Sheridan Medical manufactures hospital beds and other institutional furniture. T

Question

Sheridan Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.

a) 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.)

Sheridan Medical
Comparative Balance Sheet
As of December 31 2016 2015 Assets Current assets   Cash $391,000 $417,400   Accounts receivable, net 1,018,000 776,500   Inventory 720,000 681,050   Other current assets 381,350 247,050 Total current assets 2,510,350 2,122,000 Property, plant, & equipment, net 8,717,185 8,440,050   Total assets $11,227,535 $10,562,050 Liabilities and Stockholders’ Equity Current liabilities $3,167,000 $2,846,100 Long-term debt 3,702,600 3,892,700   Total liabilities 6,869,600 6,738,800 Preferred stock, $5 par value 58,950 58,950 Common stock, $0.25 par value 104,650 103,900 Retained earnings 4,194,335 3,660,400   Total stockholders’ equity 4,357,935 3,823,250   Total liabilities and stockholders’ equity $11,227,535 $10,562,050

Explanation / Answer

a. Working capital = Current assets - current liabilities
= $2,510,350 - $3,167,000
= ($656,650)

b. Current ratio= Current assets / current liabilities
= $2,510,350 / $3,167,000
= 79.27%

c. Acid-test ratio = (Current assets - Inventory) / current liabilities
= ($2,510,350 - $720,000) / $3,167,000
= 56.53%

d. Accounts receivable turnover = Credit sales / Average account receivables
= $10,177,250 / ($1,018,000 + $776,500) / 2
= 11.34 times  

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