21BP_a Jim Short鈥檚 Company makes clot... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 21BP_a (page 81)

Jim Short鈥檚 Company makes clothing for schools. Sales in 20X1 were
$4,820,000. Assets were as follows:
Cash
$163,000
Accounts receivable
889,000
Inventory
411,000
New plant and equipment
520,000
Total assets
$1,983,000
a. Compute the following:
1. Accounts receivable turnover.
2. Inventory turnover.
3. Fixed asset turnover.
4. Total asset turnover.

Short Answer

Expert verified

Account receivable turnover	5.42
Inventory turnover	11.73
Fixed assets turnover	9.27
Total assets turnover	2.43

Step by step solution

Account receivable turnover

$\begin{array}{rcl} Account receivable turnover & = & \frac{Net credit sales}{Average accounts receivables} \\ = & \frac{$ 4, 820, 000}{$ 889, 000} \\ = & 5.42 \end{array}$

Inventory turnover

$\begin{array}{rcl} Inventory turnover & = & \frac{Sales}{Inventory} \\ = & \frac{$ 4, 820, 000}{$ 411, 000} \\ = & 11.73 \end{array}$

Fixed assets turnover

$\begin{array}{rcl} Fixed asset turnover & = & \frac{Sales}{Fixed assets} \\ = & \frac{$ 4, 820, 000}{$ 520, 000} \\ = & 9.27 \end{array}$

Total assets turnover

$\begin{array}{rcl} Total asset turnover & = & \frac{Sales}{Total assets} \\ = & \frac{$ 4, 820, 000}{$ 1, 983, 000} \\ = & 2.43 \end{array}$

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Current assets		Liabilities
Cash	\(15,000	Accounts payable	\)17,000
Accounts receivable	20,000	Notes payable	25,000
Inventory	30,000	Bonds payable	55,000
Prepaid expenses	12,500

Fixed assets		Stockholder鈥檚 equity
Plant and equipment (gross) Less: accumulated depreciation	\(255,000 51,000	Preferred stock	\)25,000
Net plant and equipment	\(204,000	Common stock	60,000
		Paid in capital	30,000
		Retained earnings	69,500
Total assets	\)281,500	Total liabilities and stockholder鈥檚 equity	\(281,500

SNIDER CORPORATION
Balance sheet
December 31, 20X1
Assets
Current assets:
Cash	\(52,200
Marketable securities	24,400
Accounts receivable (net)	222,000
Inventory	238,000
Total current assets	\)536,600
Investments	65,900
Plant and equipment	\(615,000
Less: accumulated depreciation	(271,000)
Net plant and equipment	\)344,000
Total assets	\(946,500
Liabilities and stockholder鈥檚 equity
Current liabilities:
Account payables	\)93,400
Notes payable	70,600
Accrued taxes	17,000
Total current liabilities	\(181,000
Long term liabilities:
Bonds payable	\)153,200
Total liabilities	\(334,200
Stockholder鈥檚 equity
Preferred stock, \)50 per value	\(100,000
Common stock, \)1 par value	80,000
Capital paid in excess of par	190,000
Retained earnings	242,300
Total stockholder鈥檚 equity	\(612,300
Total liabilities and stockholder鈥檚 equity	\)946,500

SNIDER CORPORATION
Income statement
For the year ending December 31, 20X1
Sales (on credit)	\(2,064,000
Less: cost of goods sold	1,313,000
Gross profit	\)751,000
Less: selling and administrative expenses	496,000*
Operating profit (EBIT)	\(255,000
Less: interest expenses	26,900
Earning before tax (EBT)	\)228,100
Less: taxes	83,300
Earning after taxes (EAT)	\(144,800

January	\)15,000
February	18,000
March	15,000
April	20,000

Retained earning	Bond payable
Accounts payable	Accrued wages payable
Prepaid expenses	Accounts receivable
Plant and equipment	Capital in excess of par
Inventory	Preferred stock
Common stock	Marketable security

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Short Answer

Step by step solution

Account receivable turnover

Inventory turnover

Fixed assets turnover

Total assets turnover

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Cash	\)163,000
Accounts receivable	889,000
Inventory	411,000
New plant and equipment	520,000
Total assets	$1,983,000