par value $5)................................
Additional paid-in capitalcommon stock.............
Retained earnings...................................................
Total liabilities and equities...................................
$110,000 $80,000
140,000 100,000
75,000
75,000
125,000 125,000
220,000 220,000
30,000
0
$700,000 $600,000
Matti Company
Income Statement
For the Year Ended December 31, Year 2
Sales.......................................................................
Cost of goods sold..................................................
Gross margin..........................................................
Selling and administrative expense........................
Net operating income.............................................
Interest expense......................................................
Net income before taxes.........................................
Income taxes (30%)...............................................
Net Income.............................................................
$800,000
450,000
350,000
250,000
100,000
10,000
90,000
27,000
$ 63,000
Dividends were $33,000 for the year, of which $6,000 were for preferred stock.
16-52
16-53
16-54
16-55
16-56
16-57
16-58
16-59
16-60
16-61
16-62
16-63
16-64
16-65
16-66
Year 2 Year 1
$1,540 $1,530
$470
$490
Stockholders equity:
Preferred stock, $100 par value, 5%...................
Common stock, $1 par value..............................
Additional paid-in capitalcommon stock..........
Retained earnings................................................
Total stockholders equity......................................
$ 100 $ 100
200
200
150
150
620
590
$1,070 $1,040
$1,290
790
500
334
166
30
136
41
$ 95
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on preferred
stock totaled $5 thousand. The market price of common stock at the end of Year 2 was $3.87
per share.
16-67
16-68
16-69
16-70
16-71
$ 200,000
240,000
340,000
20,000
400,000
$1,200,000
Accounts payable...................................................
Taxes payable.........................................................
Interest payable......................................................
Long-term bonds payable......................................
Common stock $(14 par).......................................
Retained earnings...................................................
Total liabilities & stockholders equities................
$ 300,000
90,000
10,000
200,000
280,000
320,000
$1,200,000
Spencer Company
Income Statement
For the Year Ended December 31
Sales (all on account).............................................
Cost of goods sold..................................................
Gross margin..........................................................
Selling and administrative expenses......................
Net operating income.............................................
Interest expense......................................................
Net income before taxes.........................................
Income taxes (30%)...............................................
Net income.............................................................
16-72
$1,800,000
1,120,000
680,000
520,000
160,000
20,000
140,000
42,000
$ 98,000
16-73
16-74
Year 2
Year 1
$ 160
180
110
40
490
$ 160
160
130
40
490
1,910 1,870
$2,400 $2,360
$ 120 $ 150
80
50
200
200
400
400
500
900
500
900
120
120
200
200
280
280
900
860
1,500 1,460
$2,400 $2,360
16-75
$1,600
1,120
480
190
290
50
240
72
$ 168
133. Marbet Company's working capital (in thousands of dollars) at the end of Year 2 was
closest to:
A) $90
B) $1,500
C) $490
D) $600
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Working capital = Current assets Current liabilities = $490 $400 = $90
134. Marbet Company's current ratio at the end of Year 2 was closest to:
A) 0.37
B) 1.20
C) 1.23
D) 0.44
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Current ratio = Current assets Current liabilities = $490 $400 = 1.23
16-76
16-77
16-78
Year 2
$75,000
$225,000
$270,000
$40,000
$500,000
$30,000
$120,000
$50,000
Year 1
$35,000
$200,000
$210,000
$20,000
$500,000
$25,000
$110,000
$70,000
Year 2
Year 1
$1,500,000 $1,300,000
$900,000
$800,000
16-79
16-80
16-81
16-82
Year 2
Year 1
10 $ 130
150
130
140
120
20
20
320
400
890
830
$1,210 $1,230
$ 160 $ 180
60
70
60
70
280
320
70
110
350
430
100
100
200
200
180
180
380
320
860
800
$1,210 $1,230
$1,280
870
410
215
195
16
179
54
$ 125
16-83
16-84
16-85
Year 2
Year 1
$150
130
160
90
$530
$200
$150
110
150
90
$500
$210
Sales on account in Year 2 amounted to $1,170 and the cost of goods sold was $700.
