Question

294 Chapter 5 The Mantle Inn commenced operation the Inn's financial condition. Bala Problem 21 un commenced operations on lanuary 1, 20X1. and has been operating for two years. Assume that you are the new assistant manager and denne desire to gain some insight into s nhancial condition, Balance sheets and condensed income statements for the first two years are as follows: Balance Sheets Mantle Inn December 31, 20X1 and 20x2 Assets 20X1 20X2 Current Assets: $ Cash 10,000 $ 15,000 Marketable Securities 50,000 55,000 Accounts Receivable 60,000 Inventories 10,000 12.000 Total Current Assets 75,000 137,000 Property and Equipment: Land 100,000 100,000 Building (net) 1,950,000 1,900,000 Furniture & Equipment (net) 240,000 200,000 Total Property & Equipment 2,290,000 2,200,000 Total Assets $2,365,000 $2,337,000 $ 55,000 1,300,000 1,355,000 $ 60,000 1,250,000 1,310,000 Liabilities and Owners' Equity Current Liabilities Long-Term Debt Total Liabilities Owners' Equity Common Stock Retained Earnings Total Owners' Equity Total Liabilities and Owners' Equity 1,000,000 10,000 1,010,000 $2,365,000 1,000,000 27,000 1,027,000 $2,337,000 Condensed Income Statements Mantle Inn For the years ended December 31, 20X1 and 20X2 20X1OSTO 20X2 Sales $1,200,000 $1,400,000 Operated Department Expense 620,000 700,000 Operated Department Income 580,000 Undistributed Operating Expenses 700,000 380,000 400,000 Gross Operating Profit 200,000 Non-Operating Expenses 300,000 185,000 Income Taxes 200,000 Net Income 5,000 45,000 $ 10,000 $ 55,000

Answer 1

Answer:  

1		20X1	20X2
a.Current Ratio = Current Assets / Current Liabilities
Current Assets:	Cash	10,000.00	15,000.00
	Marketable Securities	-	50,000.00
	Accounts Receivable	55,000.00	60,000.00
	Inventories	10,000.00	12,000.00
		75,000.00	137,000.00
	Current Liabilities	55,000.00	60,000.00
	Current Ratio =	1.36	2.28
b.Solvency Ratio = (Net Income + Depreciation) / (Short term debt + Long term debt)
	Net Income	10,000.00	55,000.00
	Depreciation or non operating expenses	185,000.00	200,000.00
	Net Income + Depreciation	195,000.00	255,000.00
	Short term Debt (STD)	55,000.00	60,000.00
	Long term debt (LTD)	1,300,000.00	1,250,000.00
	STD + LTD	1,355,000.00	1,310,000.00
	Solvency Ratio =	14.39%	19.47%
c.Profit Margin = Net Profit / sales *100	Net Income	10,000.00	55,000.00
	Sales	1,200,000.00	1,400,000.00
	Profit Margin =	0.83%	3.93%
d.Operating Efficiency = Operating Expenses / Net Sales
	Operating Expense	1,000,000.00	1,100,000.00
	Net Sales	1,200,000.00	1,400,000.00
	Operating efficiency =	83.33%	78.57%
2
a.Property & equipment turnover ratio =	Turnover / Property & Equipment
	Turnover=		1,400,000.00
	Property & Equipment		2,200,000.00
	Property & equipment turnover ratio =		0.64
b.Total Asset Turnover ratio	Turnover / Total Assets
	Turnover=		1,400,000.00
	Total Assets =		2,337,000.00
	Total Asset Turnover ratio		0.60
c.Account receivable turnover ratio	Credit sales / Average Accounts Receivable
	Credit sales =		1,400,000.00
	Average Accounts receivable = 55000+60000/2		57,500.00
	Account receivable turnover ratio =		24.35
d.Number of days accounts receivable outstanding	Accounts Receivable / Credit sales * 365
	Accounts Receivable		60,000.00
	Credit sales =		1,400,000.00
	Number of days accounts receivable outstanding		15.64
e.Return on total asset	Net Income / Average Total Asset
	Net Income =		55,000.00
	Average Total Assets = (2365000+2337000)/2		2,351,000.00
	Return on total asset		2.34%
f.Return on owner equity =	Net Income / Equity
	Net Income =		55,000.00
	Owners Equity =		1,027,000.00
	Return on owner equity =		5.36%