2008-10-20_113941_N2crit-1

2008-10-20_113941_N2crit-1 - RATIO ANALYSIS The condensed...

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RATIO ANALYSIS The condensed financial statements of Westward Corporation for 2006 are presented below. Westward Corporation Westward Corporation Balance Sheet Income Statement December 31, 2006 For the Year Ended December 31, 2006 Assets Revenues $2,000,000 Current assets Expenses Cash and temporary Cost of goods sold 1,080,000 investments $ 30,000 Selling and administrative Accounts receivable 70,000 expenses 495,000 Inventories 120,000 Interest expense 30,000 Total current assets 220,000 Total expenses 1,605,000 Property, plant, and Income before income taxes 395,000 equipment (net) 780,000 Income tax expense 140,000 Total assets $1,000,000 Net income $ 255,000 Liabilities and Stockholders' Equity Current liabilities $ 80,000 Long-term liabilities 300,000 Common stockholders' equity 620,000 Total liabilities and stockholders' equity $1,000,000 Additional data as of December 31, 2005: Inventory = $100,000; Total assets = $900,000; Common stockholders' equity = $540,000. Instructions Compute the following listed ratios for 2006 showing supporting calculations. (a) Current ratio = $220,000 / $80,000 = 2.75. (b) Debt to total assets = $380,000 / $1,000,000 = 0.38. (c) Times interest earned = ($255,000 + $30,000 + $140,000) / $30,000 = 14.17 (d) Inventory turnover = $1,080,000 / (($120,000 + $100,000)/2) = 10 . (e) Profit margin ratio = $255,000 / $2,000,000 = 12.75% (f) Return on common stockholders' equity = $255,000 / (($620,000 + $540,000)/2) = 43.97%. (g) Return on assets = $255,000 / (($1,000,000 + $900,000)/2) = 26.84%
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Internal Control Six internal control principles related to cash transactions are discussed in the textbook. These principles, with code letters, are: Code Internal Control Principle A Establishment of responsibility B Segregation of duties C Documentation procedures D Physical, mechanical, and electronic controls E Independent internal verification F Other controls Instructions Match the above principles to the following applications related to cash receipts and cash disbursements by placing the code in the space provided. Each code letter can be used once, more than once, or not at all. B 1. The duties of receiving and recording cash should be assigned to different individuals. E 2. Daily cash counts should be made by cashier department supervisors. F 3. Cash receipts should be deposited in bank in total daily. C 4. Cash register tapes should be used for over-the-counter receipts. E 5. Each check should be compared with approved invoices before being issued. B 6. The duties of approving an item for payment and paying the item should be performed by different individuals. C 7. All checks should be prenumbered. A 8. Only the treasurer should be authorized to sign checks. F
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This note was uploaded on 04/15/2011 for the course ACCT 200 taught by Professor Jonathansmith during the Spring '11 term at DeVry Oak Brook.

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2008-10-20_113941_N2crit-1 - RATIO ANALYSIS The condensed...

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