Question

1) Berkshire LLC reported the following income statement and balance sheet amounts on December 31, 2011.

	2011	2010
Net sales revenue (all credit)	$950,000
Cost of goods sold	630,000
Gross profit	320,000
Selling and general expenses	230,000
Interest expense	20,000
Net income	$70,000
Current assets	$60,000	$55,000
Long-term assets	465,000	445,000
Total assets - 12/31	$525,000	$500,000
Current liabilities	$25,000	$20,000
Long-term liabilities	105,000	205,000
Common stockholders’ equity - 12/31	395,000	275,000
Total liabilities and stockholders' equity	$525,000	$500,000

                    Inventory and prepaid expenses account for $20,000 of the 2011 current assets.

Average inventory for 2011 is $15,000.

Average net accounts receivable for 2011 is $30,000.

Average one-day sales are $3,150.

There are 7,000 shares of common stock outstanding.

Total dividends paid during 2011 were $140,000.

The market price per share of common stock is $21.

1. What is the debt ratio for 2011?
2. What is the company's current ratio for 2011?
3. What is the company's acid-test ratio?
4. What is the company's inventory turnover?
5. What is the company's accounts receivable turnover?
6. What is the company's days' sale in receivables?
7. What is the company's times-interest-earned ratio?
8. What is the company's rate of return on net sales?
9. What is the company's rate of return on total assets?
10. What is the company's rate of return on common stockholders' equity?

NOTE: 1)   Each question is worth 10 points.

              2) All calculations and formula must be shown

Answer 1

a. debt ratio = [(short-term debt + long-term debt) or Long-term liabilities]/Total assets

debt ratio = $105,000/$525,000 = 0.2

the debt ratio for 2011 is 0.2.

b. Current ratio = Current assets/Current liabilities

Current ratio = $60,000/$25,000 = 2.4

the company's current ratio for 2011 is 2.4.

c. acid-test ratio = (current assets - inventory and prepaid expenses)/current liabilities

acid-test ratio = ($60,000 - $20,000)/$25,000 = $40,000/$25,000 = 1.6

the company's acid-test ratio for 2011 is 1.6.

d. inventory turnover = Cost of goods sold/average inventory

inventory turnover = $630,000/$15,000 = 42

the company's inventory turnover for 2011 is 42.

e. accounts receivable turnover = Net credit sales/average accounts receivable

accounts receivable turnover = $950,000/$30,000 = 31.67

the company's accounts receivable turnover is 31.67.