ACC 205 Week 5 Exercises (Ashford University) (100% Accurate) (September 2013 Updated)

Week Five Exercise Assignment

Financial Ratios

 

1.

    

 

Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

  EdisonStaggThorntonCash$

6,000

$5,000$

4,000

 Short-term investments

3,000

2,500

2,000

 Accounts receivable2,0002,5003,000 Inventory

1,000

2,5004,000 Prepaid expenses800800800 Accounts payable200200200 Notes payable: short-term

3,100

3,1003,100 Accrued payables300300300 Long-term liabilities3,8003,8003,800

     

     

1. Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?

 

2.      Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:

     

 

20X5

20X4

Net credit sales

$832,000

$760,000

 

Cost of goods sold

530,000

400

,000

 

Cash, Dec. 31

1

25,000

110,000

 

Average Accounts receivable

205,000

156,000

 

Average Inventory

70,000

50,000

 

Accounts payable, Dec. 31

115,000

108,000

 

  

Instructions

a.      
Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.

       

   

3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The com­pany reported the following information for 20X7:

   Net sales$1,750,000Interest expense120,000Income tax expense80,000Preferred dividends25,000Net income130,000Average assets1,200,000Average common stockholders’ equity

500,000

    

1. Compute the profit margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
2. Does the firm have positive or negative financial leverage? Briefly ex­plain.

 

4.      Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the

20X1

and

20X2

financial statements follow.

    

20X2 20X1 Current

Assets

$86,000

$

80,000

Property, Plant, and Equipment

(net)

99,000

90,000

Intangibles

25,00050,000

Current Liabilities

40,800

48,000

Long-Term Liabilities

153,000

160,000

Stockholders’ Equity

16,200

12,000

Net Sales

500,000500,000

Cost of Goods Sold

322,500

350,000

Operating Expenses

93,500

85,000

    

 

a.       Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of your work.

  

5.Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.

 

20X2 20X1

Property, Plant, and Equipment (net)

80,000

Intangibles

Current Liabilities

Long-Term Liabilities

Stockholders’ Equity

Net Sales

500,000

Cost of Goods Sold

Operating Expenses

    

Current Assets	$86,000	$80,000
99,000
25,000	50,000
40,800	48,000
153,000	150,000
16,200	12,000
	500,000
322,500	350,000
93,500	85,000

 

a.       Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.

                       

 

     

 

 

 

 20X2 20X1 Assets  Current Assets  

 

 

3,000 

 

3,000 

 

 

 Property, Plant, and Equipment  

 

 

 1,000

 

 

 

 

 

 Current Liabilities  

 $1,700

 

 

 

 

 Long-Term Liabilities  

 

 

 

 Stockholders’ Equity  

 $200

 

 900

 

 

$9,600  $6,800

           LONE PINE COMPANY

 

 

 

 

 

 

  

 

6,000  

 

4,000  

 

400  

 

2,000

 

 

 $3,600  

 

 900 

 

 

 

 

 3,100 

 

 

 

 

       

6. Ratio computation. The financial statements of the Lone Pine Company follow.
	LONE PINE COMPANY
Comparative Balance Sheets
December 31, 20X2 and 20X1 ($000 Omitted)
Cash and Short-Term Investments	$400	$600
Accounts Receivable (net)	2,400
Inventories	2,300
Total Current Assets	$6,400	$5,300
Land		$1,700	$500
Buildings and Equipment (net)	1,500
Total Property, Plant, and Equipment	$3,200	$1,500
Total Assets		$9,600		$6,800
Liabilities and Stockholders’ Equity
Accounts Payable	$2,800
Notes Payable	1,100	1,		900
Total Current Liabilities	$3,900		$3,600
Bonds Payable	4,100	2,100
Total Liabilities	$8,000	$5,700
Common Stock		$200
Retained Earnings	1,400
Total Stockholders’ Equity	$1,600	$1,100
Total Liabilities and Stockholders’ Equity
Statement of Income and Retained Earnings
For the Year Ending December 31,20X2 ($000 Omitted)
Net Sales*	$36,000
Less: Cost of Goods Sold	$20,000
Selling Expense
Administrative Expense
Interest Expense
Income Tax Expense	32,400
Net Income
Retained Earnings, Jan. 1
Ending Retained Earnings	$4,500
Cash Dividends Declared and Paid
Retained Earnings, Dec. 31	$1,400
*All sales are on account.

 

Instructions

Compute the following items for Lone Pine Company for 20X2, rounding all calcu­lations to two decimal places when necessary:

a. Quick ratio

b. Current ratio

c. Inventory-turnover ratio

d. Accounts-receivable-turnover ratio

e. Return-on-assets ratio

f. Net-profit-margin ratio

g. Return-on-common-stockholders’ equity

h. Debt-to-total assets

i. Number of times that interest is earned