150. The working capital at the end of Year 2 is:
A) $330 thousand
B) $530 thousand
C) $1,030 thousand
D) $860 thousand
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Working capital = Current assets Current liabilities = $530 thousand $200
thousand = $330 thousand
151. The current ratio at the end of Year 2 is closest to:
A) 0.38
B) 0.26
C) 2.65
D) 0.68
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Current ratio = Current assets Current liabilities = $530 $200 = 2.65
16-86
16-87
16-88
Year 2
Year 1
$200
160
170
80
$610
$290
$160
150
150
80
$540
$270
Sales on account in Year 2 amounted to $1,240 and the cost of goods sold was $730.
157. The working capital at the end of Year 2 is:
A) $320 thousand
B) $840 thousand
C) $1,000 thousand
D) $610 thousand
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Working capital = Current assets Current liabilities = $610 thousand $290
thousand = $320 thousand
158. The current ratio at the end of Year 2 is closest to:
A) 2.10
B) 0.42
C) 0.31
D) 0.74
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Current ratio = Current assets Current liabilities = $610 $290 = 2.10
16-89
16-90
Year 2
Year 1
$100
250
120
90
$560
$250
$160
300
110
80
$650
$270
Sales on account in Year 2 amounted to $1,440 and the cost of goods sold was $890.
162. The working capital at the end of Year 2 is:
A) $930 thousand
B) $310 thousand
C) $950 thousand
D) $560 thousand
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Working capital = Current assets Current liabilities = $560 thousand $250
thousand = $310 thousand
163. The current ratio at the end of Year 2 is closest to:
A) 0.38
B) 0.96
C) 2.24
D) 0.36
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Current ratio = Current assets Current liabilities = $560 $250 = 2.24
16-91
16-92
16-93
16-94
Year 1
$ 130 $ 120
200
170
130
130
90
80
550
500
1,380 1,360
$1,930 $1,860
$ 160 $ 160
90
80
110
110
360
350
510
870
500
850
100
100
160
160
240
240
560
510
1,060 1,010
$1,930 $1,860
$2,960
2,070
890
350
540
50
490
147
$ 343
167. Narasaki Company's times interest earned for Year 2 was closest to:
A) 17.8
B) 10.8
C) 9.8
D) 6.9
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Times interest earned = Net operating income Interest expense
= $540 $50 = 10.8
168. Narasaki Company's debt-to-equity ratio at the end of Year 2 was closest to:
A) 0.48
B) 0.34
C) 1.55
D) 0.82
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Debt-to-equity ratio = Liabilities Stockholders' equity
= $870 $1,060 = 0.82
16-95
16-96
Year 1
80 $ 140
120
110
130
110
100
90
430
450
670
730
$1,100 $1,180
$ 170 $ 190
40
50
80
90
290
330
70
120
360
450
100
100
200
200
120
120
320
310
740
730
$1,100 $1,180
16-97
16-98
16-99
16-100
Year 1
$ 320 $ 180
220
240
140
130
20
20
700
570
860
920
$1,560 $1,490
$ 200 $ 170
80
80
40
40
320
290
210
220
530
510
100
100
100
100
150
150
680
630
1,030
980
$1,560 $1,490
16-101
16-102
16-103
16-104
$ 160 $ 180
80
80
80
80
320
340
70
100
390
440
200
200
200
200
130
130
450
410
980
940
$1,370 $1,380
$1,350
820
530
399
131
17
114
34
$ 80
16-105
16-106
$561,000
325,000
236,000
106,000
130,000
35,000
95,000
30,000
$ 65,000
Required:
Compute the gross margin percentage.
Ans:
Gross margin percentage = Gross margin Sales = $236,000 $561,000 = 42.1%
AACSB: Analytic AICPA BB: Critical Thinking
LO: 1 Level: Easy
16-107
16-108
Year 1
$ 140 $ 140
190
180
150
150
70
70
550
540
1,490 1,420
$2,040 $1,960
$ 160 $ 160
50
60
230
250
440
470
300
740
300
770
120
120
180
180
210
210
790
680
1,300 1,190
$2,040 $1,960
$2,000
1,400
600
240
360
30
330
99
$ 231
Dividends during Year 2 totaled $121 thousand, of which $12 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was
$80.
Required:
Compute the following for Year 2:
a. Earnings per share of common stock.
