The financial statements for Castile Products, Inc., are given below: Account ba

Question

The financial statements for Castile Products, Inc., are given below:

Account balances at the beginning of the year were: accounts receivable, $160,000; and inventory, $340,000. All sales were on account.

Required:

Compute the following financial data and ratios:

1. Working capital.

2. Current ratio. (Round your answer to 1 decimal place.)

3. Acid-test ratio. (Round your answer to 2 decimal places.)

4. Debt-to-equity ratio. (Round your answer to 2 decimal places.)

5. Times interest earned ratio. (Round your answer to 2 decimal places.)

6. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)

7. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)

8. Operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)

Castile Products, Inc.
Balance Sheet
December 31 Assets Current assets: Cash $ 24,000 Accounts receivable, net 210,000 Merchandise inventory 310,000 Prepaid expenses 8,000 Total current assets 552,000 Property and equipment, net 910,000 Total assets $ 1,462,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 210,000 Bonds payable, 12% 300,000 Total liabilities 510,000 Stockholders’ equity: Common stock, $10 par value $ 170,000 Retained earnings 782,000 Total stockholders’ equity 952,000 Total liabilities and stockholders’ equity $ 1,462,000

Explanation / Answer

1). Working capital = Current Assets - Current Liabilities
= 552000- 210000 = 342000

2). Current Ratio = Current Assets/Current Laibilites
= 552000/210000= 2.6

3). Acid Test Ratio = Quick Assets/Current liabilities
= (24000+210000)/210000 = 1.11

4). Debt to Equity Ratio = Debt/Equity
=300000/952000 = 0.32

5). Times Interest earned ratio = Net Operating Income before Interest / Interest Expenses
= 865000/36000 = 24.03

6). Average Collection Period = 365 days/ Account Receivable Turnover Ratio
Account Receivable turnover ratio = Net Sales / Average Account Receivable
= 2775000/((160000+210000)/2) = 2775000/185000= 15
Average collectio period = 365/15 = 24.3

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