Question

Using the information on your August financial statements calculate the following ratios for your company using an Excel spreadsheet:

1. Gross Profit Percentage
2. Accounts Receivable Turnover Ratio
3. Day’s Sales in Receivables
4. Debt Ratio
5. Debt to Equity Ratio
6. Profit Margin Ratio
7. Rate of Return on Total Assets
8. Asset Turnover Ratio

Show the information in your spreadsheet in three columns:

Ratio Name                                                                 Formula/Amounts                   Ratio Value

1. Gross Profit Percentage
2. Accounts Receivable Turnover Ratio
3. Day’s Sales in Receivables
4. Debt Ratio
5. Debt to Equity Ratio
6. Profit Margin Ratio
7. Rate of Return on Total Assets
8. Asset Turnover Ratio

These are the journal entries:

Step 1: Entries

Date	Account Titles	Ref.	Debit	Credit
Aug	Raw Materials Inventory`	$3,100
	Accounts Payable		$3,100
	(To record purchase of raw materials on account)
Aug	Selling and Administrative Expenses	$1,200
	Cash			$1,200
	(To record selling and administrative expenses paid)
Aug	Work in Process	$3,900
	Raw Materials Inventory`	$3,900
	(To raw materials used in production)
Aug	Factory Overhead	$300
	Raw Materials Inventory`	$300
	(To record use of indirect materials)
Aug	Work in Process	$3,600
	Factory Overhead	$400
	Accounts Payable		$4,000
	(To record direct and indirect wages incurred, 4,000 x 90% = 3,600 and 4,000 x 10% = 400, respectively)
Aug	Factory Overhead	$1,300
	Accounts Payable		$1,300
	(To record factory overhead incurred)
Aug	Work in Process	$2,160
	Factory Overhead		$2,160
	(To record factory overhead assigned to work in process at 60% of direct labor cost; 3,600 x 60% = $2,160)
Aug	Finished Goods Inventory	$10,000
	Work in Process		$10,000
	(To record cost of products completed)
Aug	Accounts Receivable	$17,500
	Sales			$17,500
Aug	Cost of Goods Sold	$9,500
	Finished Goods Inventory	$9,500
	(To record cost of goods sold)
Step 2:
Adjustment for over or under allocated overhead:
Aug-31	Factory Overhead	$160
	Cost of Goods Sold	$160
	(To record adjustment for over-applied factory overhead)

(over applied overhead = 2,160 - (300 + 400 + 1,300) = $160)

Answer 1

	Formula			Calculations		Ratio Value
GP Percentage	Sales - Cost of Goos Sold			17500 - 9500	8000	45.71%
	Sales			17500	17500
Accounts receivable turnover ratio	Net Credit Sales	x	No.of days	17500   x 30days		30 days
	Average Accounts Receivable			17500
days sales in receivables'	Average accounts receivable			17500		30 days
	Average daily credit sales			17500/30
debt ratio	Total liabilities	=	Total payables	3100 + 4000 + 1300	8400	46.41%
	Total assets		Accounts receivables + Inventory	17500 + 600	18100
debt to equity ratio	Short term debt + Long term debt
	Shareholder's equity
profit margin ratio	Net Profit		4800			27.43%
	Sales		17500
rate of return on total assets	Net Income	=	Net Profit	4800		26.52%
	Total assets		Accounts receivables + Inventory	17500 + 600
asset turnover ratio	Sales			17500		96.69%
	Total assets			17500 + 600

Workings

Gross Profit and Net Profit Calculation
Sales	$17,500.00
Cost of Goods Sold	-$9,500.00
Gross profit	$8,000.00
Expenses
Selling and admin expenses	1200
Labour cost: 3600 x 60%	2160
Factory overhead adjustment	-160
Net Profit (GP-expenses)	$4,800.00

Inventory Calculations
Inventory: Purchases + Work in process - Finished Goods
3100 + 3900 + 3600 - 10000	$600.00