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only question b please. PRIOR COMPANY BALANCE SHEET Cash Accounts Receivables (net) Short Term Investments Inventory...


PRIOR COMPANY BALANCE SHEET Cash Accounts Receivables (net) Short Term Investments Inventory Prepaid expenses Total Current A
1) Current ratio = Current Asset/ Current liability ==> 773000/240000 ==> 3.22 times 2) Acid test ratio = (Total Current Asse
only question b please.
PRIOR COMPANY BALANCE SHEET Cash Accounts Receivables (net) Short Term Investments Inventory Prepaid expenses Total Current Assets Property, plant and Equipment (net) Total Assets Current Liabilities Bonds Payable Common stockholder's equity Total liabilities and stockholder's equity Dec. 31 2017 $ 52,000 198,000 80,000 440,000 3,000 $ 773,000 857,000 $ 1,630,000 240,000 400,000 990,000 $ 1,630,000 Dec 31 2016 $ 60,000 80,000 40,000 360,000 7,000 $ 547,000 853,000 $ 1.400,000 160,000 400,000 840.000 $1,400,000 INCOME STATEMENT FOR THE YEAR ENDED 2017 Sales Revenue Cost of goods sold Gross Profit Selling and administrative expenses Interest expenses Net Income $ 1,640,000 (800,000) 840,000 (440,000) (40,000) $ 360,000 Instructions: (a) Determine the following for 2017 (1) Current Ratio at December 31 (2) Acid-test ratio at December 31 (3) Accounts receivables turnover. (4) Inventory turnover. (5) Return on assets. (6) Profit margin on sales. (b) Prepare a brief evaluation of the financial condition of Prior Company and the adequacy of profits.
1) Current ratio = Current Asset/ Current liability ==> 773000/240000 ==> 3.22 times 2) Acid test ratio = (Total Current Asset - Inventory prepaid expense) / Current liability ==> ( 773000 - 440000 - 3000)/240000 ==> 1.375times Or, ( Cash + Account Receivables + Short teem investment)/ Current liability ==> (52000 + 198000 + 80000)/240000 ==> 1.375 times 3) Account receivables Turnover = Net credit Sales/ Average account receivable Since, no cash sales and credit sale bifurcation is given we are assuming Total Sales = Credit sales. Net credit sales = $1640000 Average Account receivables= (Opening Receivables+ Closing Receivables)/2 = ($80000 + $198000)/2 = $139000 Putting values in formula, = 1640000/139000 = 11.7985 times 4) Inventory turnover ratio= Cost of goods sold/ Average Inventory Average inventory = (opening Inventory + closing inventory)/2 =(360000+440000)/2 = 400000 Putting values in formula, = 800000/400000 = 2 times 5) Return on Assset = Net incomeAverage Total Asset 360000/[(1630000+1400000)/2] 360000/1515000 =0.2376 times 6) Profit margin on sales = Net Income Sales *100 = 360000/1640000*100 = 21.9512% =
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