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders' equity.
g. Book value per share.
h. Working capital.
i. Current ratio.
j. Acid-test ratio.
k. Accounts receivable turnover.
l. Average collection period.
m. Inventory turnover.
n. Average sale period.
o. Times interest earned.
p. Debt-to-equity ratio.
16-109
16-110
16-111
16-112
16-113
16-114
$ 150 $ 160
40
40
50
50
240
250
90
100
330
350
200
200
400
400
140
140
340
320
1,080 1,060
$1,410 $1,410
16-115
$1,410
860
550
449
101
15
86
26
$ 60
16-116
16-117
Year 2 Year 1
$1,520 $1,490
$200
$400
$160
$380
$200
$400
$160
$320
Net income for Year 2 was $110 thousand. Interest expense was $21 thousand. The tax
rate was 30%. Dividends on common stock during Year 2 totaled $40 thousand.
Dividends on preferred stock totaled $10 thousand. The market price of common stock
at the end of Year 2 was $9.15 per share.
Required:
Compute the following for Year 2:
a. Earnings per share (of common stock).
b. Price-earnings ratio.
c. Dividend payout ratio.
d. Dividend yield ratio.
e. Return on total assets.
f. Return on common stockholders' equity.
g. Book value per share.
Ans:
a. Earnings per share = (Net Income Preferred Dividends)
Average number of common shares outstanding*
= ($110 $10) (200 shares + 200 shares)/2 = $0.50 per share
*Number of common shares outstanding = Common stock Par value
= $400 $2 per share = 200 shares
b. Price-earnings ratio = Market price per share Earnings per share (see above)
= $9.15 $0.50 = 18.3
c. Dividend payout ratio = Dividends per share* Earnings per share (see
above)
= $0.20 $0.50 = 40.0%
*Dividends per share = Common dividends Common shares (see above)
= $40 200 shares = $0.20 per share
16-118
180. Mikolajczyk Corporation's net income for the most recent year was $1,379,000. A
total of 100,000 shares of common stock and 200,000 shares of preferred stock were
outstanding throughout the year. Dividends on common stock were $1.15 per share
and dividends on preferred stock were $1.30 per share.
Required:
Compute the earnings per share of common stock. Show your work!
Ans:
Earnings per share = (Net Income Preferred Dividends)
Average number of common shares outstanding
= ($1,379,000 $260,000) 100,000 shares = $11.19 per share
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2 Level: Easy
16-119
182. Dupas Corporation's net income last year was $7,330,000. The dividend on common
stock was $12.70 per share and the dividend on preferred stock was $1.70 per share.
The market price of common stock at the end of the year was $47.20 per share.
Throughout the year, 500,000 shares of common stock and 200,000 shares of preferred
stock were outstanding.
Required:
Compute the dividend payout ratio. Show your work!
Ans:
Dividend payout ratio = Dividends per share Earnings per share*
= $12.70 $13.98 = 0.91
*Earnings per share = (Net Income Preferred Dividends)
Average number of common shares outstanding
= ($7,330,000 $340,000) 500,000 shares = $13.98 per share
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2 Level: Easy
16-120
$760,000
450,000
310,000
100,000
210,000
40,000
170,000
51,000
$119,000
The beginning balance of total assets was $930,000 and the ending balance was
$970,000.
Required:
Compute the return on total assets. Show your work!
16-121
185. Excerpts from Orr Corporation's most recent balance sheet appear below:
Preferred stock.......................................................
Common stock.......................................................
Additional paid-in capitalcommon stock.............
Retained earnings...................................................
Total stockholders equity......................................
Year 2
Year 1
$ 200,000 $ 200,000
400,000
400,000
390,000
390,000
420,000
350,000
$1,410,000 $1,340,000
Net income for Year 2 was $147,000. Dividends on common stock were $50,000 in
total and dividends on preferred stock were $27,000 in total.
Required:
Compute the return on common stockholders' equity. Show your work!
Ans:
Return on common stockholders' equity = (Net income Preferred dividends)
Average common stockholders' equity* = ($147,000 $27,000) $1,175,000 =
10.2%
*Average common stockholders' equity = ($1,210,000 + $1,140,000) 2 = $1,175,000
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2 Level: Easy
16-122
$ 200,000
300,000
380,000
490,000
$1,370,000
A total of 150,000 shares of common stock and 20,000 shares of preferred stock were
outstanding at the end of the year.
