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Chapter 2: 21BP_b (page 81)

In 20X2, sales increased to \(5,740,000 and the assets for that year were as follows:

Cash

\)163,000

Accounts receivable

924,000

Inventory

1,063,000

New plant and equipment

520,000

Total assets

$2,670,000

Once again compute the four ratios

b. 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

6.21

Inventory turnover

5.40

Fixed assets turnover

11.04

Total assets turnover

2.15

Step by step solution

01

Account receivable turnover 

Accountreceivableturnover=NetcreditsalesAverageaccountsreceivables=$5,740,000$924,000=6.21

02

Inventory turnover 

Inventoryturnover=SalesInventory=$5,740,000$1,063,000=5.40

03

Fixed assets turnover 

Fixedassetturnover=SalesFixedassets=$5,740,000$520,000=11.04

04

Total assets turnover

Totalassetturnover=SalesTotalassets=$5,740,000$2,670,000=2.15

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Most popular questions from this chapter

Lemon Auto Wholesalers had sales of \(1,000,000 last year, and cost of goods sold represented 78 percent of sales. Selling and administrative expenses were 12 percent of sales. Depreciation expense was \)11,000 and interest expense for the year was \(8,000. The firm鈥檚 tax rate is 30 percent.

a. Compute earnings after taxes.

b. Assume the firm hires Ms. Carr, an efficiency expert, as a consultant. She suggests that by increasing selling and administrative expenses to 14 percent of sales, sales can be increased to \)1,050,900. The extra sales effort will also reduce cost of goods sold to 74 percent of sales. (There will be a larger markup in prices as a result of more aggressive selling.) Depreciation expense will remain at \(11,000. However, more automobiles will have to be carried in inventory to satisfy customers, and interest expense will go up to \)15,800. The firm鈥檚 tax rate will remain at 30 percent. Compute revised earnings after taxes based on Ms. Carr鈥檚 suggestions for Lemon Auto Wholesalers. Will her ideas increase or decrease profitability?

Given the following information, prepare an income statement for the Dental Drilling Company.

Selling and administrative expenses

$112,000

Depreciation expenses

73,000

Sales

489,000

Interest expenses

45,000

Cost of goods sold

156,000

Taxes

47,000

Explain how the Du Pont system of analysis breaks down return on assets. Also explain how it breaks down return on stockholders鈥� equity

Using the income statement for Times Mirror and Glass Co., compute the following ratios:

b. The fixed charge coverage.

Times mirror and glass company

Sales

\(126,000

Less: Cost of goods sold

93,000

Gross profit

\)33,000

Less: selling and administrative expenses

11,000

Lease Expenses

4,000

Operating profit*

\(18,000

Less: Interest expenses

3,000

Earning before taxes

\)15,000

Less: Taxes (30%)

4,500

Earning after taxes

$10,500

*equal income before interest and taxes

In January 2007, the Status Quo Company was formed. Total assets were \(544,000, of which \)306,000 consisted of depreciable fixed assets. Status

Quo uses straight-line depreciation of \(30,600 per year, and in 2007 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been \)29,000 per year each of the last 10 years. Other assets have not changed since 2007.

b. To what do you attribute the phenomenon shown in part a?
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