Compute selected ratios. LO 2) E18-7 Frizell Company has the following comparati

Question

Compute selected ratios. LO 2) E18-7 Frizell Company has the following comparative balance sheet data. FRIZELL COMPANY Balance Sheets December 31 2017 2016 Accounts receivable (net) Inventory Plant assets (net) 15,000 70,000 60,000 200,000 $345,000 S 30,000 60,000 50,000 180,000 $320,000 Accounts payable Mortgage payable (696) Common stock, $10 par Retained earnings $ 50,000 100,000 140,000 55,000 $345,000 60,000 100,000 120,000 40,000 $320,000 Additional information for 2017: 1. Net income was $25,000. 2. Sales on account were $410,000. Sales returns and allowances were $20,000. 3. Cost of goods sold was Instructions Compute the following ratios at December 31, 2017. (a) Current ratio. (b) Acid-test ratio. (d) Inventory turnover E18-8 Selected comparative statement data for Queen Products Company are presented below. All balance sheet data are as of December 31. (c) Accounts receivable turnover Compute selected ratios (LO 2) 2017 $750,000 2016 Net sales Cost of goods sold Interest expense Net income Accounts receivable Inventory Total assets 480,000$720,000 5,000 42,000 100,000 75,000 500,000 440,000 7,000 45,000 120,000 85,000 580,000

Explanation / Answer

a..current ratio = current assets / current liabilities

here,

considering 2017 data

current assets = cash + accounts receivable + inventory

=>$15,000 + $70,000 + $60,000

=>$145,000.

current liabilities = accounts payable............(no other current liabilities are present)

=>$50,000.

now,

current ratio = $145,000 / $50,000

=>2.9.

b. acid test ratio = (current assets - inventory) / current liabilities

=>($145,000 - 60,000) / 50,000

=>1.7.

c.Accounts receivable turnover ratio = (net credit sales ) / average accounts receivable

here,

net credit sales = sales on account - sales returns and allowances

=>$410,000 - $20,000

=>$390,000.

avereage accounts receivable = (opening accounts receivable + closing accounts receivable) / 2

=>($70,000 + 60,000)/2

=>$65,000.

accounts receivable turnover = $390,000 / $65,000

=>6.

d.Inventory turnover = cost of goods sold / average inventory

here,

cost of goods sold = $198,000

average inventory = (60,000 + 50,000) / 2

=>$110,000/2

=>$55,000.

inventory turnover = $198,000 / 55,000

=>3.6.

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