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.  Acidtest ratio. (Round your answer to 2 decimal places.) 
d.  Debttoequity 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 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.
Acidtest Ratio = (Current Assets  Merchandise Inventory 
Prepaid Expenses) / Current Liabilities
Acidtest Ratio = ($529,000  $310,000  $10,000) / $250,000
Acidtest Ratio = 0.84
Answer d.
Debttoequity Ratio = Total Liabilities / Total Stockholders’
Equity
Debttoequity Ratio = $640,000 / $719,000
Debttoequity 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
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