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

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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