Average collection period LO2 A firm has sales of 3 million and 10 percent of

# Average collection period lo2 a firm has sales of 3

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18.Average collection period (LO2) A firm has sales of \$3 million, and 10 percent of the sales are for cash. The year-end accounts receivable balance is \$285,000. What is the average collection period? (Use a 360-day year.)
23. Debt utilization ratios (LO2) The Lancaster Corporation’s income statement is given next. a . What is the times-interest-earned ratio? b . What would be the fixed-charge-coverage ratio? LANCASTER CORPORATION Sales .............................................................................. \$246,000 Cost of goods sold ......................................................... 122,000 Gross profit ................................................................... 124,000 Fixed charges (other than interest) ................................ 27,500 Income before interest and taxes ................................... 96,500 Interest ........................................................................... 21,800 Income before taxes ...................................................... 74,700 Taxes (35%) .................................................................. 26,145 Income after taxes ......................................................... \$ 48,555 3-23. Solution: Lancaster Corporation
a. Income before interest and taxes Times interested earned Interest \$96,500 21,800 4.43x b. Income before fixed charges and taxes Fixed charge coverage Fixed charges \$96,500 27,500 \$21,800 27,500 \$124,000 \$49,300 2.52x 24. Debt utilization and Du Pont system of analysis (LO3) Using the income statement for Times Mirror and Glass Co., compute the following ratios: a . The interest coverage. b . The fixed charge coverage. The total assets for this company equal \$80,000. Set up the equation for the Du Pont system of ratio analysis, and compute c, d , and e . c . Profit margin. d . Total asset turnover. e . Return on assets (investment). PASTE MANAGEMENT COMPANY Sales .............................................................................. \$126,000 Less: Cost of goods sold ............................................... 93,000 Gross profit ................................................................... 33,000 Less: Selling and administrative expense ..................... 11,000 Less: Lease expense ...................................................... 4,000 Operating profit* ........................................................... \$ 18,000 Less: Interest expense ................................................... 3,000
Earnings before taxes .................................................... \$ 15,000 Less: Taxes (30%) ......................................................... 4,500 Earnings after taxes ....................................................... \$ 10,500
*Equals income before interest and taxes. 3-24. Solution: Times Mirror and Glass Co. a. Income before interest and taxes Times interest earned Interest \$18,000 \$3,000 6x 3 -24. (Continued) b. Income before fixed charges and taxes Fixed charge coverage Fixed charges \$18,000 4,000 \$3,000 \$4,000 \$22,000 \$7,000 3.14x c. Net income Profit margin Sales \$10,500 \$126,000 8.33%
d. Sales Total asset turnover Total assets \$126,000 \$80,000 1.575x e. Net income Sales Return on assets (investments) Sales Total assets 8.33% 1.575x 13.12% 25. Debt utilization (LO2) A firm has net income before interest and taxes of \$193,000 and interest expense of \$28,100. a . What is the times-interest-earned ratio? b . If the firm’s lease payments are \$48,500, what is the fixed charge coverage? Chapter 4 28. Percent-of-sales method (LO3) The Manning Company has financial statements as shown next, which are representative of the company’s historical average.

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• Fall '08
• DALVI
• Finance, Balance Sheet, ........., Generally Accepted Accounting Principles, Earnings before Interest, Multi-Media Inc