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Exercise 14.12 Computing Ratios (LO14-7)

A condensed balance sheet for Bradford Corporation prepared at the end of the year appears as follows:

Assets				Liabilities & Stockholders' Equity
Cash	$	104,000		Notes payable (due in 6 months)	$	44,000
Accounts receivable		110,000		Accounts payable		80,000
Inventory		280,000		Long-term liabilities		387,000
Prepaid expenses		60,000		Capital stock, $5 par		300,000
Plant & equipment (net)		570,000		Retained earnings		403,000
Other assets		90,000
Total	$	1,214,000		Total	$	1,214,000

  During the year the company earned a gross profit of $1,116,000 on sales of $2,950,000. Accounts receivable, inventory, and plant assets remained almost constant in amount throughout the year, so year-end figures may be used rather than averages.

a.	Compute the current ratio. (Round your answer to 2 decimal places.)

     

b.	Compute the quick ratio. (Round your answer to 2 decimal places.)

     

c.	Compute the working capital.

     

d.	Compute the debt ratio. (Round your percentage answers to nearest whole percent. i.e. 0.1234 as 12%.)

     

e.	Compute the accounts receivable turnover (all sales were on credit). (Round your answer to 2 decimal places.)

     

f.	Compute the Inventory turnover. (Round your answer to 2 decimal places.)

     

g.	Compute the book value per share of capital stock. (Round your answer to 2 decimal places.)

     

Answer 1

1

Current Ratio

=Current assets/ current liability

=104000+110000+280000+60,000/ 124000

=554000/124000

=4.47

____________________________________
Quick Ratio

=Current assets-inventory-prepaid expenses/ current liability

=554000-280,000-60,000 /124000

=214000/124000

=1.73

___________________________

Net Working Capital

Current assets- current liability

=554000-124000

=430,000

____________________________

Debt Ratio

=Total debt/ total Assets

=511000 /1214000

=0.4209

=42.09%

__________________________________

Account Receivable Turnover

=Net credit sales/ average account receivable

=2950,000 / 110,000

= 26.82

__________________________________
Inventory Turnover

=cost of gods sold/ average inventory

= ( 2,950,000 – 1,116,000 ) / 280,000

= 6.55

__________________________________

Book value per share of capital

=Net Assets / Number of share

=1214000-511000/60,000

=$11.72