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Sheridan Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.Sheridan Medical
Comparative Balance Sheet
As of December 31 2016 2015 Assets Current assets Cash $393,000 $417,450 Accounts receivable, net 1,087,000 776,450 Inventory 750,000 681,000 Other current assets 381,400 247,100 Total current assets 2,611,400 2,122,000 Property, plant, & equipment, net 8,651,745 8,439,865 Total assets $11,263,145 $10,561,865 Liabilities and Stockholders’ Equity Current liabilities $3,203,000 $2,846,000 Long-term debt 3,702,650 3,892,650 Total liabilities 6,905,650 6,738,650 Preferred stock, $5 par value 59,000 58,950 Common stock, $0.25 par value 104,650 103,850 Retained earnings 4,193,845 3,660,415 Total stockholders’ equity 4,357,495 3,823,215 Total liabilities and stockholders’ equity $11,263,145 $10,561,865 Sheridan Medical
Comparative Income Statement and Statement of Retained Earnings
For the Year 2016 2015 Sales revenue (all on account) $10,177,200 $9,614,000 Cost of goods sold 5,613,200 5,298,750 Gross profit 4,564,000 4,315,250 Operating expenses 2,840,200 2,634,200 Net operating income 1,723,800 1,681,050 Interest expense 300,400 308,600 Net income before taxes 1,423,400 1,372,450 Income taxes (30%) 427,020 411,735 Net income $996,380 $960,715 Dividends paid Preferred dividends 29,500 29,550 Common dividends 433,450 413,050 Total dividends paid 462,950 442,600 Net income retained 533,430 518,115 Retained earnings, beginning of year 3,660,415 3,142,300 Retained earnings, end of year $4,193,845 $3,660,415
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Explanation / Answer
Answer of Part 1-a:
Working Capital = Current Assets – Current Liabilities
Working Capital =$2,611,400 - $3,203,000
Working Capital = -$591,600
Answer of Part 1-b:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $2,611,400 / $3,203,000
Current Ratio = 0.82:1
Answer of Part 1-C:
Acid Test Ratio = (Current Assets – Inventory) / Current Liabilities
Acid Test Ratio = ($2,611,400 - $750,000) / $3,203,000
Acid Test Ratio = $1,861,400 / $3,203,000
Acid Test Ratio = 0.58:1
Answer of Part 1-d:
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) /2
Average Accounts Receivable = ($776,450 + $1,087,000) /2
Average Accounts Receivable = $1,863,450 /2
Average Accounts Receivable = $931,725
Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $10,177,200 / $931,725
Accounts Receivable Turnover = 10.92 times
Answer of Part 2-a:
Average Collection Period = 365 days / Accounts Receivable Turnover
Average Collection Period = 365 / 10.92
Average Collection Period = 33 days
Answer of Part 2-b:
Average Inventory = (Beginning Inventory + Ending Inventory) /2
Average Inventory = ($681,000 + $750,000) /2
Average Inventory = $1,431,000 /2
Average Inventory = $715,500
Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $5,613,200 / $715,500
Inventory Turnover =7.85 times
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