Chapter 17 HWK Hide or show questions eBook Calculator Measures of liquidity, So

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Chapter 17 HWK

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Measures of liquidity, Solvency and Profitability

The comparative financial statements of Stargel Inc. are as follows. The market price of Stargel common stock was $119.70 on December 31, 20Y2.

Required:

Determine the following measures for 20Y2, rounding to one decimal place, except dollar amounts which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

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Stargel Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 20Y2 and 20Y1     20Y2     20Y1 Retained earnings, January 1 $5,375,000 $4,545,000 Net income 900,000 925,000 Total $6,275,000 $5,470,000 Dividends: Preferred stock dividends $45,000 $45,000 Common stock dividends 50,000 50,000 Total dividends $95,000 $95,000 Retained earnings, December 31 $6,180,000 $5,375,000

Explanation / Answer

1. Working capital = Current assets-current liabilities

= 3690000-900000

Working capital = 2790000

2. Current ratio = Current assets/current liabilities

= 3690000/900000

Current ratio = 4.1 times

3. Quick ratio = (Current assets-inventories-prepaid exp)/Current liabilities

= (3690000-1190000-250000)/900000

Quick ratio = 2.5 Times

4. Account receivable turnover = Credit sales/average receivable

= 10000000/(740000+510000/2)

Account receivable turnover = 16 Days

5. Number of days' sales in receivables = 365/Account receivable turnover

= 365/16

Number of days' sales in receivables = 22.8 days

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