Question

Selected information from the comparative financial statements of Sky Company for the year ended December 31,...

Selected information from the comparative financial statements of Sky Company for the year ended December 31, appears below:

                                                                                   2020                       2019  

Accounts receivable (net) $270,000               $300,000

Inventory 210,000 240,000

Total assets                                                              1,800,000              1,200,000

Current liabilities                                                        210,000                 165,000

Long-term debt                                                          600,000                 450,000

Net credit sales                                                       1,995,000              1,050,000

Cost of goods sold                                                  1,350,000                 795,000

Interest expense                                                           75,000                   37,500

Income tax expense                                                     90,000                   43,500

Net income 225,000                 127,500

Required:

Compute the following ratios at December 31, 2020:

a.   Inventory turnover for 2020.

b.   Accounts receivable turnover for 2020.

c.   The debt to assets ratio for 2020.

d.   Return on assets for 2020.

e.   Times interest earned in 2020.

Business   Accounting   
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Answer #1

Inventory Turnover Ratio : Cost of Goods sold/ Average Inventory

; 1,350,000/ (210,000+240,000)/2 ; 6 .0

Accounts Receivable Turnover Ratio : Net Credit Sales/ Average Receivable

; 1,995,000/ (270,000+300,000)/2 ; 7.0

Debt to Asset Ratio : Debt/ Total assets ; 600,000/1,800,000*100 ; 33.33%

Return on assets : NEt income/ Total Assets ; 225,000/1,800,000 ; 12.5%

Times interest Earned : Earning before Interest and Tax/ Interest Expenses

; (225,000+90,000+75,000)/75,000 ; 5.2 times

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