The following relationships were obtained for Boulder Mineral Company for 2015:

Question

The following relationships were obtained for Boulder Mineral Company for 2015: Current ratio Inventory turnover (average days supply) Quick ratio Debt/equity Return on equity Return on assets Return on sales (profit margin) Receivables turnover Earnings per share 12.167 0.4:1 0.75:1 0.65:1 0.2:1 25 $16.00 ADDITIONAL INFORMATION: 1. Boulder Mineral Company generated $450,000 in net income during 2015. 2. Credit sales comprise 80 percent of net sales. 3. Cost of goods sold is 55 percent of net sales. 4. Current liabilities are 35 percent of total liabilities. 5. The balance in the cash account is $68,000. 6. The income tax rate was 34 percent. REQUIRED: Using the above information (and year-end balances), compute the following items: a. Shareholders' equity b. Total liabilities

Explanation / Answer

Return on sales = net income /ssles =0.2/1

Net income =$450,000

So sales = 450,000/0.2*1=$2250000

Credit sales = 2250000*80/100=$1800,000

Cost of goods sold =2250000*55/100=$12,37,500

Inventory turnover ratio =12.167

Sales/avg inventory =2250000/avg inventory =12.167

Avg inventory =$2250000/12.167=184926

Inventory =184926*2=$369852

Return on assets =0.65/1

So net income /assets =0.65/1

$450000/assets = 0.65/1

Assets=$450000/0.65*1=692308

Return on equity =$450000/0 75*1=$600,000

Debt /equity =0.4/1=0.4/$600,000

Debt=$600,000/0.4*1=$1400000

Receivables turnover = credit sales/debtors

25=$1800000/ debtors =$1800000/25=72000

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