ACC 205 Week 5 Exercise Assignment 2013 Updated Version

                          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$4,000$2,500$1,000Short-term investments3,0002,5002,000Accounts receivable2,0002,5003,000Inventory1,0002,5004,000Prepaid expenses800800800Accounts payable200200200Notes payable: short-term3,1003,1003,100Accrued payables300300300Long-term liabilities3,8003,8003,800Compute 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:19X519X4Net credit sales$832,000$760,000Cost of goods sold440,000350,000Cash, Dec. 31125,000110,000Average Accounts receivable180,000140,000Average Inventory70,00050,000Accounts payable, Dec. 31115,000108,000Compute the accounts receivable and inventory turnover ratios for 19X5. 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 19X7:Net sales$1,500,000Interest expense120,000Income tax expense80,000Preferred dividends25,000Net income130,000Average assets1,100,000Average common stockholders’ equity400,000Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places. Does the firm have positive or negative financial leverage? Briefly ex­plain. 4.  Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data from the 20X1 and 20X2 financial statements follow.20X2 20X1Current Assets$ 76,000$ 80,000Property, Plant, and Equipment (net)99,00090,000Intangibles25,00050,000Current Liabilities40,80048,000Long-Term Liabilities143,000160,000Stockholders’ Equity16,20012,000Net Sales500,000500,000Cost of Goods Sold332,500350,000Operating Expenses93,50085,000Prepare 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 20X1Current Assets$ 76,000$ 80,000Property, Plant, and Equipment (net)99,00090,000Intangibles25,00050,000Current Liabilities40,80048,000Long-Term Liabilities143,000160,000Stockholders’ Equity16,20012,000Net Sales500,000500,000Cost of Goods Sold332,500350,000Operating Expenses93,50085,000Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.  6. Ratio computation. The financial statements of the Lone Pine Company follow.LONE PINE COMPANYComparative Balance SheetsDecember 31, 20X2 and 20X1 ($000 Omitted)20X220X1Assets Current Assets Cash and Short-Term Investments$ 400$ 600Accounts Receivable (net)3,0002,400Inventories2,0002,200Total Current Assets$5,400$5,200Property, Plant, and Equipment Land$1,700$ 600Buildings and Equipment (net)1,5001,000Total Property, Plant, and Equipment$3,200$1,600Total Assets $8,600$6,800Liabilities and Stockholders’ Equity Current Liabilities Accounts Payable$1,800$1,700Notes Payable1,1001,900Total Current Liabilities$2,900$3,600Long-Term Liabilities Bonds Payable4,1002,100Total Liabilities$7,000$5,700Stockholders’ Equity Common Stock$ 200$ 200Retained Earnings1,400900Total Stockholders’ Equity$1,600$1,100Total Liabilities and Stockholders’ Equity$8,600$6,800 LONE PINE COMPANYStatement of Income and Retained EarningsFor the Year Ending December 31,20X2 ($000 Omitted)Net Sales*$36,000Less: Cost of Goods Sold$20,000Selling Expense6,000Administrative Expense4,000Interest Expense400Income Tax Expense  2,00032,400Net Income$ 3,600Retained Earnings, Jan. 1900  $ 4,500Cash Dividends Declared and Paid3,100Retained 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 ratiob. Current ratioc. Inventory-turnover ratiod. Accounts-receivable-turnover ratioe. Return-on-assets ratiof. Net-profit-margin ratiog. Return-on-common-stockholders’ equityh. Debt-to-total assetsi. Number of times that interest is earnedj. Dividend payout rate