The 2015 income statement of Adrian Express reports sales of $16,932,000, cost o
ID: 2482311 • Letter: T
Question
The 2015 income statement of Adrian Express reports sales of $16,932,000, cost of goods sold of $10,363,500, and net income of $1,630,000. Balance sheet information is provided in the following table. ADRIAN EXPRESS Balance Sheet December 31, 2015 and 2014 2015 2014 Assets Current assets: Cash $ 630,000 $ 790,000 Accounts receivable 1,460,000 1,030,000 Inventory 1,860,000 1,430,000 Long-term assets 4,830,000 4,270,000 Total assets $ 8,780,000 $ 7,520,000 Liabilities and Stockholders' Equity Current liabilities $ 1,990,000 $ 1,690,000 Long-term liabilities 2,330,000 2,430,000 Common stock 1,970,000 1,970,000 Retained earnings 2,490,000 1,430,000 Total liabilities and stockholders' equity $ 8,780,000 $ 7,520,000 Industry averages for the following four risk ratios are as follows: Average collection period 25 days Average days in inventory 60 days Current ratio 2 to 1 Debt to equity ratio 50% Required: 1. Calculate the four risk ratios listed above for Adrian Express in 2015. (Use 365 days in a year. Round your answers to 1 decimal place.)Explanation / Answer
Average collection period
= [(average accounts receivable) x 365 days] / Net credit sales
= [$((1460000+1030000)/2)x365 days] / $16932000
= 26.84 days
Average days in inventory
= [(average inventory) x 365 days] / cost of goods sold
= [$((1860000+1430000)/2)x365 days] / $10363500
=57.94 days
Current ration
= Current Assets / Current Liabilities
= (Cash +Accounts receivable + Inventory ) / current liabilities
= (630000 + 1460000+186000)/1990000
= 1.98
Debt to equity
= total debt / total equity
= (current liabilities + long term liabilities) / (common stock + retained earnings)
= (1990000+2330000) / (1970000+2490000)
= 96.86%
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