Question: Kimmel, Accounting, 6e Problem 13-2A - Questions A-L Practice Problem
ID: 2585002 • Letter: Q
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Question: Kimmel, Accounting, 6e Problem 13-2A - Questions A-L
Practice Problem Set 1 The comparative statements of Sandhill Co. are presented here. SANDHILL CO. Income Statements For the Years Ended December 31 Compute the following ratios for 2017 (Round all answers to 2 decimal places, e.g. 1.83 or 1.83%.) 2017 2016 Net sales Cost of goods sold Gross profit Selling and administrative expenses Income from operations Other expenses and losses 1,896,740 1,064,740 832,000 506,200 325,800 1,756,700 1,012,200 744,500 485,200 259,300 (a) Earnings per share (b) Return on common stockholders' equity (c) Return on assets (d) Current ratio (e) Accounts receivable tumover (f) Average collection period (9) Inventory turnover 23,200 302,600 93,200 209,400 times days times days times times Interest expense Income before income taxes Income tax expense Net income 21,200 238,100 74,200 S 163,900 ) Days in inventory iTimes interest earned j) Asset turnover (k) Debt to assets ratio (1) Free cash flow SANDHILL cO. Balance Sheets December 31 Assets Current assets Cash Debt investments (short-term) Accounts receivable Inventory 60,100 64,200 50,000 109,000 127,200 116,700 385,300 339,900 664,000 535,300 $1,049,300 875,200 74,000 124,000 Total current assets Plant assets (net) Total assets Current liabilities Accounts payable 166,200 151,600 43,200 210,900 194,800 235,000 215,000 445,900 409,800 Income taxes payable 44,700 Total current liabilities Bonds payable Total liabilities Stockholders' equity 290,000 300,000 313,400 165,400 603,400 465,400 $1,049,300 $875,200 Common stock (S5 par) Retained earnings Total stockholders' equity Total liabilities and stackholders' equity All sales were on account. Net cash provided by operating activities for 2017 was $229,000 Capital expenditures were137,000, and cash dividends were $61,400.Explanation / Answer
a) Earning per share for 2017 = Net Income after tax/No. of common stock
No. of common stock = Total value of common stock/par value = $290,000/$5 = $58,000
Net Income after tax for 2017 = $209,400
Earning per share = $209,400/58,000 = $3.61 per share
b) Return on common stockholders equity = (net income available for common stockholders/Average common stockholders equity)*100
Net income available for common stockholders for 2017 = $209,400
Average common stockholders equity = Total common stockholders equity for 2017 and 2016/2
= ($603,400+$465,400)/2 = $534,400
Return on Common stockholders equity =($209,400/$534,400)*100 = 39.18%
c) Return on Assets =(Net Income/Average total assets)*100
Net Income = $209,400
Average Total Assets = Total assets for year 2017 and 2016/2 =($1,049,300+$875,200)/2
= $1,924,500/2 = $962,250
Return on Assets =($209,400/$962,250)/*100 = 21.76%
d) Current Ratio = Total Current Assets/Total Current Liabilities
Total Current Assets = $385,300
Total Current Liabilities = $210,900
Current Ratio = $385,300/$210,900 = 1.83:1
e) Accounts Receivable Turnover = Net credit sales/Average Accounts receivables
Net Credit Sales = Net sales of 2017 = $1,896,740
Average Accounts Receivables = Total Accounts Receivable of 2016 and 2017/2
=($124,000+$109,000)/2 = $116,500
Accounts Receivable Turnover = $1,896,740/$116,500 = 16.28 times
f) Average collection period = No. of days in year/Accounts receivable turnover
= 365 days/16.28 = 22.42 days
g) Inventory Turnover = Cost of goods sold/Average Inventory
Cost of goods sold = $1,064,740
Average Inventory = Total value of Inventory of 2017 and 2016/2
=($127,200+$116,700)/2 = $121,950
Inventory turnover = $1,064,740/$121,950 = 8.73 times
h) Days in Inventory = No. of days in year/Inventory turnover = 365 days/8.73 = 41.81 days
i) Times Interest Earned = Income before interest and income tax/Interest expenses
Income before interest and income tax of 2017 = $325,800
Interest expense = $23,200
Times Interest Earned = $325,800/$23,200 = 14.04 times
j) Asset Turnover = Net sales/Average total assets
Net sales = $1,896,740
Average Total Assets(from part c) = $962,250
Asset Turnover = $1,896,740/$962,250 = 1.97 times
k) Debts to Assets ratio =(Total Liabilities/Total assets)*100
=($445,900/$1,049,300)*100 = 42.49%
l) Free cash flow = Operating cash flows - Capital expenditure = $229,000-$137,000 = $92,000
Free cash flow after paying dividends = $92,000 - $61,400 = $30,600
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