(Ratio Computations and Effect ofTransactions) Presented below is information re
ID: 2449741 • Letter: #
Question
(Ratio Computations and Effect ofTransactions)
Presented below is information related to Carver Inc.
CARVER INC.
December 31, 2007
15,000
150,000
$488,000
$488,000
CARVER INC.
For the year ended December31, 2007
790,000
170,000
820,000
170,000
$410,000
Instructions
(a) Compute the following ratios orrelationships of Carver Inc. Assume that the ending accountbalances are representative unless the information providedindicates differently. (Round answers to 2 decimalplaces.)
(b) Indicate for each of the followingtransactions whether the transaction would improve, weaken, or haveno effect on the current ratio of Carver Inc. at December 31,2007.
CARVER INC.
Balance SheetDecember 31, 2007
Cash $45,000 Notes payable (short-term) $50,000 Receivables $110,000 Accounts payable 32,000 Less: Allowance15,000
95,000 Accrued liabilities 5,000 Inventories 170,000 Capital stock (par $5) 260,000 Prepaid insurance 8,000 Retained earnings 141,000 Land 20,000 Equipment (net)150,000
$488,000
$488,000
Explanation / Answer
3.65 times
Current Ratio Current Assets Cash 45000.00 Receivables 95000.00 Inventories 170000.00 Prepaid Insurance 8000.00 318000.00 Current Liabilities Notes Payable 50000.00 Accounts Payable 32000.00 Accrued Liabilities 5000.00 87000.00 Current Ratio Current Assets / Current Liabilities3.65 times
Inventory Turnover Cost of Goods Sold 820000.00 Average Inventory ( 200,000 + 170,000 ) / 2 185000.00 Inventory Turnover Cost of Goods Sold / Average Inventory 4.43 Receivables Turnover Net Credit Sales / Average Accounts Receivable 1400000 / 95000 14.73 Earnings per Share Net Income / Number of Shares outstanding 410000 / 52000 7.88 Profit Margin on Sales Net Income / Sales 410,000 / 1400000 29.28% Return on Assets Net Income / Assets 410,000 / 488000 84.02% ( b ) Write of an uncollectible accounts Receivable weaken Current Ratio Purchase additional Capital Stock No effect on Current Ratio Pay Short term Notes Payable Strengthen Current Ratio Collect $2300 on Accounts Receivable No effect on Current Ratio Buy Equipment on Account No effect on Current Ratio , if it is a long term account payable otherwise, weaken Current Ratio Give an existing creditor a short termNote No effect on Current Ratio in settlement of accountRelated Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.