[The following information applies to the questions displayed below.) Summary in

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[The following information applies to the questions displayed below.) Summary information from the financial statements of two companies competing in th same industry follows Fender Gibson Company Company Gibson Company Company Data from the current year-end balance sheets Assets Cash Accounts receivable, net Current notes receivable (trade) Merchandise inventory Prepaid expenses Plant assets, net Total assets Data from the current year's income statement $ 770,000 $ 889,200 594,100 634,500 13,000 14,800 24,548 52,300 217152 5.27 3.99 $21,000 34,000 Cost of goods sold 34,400 57400 Interest expense 8,800 9,000 8400 Income tax expense 84.440 132,500 Net income 5.30?7050 Basic earnings per share Cash dividends per share 4.01 3.79 300,000 312.400 $454140 $ 551,750 Beginning-of-year balance sheet data Accounts receivable, net Liabilities and Equity Current liabilities Long-term notes payable Common stock, $5 par value Retained earnings Total liabilties and equity $ 31,800$ 51,200 61,340 $ 91300 Current notes recelvable (trade) 86,800 105,000 Merchandise inventory 190,000 206,000 Total assets 16,000 149.450 Common stock, $5 par value 55.600 115.400 378,000 392,500 90,000 206,000 07720 96,686 454140 $551750 Retained earnings 20.00 points Required 1.1 For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts (including notes) receivable turnover, (d) inventory turnover, (e) days' sales in inventory, and (f) days' sales uncollected. (Do not round intermediate calculations.) Choose Numerator: Current Ratio Current ratio Fender 0 to 1 Gibson 0 to 1

Explanation / Answer

Fender Gibson Cash 21000 34000 Accounts receivable (net) 34400 57400 Current notes receivable (trade) 9000 8400 Inventory 84440 132500 Prepaid expense 5300 7050 Current assets 154140 239350 Current liabilities 61340 91300 Fender Gibson 1 Current ratio = Current assets / current liabilities Current assets 154140 239350 Current liabilities 61340 91300 Current ratio 2.51 2.62 3 Acid test ratio = Acid test assets / current liabilities Acid test assets = current assets - prepaid expense - merchandise inventory Acid test assets 64400 99800 Current liabilities 61340 91300 Acid test ratio 1.05 1.09 4 Accounts receivable turnover = net credit sales /Average accounts receivable Net sales 770000 889200 Beginning accounts receivable 31800 51200 Ending accounts receivable 43400 65800 Average accounts receivable 37600 58500 Accounts receivable turnover 20.5 15.2 5 Days sales outstanding = 365 / accounts receivable tunover Days sales outstanding 17.8 24.0 Days 6 Inventory turnover = Cost of goods sold / Average inventory Cost of goods sold 594100 634500 Beginning inventory 55600 115400 Ending inventory 84440 132500 Average inventory 70020 123950 Average inventory = (Beginning + Ending )/2 Inventory turnover 8.5 5.1 7 Days sale in inventory = 365 / inventory turnover Days sales in inventory 43 71 Days

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