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ch 13 exercises #4 The financial statements for Castile Products, Inc., are given below: Castile Products,...

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.)


       

Homework Answers

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

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