Required:
Compute the book value per share. Show your work!
Ans:
Book value per share = Common stockholders' equity Number of common shares
outstanding = $1,170,000 150,000 shares = $7.80 per share
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2 Level: Easy
16-123
16-124
Year 1
$ 120 $ 120
180
150
100
100
10
20
410
390
1,830 1,780
$2,240 $2,170
$ 130 $ 150
30
50
270
270
430
470
310
740
300
770
100
100
240
240
250
250
910
810
1,500 1,400
$2,240 $2,170
$2,400
1,680
720
280
440
30
410
123
$ 287
Required:
Compute the following for Year 2:
a. Current ratio.
b. Acid-test ratio.
c. Average collection period.
d. Inventory turnover.
e. Times interest earned.
f. Debt-to-equity ratio.
Ans:
a. Current ratio = Current assets Current liabilities = $410 $430 = 0.95
b. Acid-test ratio = Quick assets* Current liabilities = $300 $430 = 0.70
*Quick assets = Cash + Marketable securities + Accounts receivable + Shortterm notes receivable = $120 + $180 = $300
c. Accounts receivable turnover = Sales on account Average accounts
receivable* = $2,400 $165 = 14.55
*Average accounts receivable = ($180 + $150) 2 = $165
Average collection period = 365 days Accounts receivable turnover
= 365 14.55 = 25.1 days
16-125
16-126
Year 1
30 $ 110
210
260
190
170
70
70
500
610
810
740
$1,310 $1,350
$ 140 $ 150
30
30
40
40
210
220
190
240
400
460
100
100
400
400
130
130
280
260
910
890
$1,310 $1,350
16-127
$1,260
770
490
400
90
26
64
19
$ 45
Required:
Compute the following for Year 2:
a. Working capital.
b. Current ratio.
c. Acid-test ratio.
d. Accounts receivable turnover.
e. Average collection period.
f. Inventory turnover.
g. Average sale period.
Ans:
a. Working capital = Current assets Current liabilities = $500 thousand $210
thousand = $290 thousand
b. Current ratio = Current assets Current liabilities = $500 $210 = 2.38
c. Acid-test ratio = Quick assets* Current liabilities = $240 $210 = 1.14
*Quick assets = Cash + Marketable securities + Accounts receivable + Shortterm notes receivable = $30 + $0 + $210 = $240
d. Accounts receivable turnover = Sales on account Average accounts
receivable* = $1,260 $235 = 5.36
*Average accounts receivable = ($210 + $260) 2 = $235
e. Average collection period = 365 days Accounts receivable turnover (see
above) = 365 days 5.36 = 68.1 days
16-128
189. Excerpts from Beaty Corporation's most recent balance sheet (in thousands of dollars)
appear below:
Year 2 Year 1
Current assets:
Cash............................................
$ 70
$140
Accounts receivable....................
250
280
Inventory.....................................
150
140
Prepaid expenses.........................
20
20
Total current assets.........................
$490
$580
Current liabilities:
Accounts payable........................
$150
$170
Accrued liabilities.......................
90
90
Notes payable, short term...........
80
80
Total current liabilities...................
$320
$340
Sales on account during the year totaled $1,320 thousand. Cost of goods sold was
$730 thousand.
Required:
Compute the following for Year 2:
a. Working capital.
b. Current ratio.
c. Acid-test ratio.
d. Accounts receivable turnover.
e. Average collection period.
f. Inventory turnover.
g. Average sale period.
16-129
190. Romaine Corporation's total current assets are $300,000, its noncurrent assets are
$570,000, its total current liabilities are $270,000, its long-term liabilities are
$360,000, and its stockholders' equity is $240,000.
Required:
Compute the company's working capital. Show your work!
Ans:
Working capital = Current assets Current liabilities = $300,000 $270,000 =
$30,000
AACSB: Analytic AICPA BB: Critical Thinking
LO: 3 Level: Easy
16-130
192. Data from Furnia Corporation's most recent balance sheet appear below:
Cash....................................
