Question

     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   

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