Great Adventures Problem 12-1 [The following information applies to the question

Question

Great Adventures Problem 12-1

[The following information applies to the questions displayed below.]

Income statement and balance sheet data for Great Adventures, Inc., are provided below.

As you can tell from the financial statements, 2020 was an especially busy year. Tony and Suzie were able to use the $1.2 million received from the issuance of 100,000 shares of stock to hire a construction company for $1 million to build the cabins, dining facilities, ropes course, and the outdoor swimming pool. They even put in a baby pool to celebrate the birth of their firstborn son, little Venture Matheson. Assume all sales and services are on credit.

1.

Great Adventures Problem 12-1 Part 2

2. Calculate the following profitability ratios for 2020. (Round your answers to 1 decimal place.)

Great Adventures Problem 12-1 Part 1

Required:

1. Calculate the following risk ratios for 2020. (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.)

GREAT ADVENTURES, INC.
Income Statement
For the Year Ended December 31, 2020   Revenues:      Service revenue (clinic, racing, TEAM) $543,000      Sales revenue (MU watches) 118,000         Total revenues $661,000   Expenses:      Cost of goods sold (MU watches) 70,000      Operating expenses 304,276      Depreciation expense 50,000      Interest expense 29,724      Income tax expense 57,000                  Total expenses 511,000   Net income $150,000

Explanation / Answer

Profitability ratios: a Gross profit ratio (on MU watches) Gross profit / Sales = (118000 - 70000) / 118000 = 48000 / 118000 40.7 % b Return on Assets Net income / Average total assets = 150000 / 1062431 14.1 % Average total assets = (237750 + 1887112) / 2 = 1062431 c Profit Margin Net income / Sales = 150000 / 661000 22.7 % d Asset Turnover Sales / Average total assets = 661000 / 1062431 = 0.6 times e Return on Equity Net income / Average stockholders' equity = 150000 / 742500 20.2 % Average stockholders' equity = (160000 + 1325000) / 2 = 742500 Risk ratios: A Receivables turnover ratio Sales / Average Accounts receivable 661000 / 40000 16.5 times Average Accounts receivable = (35000 + 45000) / 2 = 40000 B Average collection period 365 days / Receivables turnover ratio = 365 / 16.5 22.1 days C Inventory turnover Cost of goods sold / Average inventory = 70000 / 15500 4.5 times Average inventory = (14000 + 17000) / 2 = 15500 D Average days in inventory 365 days /Inventory turnover ratio = 365 / 4.5 81.1 days E Current ratio Current Assets / Current Liabilities = 397362 / 69750 5.7 to 1 F Acid test ratio (CA - Inventory)/CL = (322362 + 45000) / 69750 = 367362 / 69750 5.3 to 1 G Debt to equity ratio Total debt / Total stockholders' equity = 562112 / 1325000 42.4 % H Times interest earned Profit before interest & tax / Interest = (150000 + 29724 + 57000) / 29724 8.0 times

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