Question

Use the following information to answer questions 105–107.

Green Thumb Garden Supplies reported the following information for 2015 and 2016.

                                                                                      2016           2015

       Assets

       Cash........................................................... ... $ 50,000    $ 45,000

       Accounts receivable................................... ....... 35,000        25,000

       Merchandise inventory............................... ....... 25,000        20,000

       Property, plant, and equipment.................. ... 240,000    210,000

       Total assets................................................ ... $350,000    $300,000

       Liabilities and Shareholders’ Equity

       Current liabilities......................................... ... $ 65,000    $ 60,000

       Non-current liabilities.................................. ..... 110,000        90,000

       Shareholders’ equity—common................ ... 175,000    150,000

       Total liabilities and shareholders’ equity.... ... $350,000    $300,000

       Income statement for 2016

       Sales................................................................. $95,000

       Cost of goods sold...................................... ..... 45,000

       Gross profit................................................. ....... 50,000

       Operating expenses................................... ..... 15,000

       Profit before income tax............................. ....... 35,000

       Income tax expense................................... .....     5,000

       Profit........................................................... ..... $30,000

105. What is the current ratio for 2016?

(a) 2.0:1

(b) 1.7:1

(c) 1.6:1

(d) 0.6:1

106. What is the receivables turnover ratio for 2016?

(a) 2.7 times

(b) 2.0 times

(c) 3.2 times

(d) 3.8 times

107. What is the inventory turnover ratio for 2016?

(a) 2.3 times

(b) 2.0 times

(c) 1.8 times

(d) 0.5 times

please show steps thank you!

Answer 1

Requirement 105
Answer. (b) 1.7 : 1
Current ratio for 2016	= Current Assets/Current Liabilites
Current Assets	= Cash +Accounts receivable + Merchandise inventory
	= 50,000+35,000+25,000
	= 110,000
Current Liabilities	= 65,000
Current ratio for 2016	= 110,000/65,000
	= 1.7:1
Requirement 106
Answer. (c) 3.2 times
Receivables turnover ratio for 2016	=Sales/ Average Accounts Receivables
	= 95000/((35000+25000)/2)
	= 95,000/30,000
	= 3.2 times
Requirement 107
Answer. (b) 2.0 times
Inventory turnover ratio for 2016	=Cost of goods sold/Average merchandise inventory
	= 45,000/( (25000+20000)/2)
	= 2.0 times