Question

Following is a comparative balance sheet for Summer Days Corporation:

Summer Days Corporation

Comparative Balance Sheet

December 31, 2019 and 2018

20192018

Current assets:

Cash$ 150,000$ 90,000

Short-term investments90,00080,000

Accounts receivable, net350,000220,000

Inventory400,000430,000

Prepaid expenses30,00030,000

Total current assets$1,020,000$ 850,000

Property, plant, and equipment, net750,000500,000

Other assets280,000300,000

Total assets$2,050,000$1,650,000

Current liabilities:

Short-term notes payable$650,000$670,000

Accounts payable200,000225,000

Total current liabilities$850,000$895,000

Non-current debt180,000220,000

Total liabilities$1,030,000$1,115,000

Shareholders' equity:

Common shares$500,000$500,000

Retained earnings410,00035,000

Total shareholders' equity$ 910,000$535,000

Total liabilities and shareholders' equity$2,140,000$1,650,000

Notes: Net sales (all on credit) and cost of goods sold for the year ended December 31, 2019, were $2,100,000 and $1,500,000, respectively. The number of common shares outstanding has been 50,000 since the company began operations.

Required:

Calculate the following ratios for the year ended December 31, 2019:

a. current ratio

b. acid-test ratio

c. inventory turnover

d. accounts receivable turnover

e. debt ratio

f. book value per common share of stock

Answer 1

Ans. A	Current ratio   =   Total current assets / Total current liabilities
		$1,020,000 / $850,000
		1.20 : 1
Ans. B	Acid test ratio   =   (Cash + Short term investments + Accounts receivable) / Total current liabilities
		($150,000 + $90,000 + $350,000) / $850,000
		$590,000 / $850,000
		0.69 : 1
	*Inventory and prepaid expenses are not the liquid assets so these are not included
	in the calculation of acid test ratio.
Ans. C	Inventory turnover = Cost of goods sold / Average Inventory
		$1,500,000 / $415,000
		3.61	times
	*Average inventory = (Beginning inventory + Ending inventory) / 2
		($430,000 + $400,000) / 2
		$415,000
Ans. D	Accounts receivable turnover = Net credit sales / Average receivables
		$2,100,000 / $285,000
		7.37 times
	*Average receivable = (Beginning receivables + Ending receivables) / 2
		($220,000 + $350,000) / 2
		$285,000
Ans. E	Debt ratio = Total liabilities / Total assets * 100
		$1,030,000 / $2,140,000 * 100
		48.13%
Ans. F	Book value per share =    Total common stockholder's equity / no. of shares outstanding
		$910,000 / 50,000
		$18.20	per share