Question

     The following table shows Toshiba's financial statements Assets: Amount Cash and marketable securities $400,000 Accounts...

     The following table shows Toshiba's financial statements

Assets:

Amount

Cash and marketable securities

$400,000

Accounts receivable

1,415,000

Inventories   

1,847,500

Prepaid expenses

24,000

Total current assets

3,686,500

Fixed assets       

2,800,000

Less: accum. depr.

(1,087,500)

Net fixed assets

1,712,500

Total assets

$5,399,000

Liabilities:

Accounts payable

$600,000

Notes payable  

875,000

Accrued taxes

92,000

Total current liabilities

$1,567,000

Long-term debt

900,000

Common Stock (100,000 shares)

700,000

Retained Earnings

2,232,000

Total liabilities and owner's equity

$5,399,000

Net sales (all credit)

$6,375,000

Less: Cost of goods sold

(4,375,000)

Selling and administrative expense

(1,000,000)

Depreciation expense

(135,000)

Interest expense

(100,000)

Earnings before taxes

$765,000

Income taxes

(306,000)

Net income

$459,000

1) the acid-test ratio is

2) the average collection period is

3) the return on equity is

4) the inventory turnover ratio is   

Homework Answers

Answer #1

ACID TEST RATIO WILL BE CALCULATED AS:

=Current assets - inventory / current liabilities

= 3,686,500 - 1,847,500 / 1,567,000

= 1,839,000 / 1,567,000

= 1.17%

AVERAGE COLLECTION PERIOD WILL BE CALCULATED AS:

= Average collection period= 365 days / Account receivable turnover ratio whereas ,

ACCOUNT RECEIVABLE TURNOVER RATIO = Net credits sales/ Average account receivable

= 6,375,000 / 1,415,000

=4.50 times

AVERAGE COLLECTION PERIOD = 365 days / 4.5 times

And would be 81.1 that is 81 days

RETURN ON EQUITY WOULD BE CALCULATED AS FOLLOWS:

Net income / Shareholders equity

= 459,000 / 5,399,000 *100

=8.50%

INVENTORY TURNOVER RATIO IS CALCULATED AS FOLLOWS:

Sales / Inventory

= 6,375,000 /1,847,500

=3.45 days

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