Question

Question No: 2

The financial statements of Ahmed Company appear below:

Ahmed Company

Comparative Balance Sheet

December 31,

————————————————————————————————

Assets                                                                                  2019               2018

Cash                                                                              $ 250,000     $ 400,000

Short-term investments                                              150,000 600,000

Accounts receivable (net)                                                  500,000       300,000

Inventory    500,000     700,000

Property, plant and equipment (net)                           2,600,000    3,000,000

     Total assets                                                       $4,000,000   $5,000,000

Liabilities and stockholders' equity

Accounts payable                                                           $ 200,000   $ 300,000

Short-term notes payable                                                   300,000         900,000

Bonds payable 900,000     1,600,000

Common stock 1,500,000     1,500,000

Retained earnings                                                           1,100,000         700,000

     Total liabilities and stockholders' equity                  $4,000,000   $5,000,000

Ahmed Company

Income Statement

For the Year Ended December 31, 2013

Net sales                                                                                           $4,000,000

Cost of goods sold 2,400,000

Gross profit 1,600,000

Expenses

     Operating expenses $420,000

Interest expense                                                           180,000

          Total expenses                                                                           600,000

Income before income taxes                                                         1,000,000

Income tax expense                                                                        300,000

Net income                                                                                        $ 700,000

Additional information:

a.   Cash dividends of $230,000 were declared and paid in 2019.

b.   Weighted-average number of shares of common stock outstanding during 2019 was 300,000 shares.

c.   Market value of common stock on December 31, 2019, was $210 per share.

Instructions

Using the financial statements and additional information, compute the following ratios for Salem Company for 2019. Show all computations.

1. Receivables turnover; 2.Times interest earned; 3.Profit margin; 4. Days in inventory 5.Payout ratio; 6.Return on assets.

Answer 1