221_Solutions_B_Fa_05

221_Solutions_B_Fa_05 - Exercise B-15 a 1 Current ratio =...

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©Cambridge Business Publishers, 2006 Solutions Manual, Appendix B 1 Exercise B-15 a. 1. Current ratio = Current assets / Current liabilities 2008 = $750,000 / $525,000 = 1.43 2007 = $600,000 / $450,000 = 1.33 2. Acid test ratio = Cash + Accounts receivable + Marketable securities Current liabilities 2008 = ($750,000 - $375,000*) / $525,000 = 0.71 2007 = ($600,000 - $275,000*) / $450,000 = 0.72 *Current assets - Inventory (Cash, Accounts receivable, and Marketable securities are not given). 3. Inventory turnover = Cost of goods sold / Average inventory 2008 = $1,680,000 / ([$375,000 + $275,000]/2) = 5.17 times 2007 = $1,450,000 / ([$275,000 + $325,000]/2) = 4.83 times 4. Days receivables outstanding = Ending accounts receivables Average daily sales 2008 = $153,000 / ($1,850,000/365) = 30.19 days 2007 = $165,000 / ($2,000,000/365) = 30.11 days b. During 2008, York Company's short-term solvency remained substantially unchanged from 2007. Small improvements were noted in the current ratio and inventory turnover, whereas the acid test ratio and the number of days receivables outstanding were about the same as the previous year.
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©Cambridge Business Publishers, 2006 Solutions Manual, Appendix B 2 Exercise B-16 a. Times-interest-earned = Net income + Interest expense + Income taxes Interest expense = $1,899,450 + $1,475,300 + $50,250 $1,475,300 = $3,425,000 / $1,475,300 = 2.32 times b. Debt-to-equity ratio = Total liabilities / Total stockholders' equity = $600,000 / $250,000 = 2.40 Exercise B-17 a. 1. Asset turnover = Sales / Average total assets = $8,196,000 / ([$7,349,000 + $6,553,000]/2) = 1.179 times 2. Return on sales = (Net income + Interest expense) / Sales = ($619,000 + $115,000) / $8,196,000 = 0.090 or 9.0% 3. Return on assets = Net income + Interest expense Average total assets = ($619,000 + $115,000) ( $7,349,000 + $6,553,000)/2 = 0.106 or 10.6% 4. Return on equity = Net income / Average stockholders' equity = $619,000 / ([$3,624,000 + $3,221,000]/2) = 0.181 or 18.1% b. Nelox Corporation is using financial leverage because it has long-term debt outstanding. The leverage is positive because the return on equity is greater than the return on assets.
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