Question

The financial statements of Bill Gates Manufacturing are shown below.

Income Statement 2020
Sales	$	9,300,000
Cost of Goods Sold		5,750,000
Depreciation Expense		550,000
Gross Profit	$	3,000,000
Selling and Administrative Expenses		2,200,000
EBIT	$	800,000
Interest Expense		200,000
Income before Tax	$	600,000
Taxes		375,000
Net Income	$	225,000

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Bill Gates Manufacturing Comparative Balance Sheets
	2020			2019
Cash	$	50,000			$	40,000
Accounts Receivable		570,000				600,000
Inventory		530,000				460,000
Total Current Assets	$	1,150,000			$	1,100,000
Fixed Assets		2,050,000				1,400,000
Total Assets	$	3,200,000			$	2,500,000
Accounts Payable	$	320,000			$	300,000
Bank Loans		480,000				400,000
Total Current Liabilities	$	800,000			$	700,000
Long-term Bonds		1,500,000				1,000,000
Total Liabilities	$	2,300,000			$	1,700,000
Common Stock (200,000 shares)		200,000				200,000
Retainded Earnings		700,000				600,000
Total Equity	$	900,000			$	800,000
Total Liabilities and Equity	$	3,200,000			$	2,500,000

The firm's current ratio for 2020 indicates that Bill Gates' liquidity has ________ since 2019.

A)	risen
B)	stayed the same
C)	The answer cannot be determined from the information given.
D)	fallen

The firm's debt-to-equity ratio for 2020 is ________.

A)	2.13
B)	2.44
C)	2.56
D)	2.89

The firm's debt-to-equity ratio for 2020 is ________.

The industry average Days sales in receivables is 32 days. How is Bill Gates doing in its collections relative to the industry, assuming all sales are credit sales?

A)	It takes Bill Gates about the same number of days to collect outstanding receivables.
B)	It takes less time for Bill Gates to collect outstanding receivables.
C)	It takes more time for Bill Gates to collect outstanding receivables.

Answer 1

Question 1:

Answer: D) fallen

Calculation:

Current Ratio = Current Assets / Current Liabilities

Current Ratio	2020	2019
Current ratio	$1,150,000 / $800,000 = 1.44 : 1	$1,100,000 / $700,000 = 1.57 : 1

Question 2:

Answer: C) 2.56

Calculation:

Debt to equity ratio = Total Liabilities / Total Assets

Year 2020

Debt to equity ratio = $2,300,000 / $900,000 = 2.56 times

Question 3:

Answer: B) It takes less time for Bill Gates to collect outstanding receivables.

Calculation:

Average days sales = 365 days / Net credit sales * Average accounts receivable

Average accounts receivable = ($600,000 + $570,000) / 2 = $585,000

Average days sales = 365 days / $9,300,000 * $585,000 = 22.96 days

All the best...