Question

Cullumber Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income...

Cullumber Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.
Cullumber Medical
Comparative Balance Sheet
As of December 31
2016 2015
Assets
Current assets
  Cash $397,000 $417,450
  Accounts receivable, net 1,089,000 776,400
  Inventory 733,000 681,050
  Other current assets 381,400 247,100
Total current assets 2,600,400 2,122,000
Property, plant, & equipment, net 8,616,245 8,439,830
  Total assets $11,216,645 $10,561,830
Liabilities and Stockholders’ Equity
Current liabilities $3,156,000 $2,846,050
Long-term debt 3,702,600 3,892,600
  Total liabilities 6,858,600 6,738,650
Preferred stock, $5 par value 58,900 58,950
Common stock, $0.25 par value 104,650 103,850
Retained earnings 4,194,495 3,660,380
  Total stockholders’ equity 4,358,045 3,823,180
  Total liabilities and stockholders’ equity $11,216,645 $10,561,830
Cullumber Medical
Comparative Income Statement and Statement of Retained Earnings
For the Year
2016 2015
Sales revenue (all on account) $10,177,300 $9,613,950
Cost of goods sold 5,612,300 5,298,700
  Gross profit 4,565,000 4,315,250
Operating expenses 2,840,250 2,634,200
Net operating income 1,724,750 1,681,050
Interest expense 300,300 308,650
Net income before taxes 1,424,450 1,372,400
Income taxes (30%) 427,335 411,720
Net income $997,115 $960,680
Dividends paid
  Preferred dividends 29,550 29,500
  Common dividends 433,450 413,100
  Total dividends paid 463,000 442,600
Net income retained 534,115 518,080
Retained earnings, beginning of year 3,660,380 3,142,300
Retained earnings, end of year $4,194,495 $3,660,380

(a-d)

Calculate the following liquidity ratios for 2016. (If working capital is negative then enter with a negative sign preceding the number or parentheses, e.g. -15,000 or (15,000). Round all answers except working capital to 2 decimal places, e.g. 2.55.)
a. Working capital $
b. Current ratio
c. Acid-test ratio
d. Accounts receivable turnover times
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Homework Answers

Answer #1

For 2016

a. Total current assets = $2,600,400

Total current liabilities = $3,156,000
working capital = Total current assets- Total current liabilities

= 2,600,400-3,156,000

= -$555,600

b.

Current ratio = Total current assets/ Total current liabilities

= 2,600,400/3,156,000
= 0.82

c.

Acid test ratio = ( Cash + Accounts receivable)/Current liabilities

= (397,000+1,089,000)/3,156,000
= 1,486,000/3,156,000

= 0.47

d.

Average accounts receivable = (Beginning accounts receivable+ Ending accounts receivable)/2

= (776,400+1,089,000)/2

= $932,700

Accounts receivable turnover = Sales / Average accounts receivable

= 10,177,300/932,700

= 10.91

a. Working capital -$555,600
b. Current ratio 0.82
c. Acid-test ratio 0.47
d. Accounts receivable turnover 10.91 times
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