Question

Markus Company’s common stock sold for $2.25 per share at the end of this year. The company paid a common stock dividend of $0.45 per share this year. It also provided the following data excerpts from this year’s financial statements:     

	Ending Balance		Beginning Balance
Cash	$	29,000	$	44,800
Accounts receivable	$	50,000	$	43,800
Inventory	$	48,100	$	50,000
Current assets	$	127,100	$	138,600
Total assets	$	375,000	$	360,000
Current liabilities	$	51,000	$	36,000
Total liabilities	$	100,000	$	90,000
Common stock, $1 par value	$	108,000	$	108,000
Total stockholders’ equity	$	275,000	$	270,000
Total liabilities and stockholders’ equity	$	375,000	$	360,000

     

	This Year
Sales (all on account)	$	550,000
Cost of goods sold	$	319,000
Gross margin	$	231,000
Net operating income	$	93,500
Interest expense	$	5,500
Net income	$	61,600

15. What is the equity multiplier? (Round your answer to 2 decimal places.)

11. What is the company’s operating cycle? (Round your intermediate and final answers to 2 decimal places.)

Answer 1

15. Equity multiplier = Average Total Assets / Average Stockholders equity

Average Total Assets = (Beginning Balance of Total Assets + Ending Balance of Total Assets )/2

= (360,000+375,000) /2

= 367,500

Average Stockholders equity= (Beginning Balance of Stockholders equity+ Ending Balance of Stockholders equity)/2

= (270,000+ 275,000)/2

= 272,500

Equity Multiplier = 367,500​/272,500 = 1.35 (rounded off)

11. Operating Cycle= 365 * (Average Inventories/ Cost of Goods Sold) + 365 * (Average Accounts Receivable/Credit Sales)

Average Inventories​= (Beginning Balance of Inventory+ Ending Balance of Inventory)/2

= (50,000+ 48,100)/2 = 49050

Average Accounts Receivable​= (Beginning Balance of Accounts Receivable+ Ending Balance of Accounts Receivable)/2

= (43800+50000)/2 = 46900

Operating Cycle = 365 * (49050/31900) + 365 * (46900/550,000)

= 56.12 +31.12

= 87.24 days