VERNON COMPANY Balance Sheets As of December 31 2019 2018 Assets Current assets

Question

VERNON COMPANY Balance Sheets As of December 31 2019 2018 Assets Current assets Cash Marketable securities Accounts receivable (net) Inventories Prepaid items s 24,500 20,500 7,700 50,000 151,000 21,700 58,000 143,000 27,000_12,000- Total current assets Investments Plant (net) Land 241,200 25,000 280,000 22,000 $628,200 568,200 274,200 32,000 295,000 27,000 Total assets Liabilities and Stockholders' Equity Liabilities Current liabilities s 35,200 10,200 90,000 26,000 20,000 120,200 Notes payable Accounts payable 103,800 Salaries payable Total current liabilities 165,000 Noncurrent 1iabilities Bonds payable Other 150,000 150,000 27,000 32,000 182,000 177,000- 347,000 Total noncurrent liabilities Total liabilities 297,200 Stockholders' equity Preferred stock, (par value $10, 5% cumulative, non-participating; 7,000 shares authorized and issued) Common stock (no par; 50,000 shares authorized; 10,000 shares issued) Retained earnings 70,000 70,000 -141/200_ 131,000 4611200271,000 70,000 70,000 Total stockholders' equity Total liabilities and stockholders' equity $628,200 $568,200

Explanation / Answer

Since, there are multiple parts to the question, I have answered the first 8 (a to h) with ratios for both the years.

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Part a)

The value of working capital for each year is calculated as below:

Working Capital = Total Current Assets - Total Current Liabilities

Using the values provided in the question, we get,

Working Capital (2019) = 274,200 - 165,000 = $109,200

Working Capital (2018) = 241,200 - 120,200 = $121,000

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Part b)

The current ratio for each year is determined as below:

Current Ratio = Total Current Assets/Total Current Liabilities

Using the values provided in the question, we get,

Current Ratio (2019) = 274,200/165,000 = 1.66

Current Ratio (2018) = 241,200/120,200 = 2.01

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Part c)

The value of quick ratio for each year is arrived as follows:

Quick Ratio = (Total Current Assets - Inventories - Prepaid Expenses)/Total Current Liabilities

Using the values provided in the question, we get,

Quick Ratio (2019) = (274,200 - 143,000 - 27,000)/165,000 = .63

Quick Ratio (2018) = (241,200 - 151,000 - 12,000)/120,200 = .65

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Part d)

The receivables turnover ratio for each year is calculated as below:

Receivables Turnover Ratio = Net Sales/Average Accounts Receivables (we are taking averages because we have been provided with the accounts receivables balance as on 1 January 2018)

where Average Accounts Receivable = (Opening Accounts Receivables + Closing Accounts Receivables)/2

Using the values provided in the question, we get,

Receivables Turnover Ratio (2019) = 400,000/((50,000 + 58,000)/2) = 7.41 times

Receivables Turnover Ratio (2018) = 380,000/((51,000 + 50,000)/2) = 7.52 times

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Part e)

The value of average days to collect accounts receivables is arrived as below:

Average Days to Collect Accounts Receivable = 365/Accounts Receivables Turnover Ratio

Using the values calculated in Part d in the above formula, we get,

Average Days to Collect Accounts Receivable (2019) = 365/7.41 = 49 days

Average Days to Collect Accounts Receivable (2018) = 365/7.52 = 49 days

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Part f)

The inventory turnover ratio for each year is calculated as below:

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory (we are taking averages because we have been provided with the inventory balance as on 1 January 2018)

where Average Inventory = (Opening Inventory + Closing Inventory)/2

Using the values provided in the question, we get,

Inventory Turnover Ratio (2019) = 200,000/((151,000 + 143,000)/2) = 1.36 times

Inventory Turnover Ratio (2018) = 154,000/((157,000 + 151,000)/2) = 1.00 times

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Part g)

The value of average days to sell inventory is deteremind as below:

Average Days to Sell Inventory = 365/Inventory Turnover Ratio

Using the values calculated in Part f in the above formula, we get,

Average Days to Sell Inventory (2019) = 365/1.66 = 220 days

Average Days to Sell Inventory (2018) = 365/1.00 = 365 days

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Part h)

The debt to assets ratio is calculated as follows:

Debt to Assets = Total Debt/Total Assets*100

Using the values calculated in Part f in the above formula, we get,

Debt to Assets (2019) = 347,000/628,200*100 = 55%

Debt to Assets (2018) = 297,200/568,200*100 = 52%

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