Marketable securities.........
Accounts receivables.........
Inventory............................
Prepaid expenses................
Current liabilities...............
$13,000
$21,000
$32,000
$52,000
$16,000
$118,000
Required:
Compute the company's acid-test ratio. Show your work!
Ans:
Acid-test ratio = Quick assets* Current liabilities = $66,000 $118,000 = 0.56
*Quick assets = Cash + Marketable securities + Accounts receivable + Short-term
notes receivable = $13,000 + $21,000 + $32,000 = $66,000
AACSB: Analytic AICPA BB: Critical Thinking
LO: 3 Level: Easy
16-131
This Year
$118,000
$141,000
$687,000
$455,000
Last Year
$123,000
$165,000
Required:
Compute the accounts receivable turnover for this year. Show your work!
Ans:
Accounts receivable turnover = Sales on account Average accounts receivable*
= $687,000 $120,500 = 5.70
*Average accounts receivable = ($118,000 + $123,000) 2 = $120,500
AACSB: Analytic AICPA BB: Critical Thinking
LO: 3 Level: Easy
194. Data from Ringwald Corporation's most recent balance sheet and income statement
appear below:
Accounts receivable...........
Inventory............................
Sales on account.................
Cost of goods sold..............
This Year
$118,000
$164,000
$727,000
$481,000
Last Year
$103,000
$173,000
Required:
Compute the average collection period for this year:
16-132
This Year
$104,000
$150,000
$879,000
$575,000
Last Year
$115,000
$157,000
Required:
Compute the inventory turnover for this year:
Ans:
Inventory turnover = Cost of goods sold Average inventory*
= $575,000 $153,500 = 3.75
*Average inventory = ($150,000 + $157,000) 2 = $153,500
AACSB: Analytic AICPA BB: Critical Thinking
LO: 3 Level: Easy
16-133
This Year
$134,000
$151,000
$864,000
$675,000
Last Year
$138,000
$171,000
Required:
Compute the average sale period for this year:
Ans:
Average sale period = 365 days Inventory turnover*
= 365 days 4.19 = 87.1 days
*Inventory turnover = Cost of goods sold Average inventory*
= $675,000 $161,000 = 4.19
**Average inventory = ($151,000 + $171,000) 2 = $161,000
AACSB: Analytic AICPA BB: Critical Thinking
LO: 3 Level: Easy
16-134
Year 1
$ 130 $ 160
120
110
90
100
20
20
360
390
890
840
$1,250 $1,230
$ 190 $ 180
70
60
40
40
300
280
130
150
430
430
100
100
200
200
130
130
390
370
820
800
$1,250 $1,230
16-135
$1,150
710
440
358
82
18
64
19
$ 45
Required:
Compute the following for Year 2:
a. Times interest earned.
b. Debt-to-equity ratio.
Ans:
a. Times interest earned = Net operating income Interest expense
= $82 $18 = 4.56
b. Debt-to-equity ratio = Liabilities Stockholders' equity
= $430 $820 = 0.52
AACSB: Analytic AICPA BB: Critical Thinking
LO: 4 Level: Medium
198. Froemming Corporation's net operating income last year was $193,000; its interest
expense was $22,000; its total stockholders' equity was $950,000; and its total
liabilities were $400,000.
Required:
Compute the following for Year 2:
a. Times interest earned.
b. Debt-to-equity ratio.
16-136
199. Brandy Corporation has provided the following data from its most recent income
statement:
Net operating income.....................
Interest expense..............................
Net income before taxes.................
Income taxes..................................
Net income.....................................
$51,000
$37,000
$14,000
$4,000
$10,000
Required:
Compute the times interest earned ratio. Show your work!
Ans:
Times interest earned = Net operating income Interest expense
= $51,000 $37,000 = 1.38
AACSB: Analytic AICPA BB: Critical Thinking
LO: 4 Level: Easy
16-137
$740,000
$610,000
$130,000
Required:
Compute the debt-to-equity ratio. Show your work!
Ans:
Debt-to-equity ratio = Liabilities Stockholders' equity
= $610,000 $130,000 = 4.69
AACSB: Analytic AICPA BB: Critical Thinking
LO: 4 Level: Easy
16-138