Question

ch 13 exercises #4

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash				$	19,000
Accounts receivable, net					190,000
Merchandise inventory					310,000
Prepaid expenses					10,000
Total current assets					529,000
Property and equipment, net					830,000
Total assets				$	1,359,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities				$	250,000
Bonds payable, 9%					390,000
Total liabilities					640,000
Stockholders’ equity:
Common stock, $10 par value				$	110,000
Retained earnings					609,000
Total stockholders’ equity					719,000
Total liabilities and equity				$	1,359,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	2,520,000
Cost of goods sold		1,239,000
Gross margin		1,281,000
Selling and administrative expenses		590,000
Net operating income		691,000
Interest expense		35,100
Net income before taxes		655,900
Income taxes (30%)		196,770
Net income	$	459,130

     Account balances at the beginning of the year were: accounts receivable, $170,000; and inventory, $280,000. All sales were on account.

Required:

Compute the following financial data and ratios:

a.	Working capital.

       

b.	Current ratio. (Round your answer to 2 decimal places.)

        

c.	Acid-test ratio. (Round your answer to 2 decimal places.)

        

d.	Debt-to-equity ratio. (Round your answer to 2 decimal places.)

      

e.	Times interest earned ratio. (Round your answer to 2 decimal places.)

       

f.	Average collection period. (Use 365 days in a year. Round your answer to 1 decimal place.)

       

g.	Average sale period. (Use 365 days in a year. Round your intermediate and final answer to 1 decimal place.)

       

h.	Operating cycle. (Round your intermediate calculations and final answers to 1 decimal place.)

       

Answer 1

Answer a.

Working Capital = Current Assets - Current Liabilities
Working Capital = $529,000 - $250,000
Working Capital = $279,000

Answer b.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $529,000 / $250,000
Current Ratio = 2.12

Answer c.

Acid-test Ratio = (Current Assets - Merchandise Inventory - Prepaid Expenses) / Current Liabilities
Acid-test Ratio = ($529,000 - $310,000 - $10,000) / $250,000
Acid-test Ratio = 0.84

Answer d.

Debt-to-equity Ratio = Total Liabilities / Total Stockholders’ Equity
Debt-to-equity Ratio = $640,000 / $719,000
Debt-to-equity Ratio = 0.89

Answer e.

Times Interest Earned Ratio = Net Operating Income / Interest Expense
Times Interest Earned Ratio = $691,000 / $35,100
Times Interest Earned Ratio = 19.69