Calculate the following liquidity ratios for 2016. (If working capital is negati
ID: 2536738 • Letter: C
Question
Calculate the following liquidity ratios for 2016. (If working capital is negative then enter with a negative sign preceding the number or parentheses, e.g. -15,000 or (15,000). Round all answers except working capital to 2 decimal places, e.g. 2.55.)
Calculate the following liquidity ratios for 2016. (Round average collection period to 0 decimal place, e.g. 25 and inventory turnover ratio to 2 decimal places, e.g. 5.12. Use 365 days for calculation.)
Carla Vista Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.Carla Vista Medical
Comparative Balance Sheet
As of December 31 2016 2015 Assets Current assets Cash $399,000 $417,400 Accounts receivable, net 1,082,000 776,400 Inventory 738,000 681,000 Other current assets 381,300 247,100 Total current assets 2,600,300 2,121,900 Property, plant, & equipment, net 8,619,910 8,440,065 Total assets $11,220,210 $10,561,965 Liabilities and Stockholders’ Equity Current liabilities $3,159,000 $2,846,000 Long-term debt 3,702,700 3,892,700 Total liabilities 6,861,700 6,738,700 Preferred stock, $5 par value 58,900 58,950 Common stock, $0.25 par value 104,600 103,850 Retained earnings 4,195,010 3,660,465 Total stockholders’ equity 4,358,510 3,823,265 Total liabilities and stockholders’ equity $11,220,210 $10,561,965 Carla Vista Medical
Comparative Income Statement and Statement of Retained Earnings
For the Year 2016 2015 Sales revenue (all on account) $10,177,200 $9,613,900 Cost of goods sold 5,611,750 5,298,700 Gross profit 4,565,450 4,315,200 Operating expenses 2,840,300 2,634,100 Net operating income 1,725,150 1,681,100 Interest expense 300,300 308,650 Net income before taxes 1,424,850 1,372,450 Income taxes (30%) 427,455 411,735 Net income $997,395 $960,715 Dividends paid Preferred dividends 29,500 29,550 Common dividends 433,350 413,100 Total dividends paid 462,850 442,650 Net income retained 534,545 518,065 Retained earnings, beginning of year 3,660,465 3,142,400 Retained earnings, end of year $4,195,010 $3,660,465
Explanation / Answer
Answer
1.
a.
Working Capital = Total Current Assets – Total Current Liabilities
= $2,600,300 - 3,159,000
Working Capital = ($558,700)
b.
Current Ratio = Current Assets / Current Liabilities
= $2,600,300 / $3,159,000
Current Ratio = 0.82 times
c.
Acid test ratio = Quick Assets / Current Liabilities
= (Current Assets – Inventory) / Current Liabilities
= ($2,600,300 – 738,000) / 3,159,000
Acid test ratio = 0.59 times
d.
Average Accounts Receivables = (Opening Accounts Receivable + closing Accounts Receivable) / 2
= (776,400 + 1,082,000) / 2
Average Accounts Receivables = $929,200
Accounts Receivable turnover = Net credit sales / Average Trade Receivables
= $10,177,200 / 929,200
Accounts Receivable turnover = 10.95 Times
2.
Average Collection Period = 365 Days / Accounts Receivable turnover Ratio
= 365 / 10.95 times
Average Collection Period = 33.33 Days
Inventory Turnover ratio = Cost of Goods Sold / Average Inventory
= Cost of Goods Sold / [(Opening Inventory + Closing Inventory) / 2]
= $5,611,750 / [(681,000 + 738,000) / 2]
= $5,611,750 / 709,500
= 7.909
Inventory Turnover ratio = 7.91 Times
Average day to sell Inventory = 365 Days / Inventory Turnover ratio
= 365 days / 7.91
Average day to sell Inventory = 46.14 Days
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