Chapter 16 Assignment

On January 1, James Company reported total current assets of $658,000 and total current liabilities of $365,000. During the year, James purchased $2,000 worth of equipment for cash, paid $560 towards salaries, and borrowed $80,000 from its bank to be repaid after 5 years. How much working capital does the company have as of December 31?

$370,440 Working capital = current assets - current liabilities = ($658,000 − $2,000 − $560 + $80,000) − $365,000 = $735,440 − $365,000 = $370,440

Match the term and the definition. 1. Measures how quickly credit sales are converted into cash. 2. Computed as 365 days divided by the accounts receivable turnover ratio. 3. Measures the elapsed time from when inventory is received from suppliers to when cash is received from customers.

1. Accounts Receivable Turnover Ratio 2. Average Collection Period 3. Operating Cycle

Match the term with the definition. 1.May provide some assurance that the company can pay its creditors in full and on time. 2.Should be interpreted with care. 3.Computed by dividing quick assets by current liabilities.

1. Working capital 2. Current Ratio 3. Acid-Test Ratio

Mark Company's balance sheet reported total assets of $754,000, which include: cash, $48,000; accounts receivable, $130,000; land, $200,000; inventory, $220,000; short-term notes receivable, $150,000; and prepaid expenses, $6,000. Total liabilities amounted to $408,000, which include: accounts payable, $230,000; short-term notes payable, $10,000; unearned revenue, $8,000; and long-term liabilities, $160,000. What was the company's acid-test ratio.

1.32 Acid test ratio is computed by dividing the quick assets by the current liabilities. Quick assets exclude inventories and prepaid expenses from current assets, leaving only the assets that can be quickly liquidated. Therefore, the acid test ratio = ($48,000 + $130,000 + $150,000) divided by $248,000 = $328,000÷$248,000 = 1.32

At the beginning of the year, Carson Company reported total current assets of $658,000 and total assets of $2,450,000. Carson reported sales of $6,000,000 for the year. At the end of the year, Carson reported total current assets of $790,000 and total assets of $2,800,000. What was the company's the total asset turnover?

2.29 Total asset turnover = Sales ÷ Average total assets Average total assets = ($2,450,000 + $2,800,000) ÷ 2 = $2,625,000 Total asset turnover = $6,000,000 ÷ $2,625,000 = 2.29

Coastal Company's balance sheet reported total assets of $473,000, which include: cash, $35,000; accounts receivable, $150,000; land, $100,000; inventory, $180,000; and prepaid expenses, $8,000. Total liabilities amounted to $244,000, which include: accounts payable, $130,000; short-term notes payable, $8,000; unearned revenue, $6,000; and long-term liabilities, $100,000. What was the company's the current ratio?

2.59 Current ratio = current assets divided by current liabilities = ($35,000 + $150,000 + $180,000 + $8,000) divided by ($130,000 + $8,000 + $6,000) = $373,000 ÷ $144,000 = 2.59

Micro Manufacturing Company's sales revenue amounted to $1,880,000 during the year. Cost of goods sold as a percentage of sales was 30%. Beginning inventory balance was $125,000 and ending inventory balance was $165,000. What was the company's inventory turnover ratio for the year?

3.89 Inventory turnover ratio = Cost of goods sold + Average inventory balance Average inventory balance = ($125,000 + $165,000) ÷ 2 = $145,000Inventory turnover ratio = $564,000 + $145,000 = 3.89

Modern Textiles Company sold $2,500,000 worth of goods during the year, out of which $550,000 were cash sales. Accounts receivable at the beginning of the year amounted to $225,000 and $265,000 at the end of the year. The company's accounts receivable turnover was 7.96. Assuming 365 days a year, what was the company's average collection period for the year?

46 days Average collection period = 365 days ÷ Accounts receivable turnoverAccounts receivable turnover = 365 ÷ 7.96 = 46 days

If Year 1 is the base year, what is the percentage increase in sales from Year 1 to Year 3?

60% Percentage increase from Year 1 to Year 3 = ($960,000 - $600,000) ÷ $600,000 = 0.6 = 60%

Kelly Inc. sold $930,000 worth of goods during the year, out of which $820,000 was on credit. Accounts receivable at the beginning of the year amounted to $95,000 and $115,000 at the end of the year. What was the company's accounts receivable turnover for the year?

7.81 Accounts receivable turnover = Credit sales ÷ Average accounts receivable balance Average accounts receivable balance = ($95,000 + $115,000) ÷ 2 = $105,000Accounts receivable turnover = $820,000 ÷ $105,000 = 7.81

Micro Manufacturing Company's sales revenue amounted to $4,400,000 during the year. Cost of goods sold as a percentage of sales was 35%. Beginning inventory balance was $360,000 and ending inventory balance was $345,000. The company's inventory turnover was 4.37 for the year. Assuming 365 days a year, what was the company's average sale period for the year?

83.52 days Average sale period = 365 days ÷ Inventory turnover. Average sale period = 365 days ÷ 4.37 = 83.52 days

Which of the following is not a reason why managers use financial statement analysis?

Estimates stock price appreciation.

A Common-Size income statement expresses items as a percentage of?

Net Sales

Which of the following is not a limitation of financial statement analysis?

Providing trends of accounting information Correct

From the horizontal analysis prepared using the income statements of Wilson Corporation, the cost of goods sold _____ in Year 2.

increased by 17.4% Change in cost of goods sold = ($27,000 - $23,000) ÷ $23,000 = 0.1739 = 17.4%