Question

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The following questions pertain to Cline Custom Bikes income statement and balance sheet.  

Income Statement Cline Custom Bikes Income Statement ($000) For year ended December 31, 2000 $2,200 $1,420 $ 780 Sales revenue Less Cost of goods sold Gross profit Less operating expenses Selling expense G&A Depreciation Total operating expenses Operating profits Less interest expense Net profit before tax Less taxes (30%) Net profit after tax $300 $270 $ 30 $ 600 $ 180 $ 29 $ 151 $ 45 $ 106 Statement of Retained Earnings Retained Earnings balance (Jan 1 2000) Plus: net profit after tax (for 2000) Less cash dividends on common $ 80 106 (76) Retained Earnings balance (Dec 31, 2000) $ 110

A. What was their depreciation expense for 2000?

B. What were the current ratios for BOTH 1999 and 2000?

C. Was their current ratio for year 2000 better or worse compared to 1999 - a one word answer please!

D. What was their inventory turnover ratio of 2000?

E. What was the average collection period ( year 2000) for accounts receivable?

F. What was their marginal tax rate?

G. How many shares of common stock did they issue (sell) in year 2000?

H. What was their earnings per share?

I. How much did they pay in preferred stock dividends?

J. What was their "TIE" (times interest earned) ratio

Answer 1

A. Depreciation expense for 2000 = 30$ (Directly given in Income statement in the question)

B. Current Ratio = Current Assets / Current Liabilities

Current Ratio for 2000 = 820/520 = 1.58 times

Current Ratio for 1999 = 740/430 = 1.72 times

C. Worse (Current Ratio higher the better)

D. Inventory turnover for 2000 = Cost of goods sold / Average inventory = 1420/((460+320)/2) = 3.64 times

E. Calculation of Average Collection Period for 2000 :

Account Receivable Turnover Ratio = Credit sales / Average Accounts Receivables = 2200/((320+350)/2) = 6.57 times

Average Collection period = 365 days / Account Receivable Turnover Ratio = 365/6.57 = 55.55 days

F. Marginal Tax rate = Income tax expense / Net profit before tax = 45/151 = 29.8% (Since no other information regarding income tax expense or tax slabs is given, we have to calculate marginal tax rate using the figures given in the Income statement)

G. They did not issue any common stock in the year 2000.

H. EPS = Net profit after tax / No. of shares = 106,000/500,000 = 0.212

I. Dividend paid in preferred stock = Total divident paid *(Preferred capital / Total capital) = 76,000 *(150,000/250,000) = 45,600 $

J. Times interest earned ratio = EBIT/Interest expense = 180/29 = 6.21 times