Question

Hyrkas Corporation's most recent balance sheet and income statement appear below:

    

Statement of Financial Position December 31, Year 2 and Year 1 (in thousands of dollars)
	Year 2		Year 1
Asset:
Current assets:
Cash	$	100	$	110
Accounts receivable		210		220
Inventory		110		100
Prepaid expenses		15		15
Total current assets		435		445
Plant and equipment, net		890		870
Total assets	$	1,325	$	1,315
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable	$	160	$	150
Accrued liabilities		50		50
Notes payable, short term		100		110
Total current liabilities		310		310
Bonds payable		190		240
Total liabilities		500		550
Stockholders' equity:
Preferred stock, $100 par value, 10%		200		200
Common stock, $1 par value		100		100
Additional paid-in capital--common stock		110		110
Retained earnings		415		345
Total stockholders' equity		825		755
Total liabilities and stockholders' equity	$	1,325	$	1,305

Income Statement For the Year Ended December 31, Year 2 (in thousands of dollars)
Sales (all on account)	$	1,420
Cost of goods sold		874
Gross margin		546
Selling and administrative expenses		291
Net operating income		255
Interest expense		55
Net income before taxes		200
Income taxes (30%)		60
Net income	$	140

       

Dividends on common stock during Year 2 totaled $50 thousand. The market price of common stock at the end of Year 2 was $9.26 per share.

  

f.	Compute the return on total assets for Year 2.(Do not round intermediate calculations. Round your answer to 2 decimal places.)

  
      

g.	Compute the return on common stockholders' equity for Year 2. (Round your answer to 2 decimal places.)

  
      

h.	Compute the book value per share for Year 2. (Round your answer to 2 decimal places.)

  
      

i.	Compute the working capital for Year 2. (Input your answer in thousands of dollars.)

  
      

j.	Compute the current ratio for Year 2. (Round your answer to 2 decimal places.)

  
      

k.	Compute the acid-test ratio for Year 2.(Round your answer to 2 decimal place.)

  
      

l.	Compute the accounts receivable turnover for Year 2. (Round your answer to 2 decimal places.)

  
      

m.	Compute the average collection period for Year 2. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to one decimal place.)

  
      

n.	Compute the inventory turnover for Year 2. (Round your answer to 2 decimal places.)

  
      

o.	Compute the average sale period for Year 2. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal place.)

  
      

p.	Compute the times interest earned for Year 2. (Round your answer to 2 decimal places.)

  
      

q.	Compute the debt-to-equity ratio for Year 2. (Round your answer to 2 decimal places.)

  
      

Answer 1

f) Return on total assets for year 2 = Net income / Average total assets

Average total assets = Beginning assets + Ending assets / 2 = $1315 + $1325 /2 = $1320

Net income = 140

Return on total assets = 140 / 1320 = 0.1

g) Return on common stockholder's equity for year 2 = Net income - Preferred dividends / Average common equity

where, Average common equity = (Beginning common equity + Ending common equity) /2

Beginning common equity = Total equity in year 1 - Preferred equity in year 1= $755 -$200 = $555

Ending common equity = Total equity in year 2 - Preferred equity in year2 P= $825 -$200 = $625

Average common equity = $555 + $625 / 2 = $590

Preferred Dividends = 10% of $200 = $20

Return on common stockholder's equity = ($140 - $20) / 590 = 0.20

h) Book value per share for year 2 = (Total shareholder's equity - Preferred equity) / Total common shares in year 2

= ($825 - $200) / 100 = $625 / 100 = $6.25

i) Working capital for year2 = current assets in year 2 - current liabilities in year 2

For year 2, Current assets = $435, curent liabilities = $310

Working capital = $435 - $310 = $125

J) Current ratio for year 2 = Current assets in year 2 / current liabilities in year 2

= $435 / $310 = 1.4

k) Acid test ratio for year 2 = (Cash + Accounts Receivable) for year 2 / current liabilities for year 2

= $100 + $210 / 310 = $310 / $310 = 1

l) Accounts receivable turnover ratio for year 2 = Sales / Average accounts receivable

where, average accounts receivable = Beginning accounts receivable + Ending accounts receivable / 2

= $220 + $210 / 2 = $430 / 2= $215

Accounts receivable turnover ratio = $1420 / $215 = 6.60

m) Average collection period for year 2 = 365 / Accounts receivables turnover for year 2

Accounts receivables turnover = 6.60

Average collection period for year 2 = 365 / 6.6

= 55.3

n) Inventory turnover for year 2 = cost of the goods sold for year 2 / Average inventory

where,average inventory == Beginning inventory + Ending inventory / 2

= ($100 + $110) / 2 = $105

Cost of the goods sold = $874 / $105 = 8.32

p) Times interest earned for year 2 = Net operating income for year 2 / Interest expense for year 2

= $255 / 55 = 4.63

q) Debt equity ratio for year 2 = Total liabilities in year 2 / Equity in year 2

= $500 / $825 = 0.60